ICLG The International Comparative Legal Guide to: Vertical Agreements and Dominant Firms 2018 2nd Edition

A practical cross-border insight into vertical agreements and dominant firms

Published by Global Legal Group, in association with CDR, with contributions from:

Ali Budiardjo, Nugroho, Reksodiputro Gorrissen Federspiel ALRUD Law Firm HLG Avocats Barun Law LLC Johnson Winter & Slattery Blake, Cassels & Graydon LLP Kennedy Van der Laan Callol, Coca & Asociados, SLP KK Sharma Law Offices DDPV Studio Legale Lee & Lee DeHeng Law Offices Nagashima Ohno & Tsunematsu Dickson Minto Noerr LLP ELIG Gürkaynak Attorneys-at-Law Paul, Weiss, Rifkind, Wharton & Garrison LLP Fourgoux-Djavadi&Associés Pinheiro Neto Advogados The International Comparative Legal Guide to: Vertical Agreements and Dominant Firms 2018

Country Question and Answer Chapters:

1 Australia Johnson Winter & Slattery: Sar Katdare & Virginia Jenkins 1

2 Brazil Pinheiro Neto Advogados: Leonardo Rocha e Silva & 8 Contributing Editor Charles F. (Rick) Rule, Daniel Costa Rebello Paul, Weiss, Rifkind, Wharton & Garrison LLP 3 Canada Blake, Cassels & Graydon LLP: Randall Hofley & Evangelia Litsa Kriaris 15 Sales Director Florjan Osmani Account Director 4 China DeHeng Law Offices: Ding Liang 22 Oliver Smith Sales Support Manager Toni Hayward 5 Denmark Gorrissen Federspiel: Martin André Dittmer & Kristian Helge Andersen 31 Sub Editor Amy Norton 6 European Union Fourgoux-Djavadi&Associés: Jean-Louis Fourgoux & Leyla Djavadi 38 Senior Editors Suzie Levy Caroline Collingwood 7 France HLG Avocats: Helen Coulibaly-Le Gac 44 CEO Dror Levy 8 Germany Noerr LLP: Peter Stauber & Robert Pahlen 51 Group Consulting Editor Alan Falach Publisher 9 India KK Sharma Law Offices: KK Sharma 63 Rory Smith Published by 10 Indonesia Ali Budiardjo, Nugroho, Reksodiputro: Chandrawati Dewi & 71 Global Legal Group Ltd. 59 Tanner Street Gustaaf Reerink London SE1 3PL, UK Tel: +44 20 7367 0720 Fax: +44 20 7407 5255 11 Italy DDPV Studio Legale: Luciano Vasques 77 Email: [email protected] URL: www.glgroup.co.uk GLG Cover Design 12 Japan Nagashima Ohno & Tsunematsu: Kaoru Hattori & Yusuke Kaeriyama 86 F&F Studio Design GLG Cover Image Source iStockphoto 13 Korea Barun Law LLC: Gwang Hyeon Baek & Ye Eun Choi 94 Printed by Ashford Colour Press Ltd. 14 Netherlands Kennedy Van der Laan: Annemieke van der Beek & 100 August 2018 Martijn van Bemmel Copyright © 2018 Global Legal Group Ltd. All rights reserved 15 Russia ALRUD Law Firm: German Zakharov & Alla Azmukhanova 107 No photocopying ISBN 978-1-912509-28-7 ISSN 2399-9586 16 Singapore Lee & Lee: Tan Tee Jim, S.C. 114 Strategic Partners 17 Spain Callol, Coca & Asociados, SLP: Pedro Callol & Laura Moya 120

18 Turkey ELIG Gürkaynak Attorneys-at-Law: Gönenç Gürkaynak & 127 Hakan Özgökçen

19 United Kingdom Dickson Minto: Ajal Notowicz & Maria Ziprani 135

20 USA Paul, Weiss, Rifkind, Wharton & Garrison LLP: 146 Charles F. (Rick) Rule & Andrew J. Forman

Further copies of this book and others in the series can be ordered from the publisher. Please call +44 20 7367 0720

Disclaimer This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations.

WWW.ICLG.COM EDITORIAL

Welcome to the second edition of The International Comparative Legal Guide to: Vertical Agreements and Dominant Firms. This guide provides corporate counsel and international practitioners with a comprehensive worldwide legal analysis of the laws and regulations of vertical agreements and dominant firms. The guide is divided into country question and answer chapters. These provide a broad overview of common issues in the laws and regulations of vertical agreements and dominant firms in 20 jurisdictions. All chapters are written by leading competition lawyers and industry specialists and we are extremely grateful for their excellent contributions. Special thanks are reserved for the contributing editor Charles F. (Rick) Rule of Paul, Weiss, Rifkind, Wharton & Garrison LLP for his invaluable assistance. Global Legal Group hopes that you find this guide practical and interesting. The International Comparative Legal Guide series is also available online at www.iclg.com.

Alan Falach LL.M. Group Consulting Editor Global Legal Group [email protected] Chapter 1

Australia Sar Katdare

Johnson Winter & Slattery Virginia Jenkins

section 155 of the Act) the relevant party to provide information 1 General and documents relating to the alleged agreement or conduct. Such requests can be made more than once (i.e. for different types 1.1 What authorities or agencies investigate and enforce of information and documents) and the ACCC can also require the laws governing vertical agreements and dominant individuals to provide evidence under oath or affirmation. firm conduct? Once the ACCC has gathered sufficient information, it will determine whether to take enforcement action and if so, what type of action The Australian Competition & Consumer Commission (ACCC) is to take. If the ACCC decides not to take any enforcement action, the Australian independent statutory authority that has the role of it will inform the relevant party that the investigation has closed. investigating and enforcing laws relating to vertical agreements and If the ACCC decides to take some type of enforcement action, the dominant firm conduct under the Competition and Consumer Act next steps in the process will depend upon the action taken (i.e. 2010 (Cth) (the Act). Whilst there is no single “vertical agreements” the process will be different for administrative resolutions, court prohibition in the Act, the Act regulates vertical agreements and enforceable undertakings or legal proceedings). vertical conduct through the following prohibitions: ■ Anti-competitive agreements. 1.4 What remedies (e.g., fines, damages, injunctions, etc.) ■ Misuse of market power. are available to enforcers? ■ Exclusive dealing conduct. ■ Resale price maintenance (RPM). The ACCC has the ability to accept an administrative resolution The Act also regulates dominant firm conduct through the misuse from a party that it considers is likely to be in contravention of the of market power and exclusive dealing prohibitions. These Act. An administrative resolution is a written undertaking from a prohibitions are explained in more detail in sections 2 and 3. party setting out detailed terms and conditions of the resolution and may include agreeing to stop the conduct, compensating those who have suffered loss and/or taking other measures to ensure that the 1.2 What investigative powers do the responsible conduct does not recur. competition authorities have? The ACCC can also resolve contraventions of the Act by accepting court enforceable undertakings from a party under section 87B The ACCC has compulsory information-gathering powers under of the Act. Section 87B undertakings are placed on the public section 155 of the Act that enable it to obtain information, documents record and pursuant to them, a party generally agrees to remedy and oral evidence to determine whether a party’s agreement or the harm caused by the agreement or conduct, accepts responsibility conduct contravenes the Act. for its actions and/or establishes or improves its trade practices’ The ACCC also has search warrant and seizure powers under the compliance programmes and culture. Act to gather evidentiary material. There are also a number of remedies and penalties available to the Under a search warrant, the ACCC can seize goods or documents, ACCC by way of court order including declarations, injunctions, inspect, handle and measure goods and equipment, take samples pecuniary penalties and other remedial orders. of goods and make copies of documents. The ACCC inspector, pursuant to a search warrant, may also require any person on the premises to answer questions and produce documents that relate to 1.5 How are those remedies determined and/or calculated? the reasons for entry to the premises. The ACCC can also request parties to provide information and Whether the ACCC will accept an administrative resolution or documents to it voluntarily in response to an investigation. court-enforceable undertakings from a party or pursue more serious enforcement action in declarations, remedies and penalties through 1.3 Describe the steps in the process from the opening of court action will depend on a number of factors including whether an investigation to its resolution. the relevant agreement or conduct is of significant public interest or concern, whether the conduct results in a substantial consumer or After the ACCC commences an investigation, it will ordinarily small business detriment and/or whether the ACCC action will have request (voluntarily) or require (by compulsory notice under a deterrent effect or clarify aspects of the law.

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In general, the more serious the agreement or conduct, the more For an appeal to succeed, a party must convince the appeal court that likely the ACCC will seek declarations, remedies or penalties there was an error of law and that the error was of such significance through court proceedings. that the decision should be overturned. The maximum penalties for contraventions of the vertical agreement The hearing of the appeal does not consider any new evidence or or dominant firm conduct provisions of the Act are the greater of: (for information that was not presented in the original case (except in corporations) AUD $10 million, three times the gain derived from special circumstances) and does not call witnesses to give evidence. the illegal conduct (if calculable) or 10% of annual turnover in the 12 The appeal court, however, will review all the relevant documents months preceding the conduct; and (for individuals) AUD $500,000. filed by the parties for the original case and consider legal argument A number of factors are taken into account by the court in calculating from both parties to the appeal. the appropriate level of penalty for a contravention including the The appeal court’s decisions can further be appealed to the High Australia nature and extent of the contravening conduct, the amount of loss Court by either party within 28 days through a two-step process. or damage caused, the circumstances in which the agreement or First, the ACCC or party will need to apply for and be granted conduct took place, the financial size and market power of the special leave to appeal to the High Court. The High Court will contravening party, the deliberateness of the contravention, the grant special leave to appeal for questions of law that are of public period over which the agreement or conduct extended, whether importance, where there are differences of opinion between courts the contravention arose out of the conduct of senior management, or if the case is in the interests of the administration of justice. Once whether the party has a corporate culture conducive to compliance leave is granted, an appeal hearing is conducted to hear the matter. with the Act and whether the party has cooperated with the ACCC. The High Court’s decision is final.

1.6 Describe the process of negotiating commitments or 1.9 Are private rights of action available and, if so, how other forms of voluntary resolution. do they differ from government enforcement actions?

Unless the ACCC has decided that it will not accept administrative Legal actions for contravention of the vertical agreement, vertical resolutions or court-enforceable undertakings from a party because conduct and/or dominant firm conduct provisions of the Act are it otherwise wishes to pursue court action against the party, either the available to private parties, but they are rare. Any individual or ACCC or the party can seek to resolve the matter by administrative corporation that has suffered loss may bring a claim for damages resolution or court-enforceable undertakings. for the amount of loss or damage suffered as a result of the There is no formal process for such negotiations – a party can offer contravention. Punitive damages are not available. to resolve a matter with the ACCC by preparing an administrative Private legal actions differ to ACCC actions in a few respects. resolution and if the ACCC does not wish to take legal action, it will Firstly, a private party does not have the benefit of obtaining consider the proposal and may seek amendments to the proposal. information and documents through an investigative process like For the proposal to be accepted by the ACCC, the party would need the ACCC before commencing legal proceedings (although a party to commit to the relevant resolution in writing to the ACCC. In will generally be able to obtain documents in the usual discovery other instances, the ACCC will actively inform a party that a matter process). Secondly, the private party cannot seek penalties like the can be resolved by the party giving a certain written administrative ACCC. Thirdly, a private party action is likely to receive less media resolution or a court-enforceable undertaking. The party may seek attention than an ACCC action. to negotiate the form of the resolution with the ACCC.

1.10 Describe any immunities, exemptions, or safe harbors 1.7 Does the enforcer have to defend its claims in front that apply. of a legal tribunal or in other judicial proceedings? If so, what is the legal standard that applies to justify an The Act contains the following general exceptions that may apply to enforcement action? certain vertical agreements, vertical conduct and/or dominant firm conduct that would otherwise contravene the Act: If the ACCC wishes to seek declarations, remedies, penalties ■ where the agreement or conduct is specifically authorised by or other orders against a party for contravention of the Act, it is law; required to prove its case before the courts. ■ acts or provisions of a contract relating to employment The ACCC will take into account a number of factors in deciding conditions; whether to pursue litigation including whether the relevant conduct ■ restraints of trade during or after the termination of is of significant public interest or concern and whether ACCC employment; action will have a deterrent effect or clarify aspects of the law. The ■ compliance with particular standards; ACCC is more likely to proceed to litigation in circumstances where ■ partnership conditions between individuals; the conduct is particularly egregious, where there is reason to be concerned about future behaviour or where the party involved is ■ contracts for the sale of a business or shares of a company unwilling to provide a satisfactory resolution. with respect to the protection of goodwill; ■ exclusivity conditions on the export of goods or services The legal standard of proof of contraventions of the vertical from Australia; and agreement and dominant firm conduct provisions is the balance of probabilities. ■ acts done in concert by ultimate users or consumers of goods or services against the supplier of those goods or services. Exclusive dealing (supply or acquisition of goods or services on 1.8 What is the appeals process? restrictive conditions) and anti-competitive agreements are subject to a related body corporate exemption. The ACCC and/or the relevant party can appeal a decision of the court on liability and/or penalty within 21 days.

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With respect to RPM, a party can obtain immunity from contravention ■ competition issues concerning the use of digital platforms, of the Act by lodging a notification with the ACCC and showing algorithms and consumer data; that the public benefits from the conduct would outweigh any public ■ criminal and civil cartel conduct; and detriments. ■ anti-competitive conduct in the agricultural, commercial A party may also seek immunity for vertical agreements, vertical construction, financial and energy sectors. conduct or dominant firm conduct if it can show that the public benefits from the conduct would outweigh any public detriments. 1.15 Describe any notable case law developments in the This process is known as “authorisation”. past year.

The most significant dominant firm conduct case in recent years is

1.11 Does enforcement vary between industries or Australia businesses? ACCC v Pfizer. The ACCC alleged that Pfizer misused its market power and engaged in exclusive dealing conduct for the purpose of While the ACCC generally takes the same approach to enforcing substantially lessening competition by offering significant discounts the Act across different industries and businesses, it will take a more off its patented brands, requiring minimum purchase values of vigorous enforcement approach where: its generic brands and requiring that stores limit the supply of ■ the conduct is in an industry involving essential goods or competing generic brands. services; The case turned on the question of Pfizer’s purpose. In essence, the ■ the agreement or conduct is in a concentrated industry and trial judge found that Pfizer was seeking to protect its own commercial has a serious impact on consumers or small businesses; position in navigating patent expiry. The ACCC appealed the ■ the agreement or conduct is in a significant, new or emerging decision and the Full Federal Court subsequently dismissed the industry; appeal, agreeing with the primary judge that Pfizer’s actions were ■ the agreement or conduct is industry-wide or is likely to not done for an anti-competitive purpose but in recognition of the become widespread if the ACCC does not intervene; or commercial challenges Pfizer would face as it moved beyond the ■ the agreement or conduct is engaged in by a larger or well- expiry of its patent and sought to remain competitive in the market. known company. The ACCC’s prosecution against Flight Centre concerning pricing In addition, each year the ACCC outlines its enforcement priorities in dual distribution models is also a significant development in which may target particular industries or businesses. This year, the last 12 months. In this case, Flight Centre had requested that the ACCC has indicated that its enforcement action for vertical airlines not sell directly to customers at a price lower than the price agreements and dominant firm conduct will focus on the commercial the airlines offered to Flight Centre. The High Court found that construction, agricultural, financial services and energy sectors. this constituted an attempted price fix because Flight Centre and the airlines were competitors for the supply of airline tickets and Flight Centre had attempted to fix the price at which the airlines would 1.12 How do enforcers and courts take into consideration sell to customers directly. What was initially considered vertical an industry’s regulatory context when assessing conduct was found to be horizontal conduct by the High Court with competition concerns? significant consequences for Flight Centre (a substantial penalty).

The ACCC and the courts will take into account all the relevant circumstances including an industry’s regulatory context in 2 Vertical Agreements determining whether a party’s agreement or conduct is in contravention of the vertical agreement or dominant firm conduct provisions of the Act. 2.1 At a high level, what is the level of concern over, and scrutiny given to, vertical agreements?

1.13 Describe how your jurisdiction’s political environment Other than RPM (which is a per se contravention of the Act), a may or may not affect antitrust enforcement. vertical agreement or vertical conduct is prohibited by the Act if it has the purpose, effect or likely effect of substantially lessening While the ACCC is a statutory authority that is independent of the competition in a market. Accordingly, while vertical agreements and government, its enforcement priorities can be influenced by the vertical conduct in contravention of the Act can attract significant political environment. penalties, they are not considered to be as serious as horizontal In recent years, the conduct of financial institutions (including the agreements or conduct (which are per se contraventions under the Financial Services Royal Commission established in late December Act and can attract criminal sanctions). 2017), supermarkets and digital platforms have come under political scrutiny. As a result, the ACCC has been given increased powers 2.2 What is the analysis to determine (a) whether there to deal with conduct by market participants in these sectors and the is an agreement, and (b) whether that agreement is ACCC has enforced the Act where appropriate. vertical?

1.14 What are the current enforcement trends and Vertical “agreements” must take the form of a contract, arrangement priorities in your jurisdiction? or understanding which includes a legally binding contract, an informal agreement whereby the parties accept mutual rights and The ACCC’s priorities for 2018 include: obligations or a meeting of minds to proceed in a particular way. ■ investigating conduct that may contravene the new misuse An agreement will be considered vertical if none of the parties to of market power provisions and the new concerted practices the agreement is, or is likely to be, in competition with each other in provisions of the Act; respect of the goods or services which are the subject of the alleged

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conduct. If the parties are, or are likely to be in competition but the conduct falls under both horizontal and vertical agreement or 2.6 What is the analytical framework for defining a market conduct laws, there is a “carve out” provision that requires the in vertical agreement cases? conduct to be assessed under the vertical agreement or conduct laws (i.e. subject to a competition test and not a per se contravention). Where the competition test is applicable, market definition is the first step in determining whether there is a substantial lessening of competition. In defining a market, it is necessary to look at the 2.3 What are the laws governing vertical agreements? product, geographic, functional and temporal aspects of a market in the context of substitution possibilities. However, the existence of There are several types of laws governing vertical agreements and close substitutes is not the defining feature of every market and the vertical conduct, namely, exclusive dealing, general anti-competitive Australia notion of substitution may not provide a complete solution to the agreements, misuse of market power and RPM. definition of a market. Exclusive dealing is a vertical agreement or conduct that contains some type of restriction on acquisition, supply or resupply of goods 2.7 How are vertical agreements analysed when one of or services where the restriction has the purpose, effect or likely the parties is vertically integrated into the same level effect of substantially lessening competition in a market. Vertical as the other party (so called “dual distribution”)? Are agreements can also contravene the law if they have the purpose, these treated as vertical or horizontal agreements? effect or likely effect of substantially lessening competition in a market regardless of any vertical restriction. Whether an agreement or conduct is considered to be vertical or Misuse of market power is conduct by a party that has a substantial horizontal will depend on the circumstances of each case. Where degree of power in a market that engages in conduct (which can be the relevant agreement or conduct is clearly between supplier and vertical) that has the purpose, effect or likely effect of substantially customer, the law will treat such an agreement or conduct as vertical. lessening competition in a market. However, where the facts demonstrate some form of competitor- RPM can be a vertical agreement or conduct that involves conduct competitor conduct, the relevant agreement or conduct may be by the supplier of goods or services imposing minimum resupply characterised as horizontal. There is a “carve-out” provision for prices on re-suppliers of those goods or services. agreements or conduct that fall within both horizontal and vertical agreement or conduct laws, such that the agreement or conduct will be examined under the vertical agreement or conduct laws (i.e. 2.4 Are there any type of vertical agreements or restraints subject to a competition test). that are absolutely (“per se”) protected?

As mentioned above, RPM is a per se breach of the Act. 2.8 What is the role of market share in reviewing a vertical agreement?

2.5 What is the analytical framework for assessing Market share is not directly relevant to the assessment of whether vertical agreements? vertical agreements or conduct are in contravention of the Act. However, market share is usually taken into account in considering For vertical agreements or vertical conduct that are per se whether a firm has substantial market power for the purposes of the contraventions, the relevant analysis is simply determining whether misuse of market power prohibition and in assessing whether the the relevant agreements or conduct fall within the particular effect of the vertical agreements or conduct is likely to substantially provisions of the Act. There is no competition analysis involved. lessen competition. For vertical agreements or conduct that only contravene the Act if they have the purpose, effect or likely effect of substantially 2.9 What is the role of economic analysis in assessing lessening competition in a market, the first step in the analysis is to vertical agreements? determine whether the conduct falls under the relevant provisions of the Act. This may include ascertaining whether a contract, Economic analysis is often used in determining whether a vertical arrangement or understanding exists or whether the agreement or agreement or conduct substantially lessens competition. This conduct falls within the exclusive dealing or misuse of market power includes market definition issues, market power issues and the provisions. Once it has been determined that the relevant vertical state of competition in the market with and without the relevant agreement or conduct falls within the relevant provision, the next agreement or conduct. question is whether the agreement or conduct has the purpose, effect or likely effect of substantially lessening competition in a market. 2.10 What is the role of efficiencies in analysing vertical Purpose is a subjective test but objective circumstances can be taken agreements? into account. The effect or likely effect of a vertical agreement or conduct starts with identifying the relevant market in which Efficiencies may be taken into account in assessing whether a the agreement or conduct has or is likely to have an impact and vertical agreement or vertical conduct has the effect or likely effect then undertaking a counterfactual analysis to determine the of substantially lessening competition in a market. For instance, state of competition in the market with and without the relevant if the vertical agreement of conduct enhances a firm’s efficiency agreement or conduct. Where there is a substantial lessening of leading to more competitive outcomes in the market, the agreement competition between the factual and counterfactual worlds, the Act or conduct may be unlikely to contravene the Act. Efficiencies will is contravened. also be considered if a party is seeking authorisation or notification (immunity) from the ACCC for a vertical agreement or conduct.

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2.11 Are there any special rules for vertical agreements 2.18 How do enforcers and courts examine tying/ relating to intellectual property and, if so, how does supplementary obligation claims? the analysis of such rules differ? Tying/supplementary obligations are prohibited if they have the The Act provides for an exemption for vertical arrangements and purpose, effect or likely effect of substantially lessening competition other general anti-competitive arrangements in relation to certain in a market. intellectual property rights (IPR) (such as patents, registered designs or copyrights) but only to the extent that the relevant arrangement 2.19 How do enforcers and courts examine price relates to particular aspects of IPR (for example, the invention to discrimination claims? which the patent relates). Australia

There is no specific prohibition against price discrimination. Such 2.12 Does the enforcer have to demonstrate conduct would be prohibited if it fell within the elements of the anticompetitive effects? vertical agreement/conduct or dominant firm conduct provisions of the Act. Not necessarily – other than RPM, the vertical agreement and vertical conduct provisions under the Act require proof of either 2.20 How do enforcers and courts examine loyalty the purpose, effect or likely effect of a substantial lessening of discount claims? competition in a market. Accordingly, the ACCC could demonstrate anti-competitive purpose but not effect to successfully prosecute a Loyalty discounts are prohibited if they fall within the vertical case. agreement/conduct or dominant firm conduct provisions of the Act (i.e. if they have the purpose, effect or likely effect of substantially 2.13 Will enforcers or legal tribunals weigh the harm lessening competition in a market). against potential benefits or efficiencies?

2.21 How do enforcers and courts examine multi-product The ACCC will only weigh public benefits including efficiencies or “bundled” discount claims? against anti-competitive harm if the party proposing to enter the vertical agreement or engage in the vertical conduct seeks Multi-product or bundled discounts are prohibited if they fall within authorisation or notification from the ACCC. Authorisation or the vertical agreement/conduct or dominant firm conduct provisions notification is a form of immunity granted to agreements or conduct of the Act (i.e. if they have the purpose, effect or likely effect of that would otherwise be in contravention of the Act, where the substantially lessening competition in a market). public benefits from the relevant agreement or conduct outweigh the public detriments. 2.22 What other types of vertical restraints are prohibited by the applicable laws? 2.14 What other defences are available to allegations that a vertical agreement is anticompetitive? Any other type of vertical restraint that has the purpose, effect or likely effect of substantially lessening competition in a market is A related bodies defence is available to allegations of anti- prohibited. competitive vertical agreements or conduct. There is also a limited defence to RPM conduct that involves withholding supply from re- suppliers but only if certain requirements are met. 2.23 How are MFNs treated under the law?

2.15 Have the enforcement authorities issued any formal The Act does not include a specific prohibition on MFN clauses. guidelines regarding vertical agreements? However, MFNs are prohibited if they fall within the vertical agreement/conduct provisions of the Act (i.e. if they have the Yes – the ACCC has issued guidelines with respect to exclusive purpose, effect or likely effect of substantially lessening competition dealing and interim guidelines have been issued on misuse of in a market). market power. 3 Dominant Firms 2.16 How is resale price maintenance treated under the law? 3.1 At a high level, what is the level of concern over, and scrutiny given to, unilateral conduct (e.g., abuse of RPM is a per se contravention of the Act but a party can seek dominance)? authorisation or notification from the ACCC for RPM which provides immunity from prosecution if the public benefits of the Unilateral conduct, called misuse of market power in Australia, is conduct outweigh the public detriments. considered to be serious conduct by the ACCC. Misuse of market power is a key enforcement priority for the ACCC and the penalties 2.17 How do enforcers and courts examine exclusive for engaging in misuse of market power are significant (and the dealing claims? same for vertical agreements and vertical conduct).

Exclusive dealing is prohibited by the Act if it has the purpose, effect or likely effect of substantially lessening competition in a market.

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3.2 What are the laws governing dominant firms? 3.8 What defences are available to allegations that a firm is abusing its dominance or market power? It is not illegal to have market power or to use it. However, a firm with a substantial degree of market power will only be in breach of There are no legislative defences to a misuse of market power the Act if it engages in conduct that has the purpose, effect or likely allegation. However, a corporation will not contravene the misuse effect of substantially lessening competition in a relevant market. of market power prohibition by reason that it acquires only plant or equipment.

3.3 What is the analytical framework for defining a market A party can seek authorisation (immunity) from the ACCC for in dominant firm cases? conduct that would otherwise be in breach of the misuse of market

Australia power prohibition. The party would need to demonstrate that the Identifying the relevant market is an important step in determining public benefits from the conduct outweigh any public detriments. whether a party has substantial market power in that market and whether a firm’s conduct has the purpose, effect or likely effect 3.9 What is the role of efficiencies in analysing dominant of substantially lessening competition in a market. In defining a firm behaviour? market, it is necessary to look at the product, geographic, functional and temporal aspects of a market in the context of substitution Efficiencies are often used by parties alleged to have engaged in a possibilities. However, the existence of close substitutes is not the misuse of market power to show that the purpose of the conduct was defining feature of every market and the notion of substitution may legitimate rather than anti-competitive. not provide a complete solution to the definition of a market. Efficiencies will also be considered by the ACCC if a party seeks authorisation for conduct that would otherwise contravene the 3.4 What is the market share threshold for enforcers or a misuse of market power prohibition of the Act. court to consider a firm as dominant or a monopolist?

3.10 Do the governing laws apply to “collective” There is no market share threshold that determines whether a firm dominance? is dominant or a monopolist or in the language of the Act, has a substantial degree of market power. Market share will be taken into The Act does not prohibit collective dominance by independent account as a factor of market power but it is not determinable. entities. In determining whether a corporation has “substantial market power”, however, the Act provides for the aggregation of 3.5 In general, what are the consequences of being power held by the corporation and its related bodies corporate, as adjudged “dominant” or a “monopolist”? Is well as by a corporation through its agreements with third parties. dominance or monopoly illegal per se (or subject to regulation), or are there specific types of conduct that are prohibited? 3.11 How do the laws in your jurisdiction apply to dominant purchasers? While parties with a dominant or monopolist position in a market are likely to receive closer scrutiny by the ACCC than other parties, The misuse of market power laws apply equally to purchasers as being a dominant firm or monopolist is not itself a contravention of well as to suppliers. the Act. A firm with a substantial degree of market power will only contravene the Act if it engages in conduct that has the purpose, 3.12 What counts as abuse of dominance or exclusionary effect or likely effect of substantially lessening competition in a or anticompetitive conduct? relevant market. While there are no prescribed types of conduct that constitute 3.6 What is the role of economic analysis in assessing misuse of market power, the following types of conduct are often market dominance? claimed or held to be a misuse of market power: refusals to supply or acquire; bundling; predatory pricing; exclusivity arrangements; Economic analysis can be used to assess whether a firm has a and exclusionary conduct. substantial degree of market power in a market by taking into account a number of matters, including barriers to entry and economies of 3.13 What is the role of intellectual property in analysing scale and scope. It can also be used to examine whether conduct dominant firm behaviour? has the purpose, effect or likely effect of substantially lessening competition in a relevant market. IPRs may be a source of market power. In each case, it will be necessary to assess whether the IPRs in question give rise to 3.7 What is the role of market share in assessing market substantial market power and whether the relevant conduct gives dominance? rise to a misuse of that power.

Although not determinative, market share can be taken into account 3.14 Do enforcers and/or legal tribunals consider “direct in assessing whether a firm has a substantial degree of power in a effects” evidence of market power? market. Whilst not determinative to an analysis of whether a dominant firm has contravened the Act, the direct evidence of abusive behaviour,

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being the actual harm caused by the contravening conduct, is one of the factors that the ACCC will take into account when pursuing an 3.16 Under what circumstances are refusals to deal action for misuse of market power. considered anticompetitive?

Refusals to deal are anti-competitive if engaged in by a firm with 3.15 How is “platform dominance” assessed in your substantial market power for the purpose, effect or likely effect of jurisdiction? substantially lessening competition in a market.

The ACCC assesses a firm’s dominance in a particular platform in the same way it would assess any firm’s substantial market 4 Miscellaneous power in any market. The ACCC has stated that 2018 will see it examine issues concerning the use of digital platforms, algorithms Australia and consumer data. The inquiry will look into the effect of those 4.1 Please describe and comment on anything unique to platforms on competition in media and advertising services markets. your jurisdiction (or not covered above) with regards to vertical agreements and dominant firms.

Australia remains one of the only jurisdictions in the world with prescriptive exclusive dealing prohibitions and a RPM law that is a per se contravention rather than being subject to a competition test.

Sar Katdare Virginia Jenkins Johnson Winter & Slattery Johnson Winter & Slattery Level 25, 20 Bond Street Level 25, 20 Bond Street Sydney Sydney Australia Australia

Tel: +61 2 8274 9554 Tel: +61 2 8274 9549 Email: [email protected] Email: [email protected] URL: www.jws.com.au URL: www.jws.com.au

Sar has over 18 years’ experience advising major multinational and Virginia acts and advises Australian and multinational corporations in publicly listed companies on cartels, mergers and consumer law matters. a range of industries in all aspects of competition and consumer law in both advisory and litigious matters. Virginia has particular experience He has acted for immunity applicants in criminal and civil cartel matters acting for clients in regulatory disputes against the Australian including Unilever in the ACCC cartel prosecution of multinational Competition and Consumer Commission and in particular in relation to laundry detergent suppliers and a major retailer for hub and spoke cartel conduct, misuse of market power and misleading or deceptive arrangements. He successfully assisted Qantas across a number of conduct matters. jurisdictions in relation to its Jetstar Pan Asia Strategy and its alliance with Emirates, and acted for Yahoo! in obtaining informal clearance for Prior to joining JWS, Virginia represented and advised the ACCC in its global search deal with Microsoft and BHP Billiton in its proposed prosecutions against Reckitt Benckiser, the manufacturers of Nurofen, takeover of Rio Tinto in 2008. and in significant cartel conduct proceedings against major players in the AUD$1 billion electrical cable industry. Sar has been involved in a number of landmark litigation cases for mergers, misuse of market power, price fixing and product liability. He also advised BHP Billiton on access applications by Fortescue Metals Group to its Pilbara iron ore railways. In 2017, Sar won the Client Choice Award for Best Competition/ Antitrust Lawyer in Australia. He is consistently ranked in international directories as one of Australia’s leading competition lawyers (Chambers 2012–2018; The Legal 500 2012–2018; and Best Lawyers Australia 2016–2019).

Johnson Winter & Slattery is a leading independent Australian law firm that acts for major Australian and international corporations on their critical business activities, “bet the farm” disputes and complex transactions through Australia and surrounding regions. We blend legal expertise with commercial and market awareness to deliver high quality legal services. This means working closely with clients and their in-house counsel to understand their commercial objectives, and ensuring our approach is tailored to deliver timely commercial outcomes. Our higher ratio of senior lawyers and low leverage structure means clients engage directly with the tactical minds and industry expertise required to succeed in complex and high-stakes deals and disputes at low costs. A partnership ethos of service, technical excellence and collaboration ensures the most relevant specialist expertise and experience is brought to bear on every assignment.

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Brazil Leonardo Rocha e Silva

Pinheiro Neto Advogados Daniel Costa Rebello

1 General 1.3 Describe the steps in the process from the opening of an investigation to its resolution.

1.1 What authorities or agencies investigate and enforce the laws governing vertical agreements and dominant In relation to vertical restraints of trade and other forms of abuse of firm conduct? dominance, the 2011 Competition Act sets forth that CADE’s General Superintendence can conduct: (i) a preparatory administrative inquiry The main authority responsible for enforcing the laws governing into anticompetitive conducts; (ii) an administrative inquiry into vertical restraints of trade and dominant firm conducts in Brazil is anticompetitive conducts; and (iii) formal administrative proceedings the Administrative Council for Economic Defence (CADE). for imposition of sanctions due to anticompetitive conducts. Under the terms of the 2011 Brazilian Competition Act (Law The General Superintendent may conduct a preparatory 12529/11), CADE is an autonomous administrative agency that has administrative inquiry in order to determine (within 30 days) three main bodies: (i) the Administrative Tribunal, composed of one whether the conduct of the economic agents is under CADE’s president and six commissioners who are in charge of rendering jurisdiction and should be subject to further scrutiny by CADE. final decisions on investigations related to vertical restraints of An administrative inquiry is commenced on the General trade and abuse of dominance; (ii) the General Superintendence, Superintendent’s own initiative or based on grounded complaints responsible for conducting investigations against companies and filed by any interested party, whenever signs of an anticompetitive individuals; and (iii) the Economic Studies Department, headed by conduct are insufficient for the General Superintendent to open a Chief Economist, who is in charge of preparing economic opinions formal administrative proceedings. and studies, which may help both the General Superintendence and The General Superintendent will have 180 days to resolve on Administrative Tribunal in their decision-making processes. closing the administrative inquiry or opening formal administrative proceedings against the investigated companies and individuals. 1.2 What investigative powers do the responsible This term may be extended. Should the General Superintendent competition authorities have? decide to shelve the administrative inquiry, the interested party may appeal to the General Superintendent. The General Superintendent’s CADE’s General Superintendence has the following powers: decision in this regard will be final in the administrative sphere. a) to request information, documents and depositions from any The formal administrative proceeding for imposition of penalties individuals or legal entities, as well as from public or private due to anticompetitive conducts is subject to due process and the bodies, authorities and entities; General Superintendent should ensure that the accused party will b) to make inspections at the principal place of business, be able to exercise its full right of defence. After completion of establishment, office, branch or main branch of a company the discovery phase, the General Superintendent will notify the under investigation, as well as of inventories, papers of any respondent to file closing remarks. kind, commercial records, computers and electronic files; The last step of review happens when the General Superintendent c) to conduct dawn raids, with authorisation from the Judiciary sends the case records to the Administrative Tribunal for Branch, through the Federal Attorney’s Office at CADE, final judgment. The case records should contain the General for search and seizure warrants concerning papers of any Superintendent’s recommendation for the closing of the formal kind, commercial records, computers and magnetic files of an individual or legal entity, to the extent required for administrative proceeding or for imposition of sanctions against an administrative inquiry or administrative enforcement defendant(s). At the Administrative Tribunal, the case will be proceeding; and assigned to one of the commissioners who will be responsible for d) to request access to and copies of police investigations, preparing a report on the investigation and submitting the case for a lawsuits of any kind, inquiries and administrative proceedings decision by the Administrative Tribunal. The decision is taken in a instated by other government entities. formal open-to-the-public judgment session. The decision rendered by the Administrative Tribunal is final in the administrative sphere. It should be noted that at any time prior to the decision by the Administrative Tribunal, the defendants may request to negotiate a settlement agreement with CADE.

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an informal process. Once it is concluded, the settlement must be 1.4 What remedies (e.g., fines, damages, injunctions, etc.) approved by the Administrative Tribunal. are available to enforcers?

CADE may impose fines from zero point one per cent (0.1%) to 1.7 Does the enforcer have to defend its claims in front of a legal tribunal or in other judicial proceedings? If twenty per cent (20%) of the gross revenues the company, group so, what is the legal standard that applies to justify an or conglomerate obtained in the financial year immediately before enforcement action? the administrative proceeding is initiated, in the field of business affected by the anticompetitive practice. The fine should not be CADE’s decisions are self-enforceable. If the offender does not lower than the advantage obtained from the underlying offence, if comply with CADE’s decision within the timeframe defined by the Brazil ascertainable. Managers directly or indirectly liable for the offence authority, CADE may file an enforcement action before the federal may have to pay a fine from one per cent (1%) to twenty per cent courts. (20%) of that imposed on the company. CADE, however, has to defend the legality of its decisions, Other sanctions include: (i) publication of the summary of the whenever offenders decide to challenge CADE’s decisions before decision in relevant newspapers; (ii) a declaration of ineligibility federal courts. In general, Federal Courts are allowed to look, and to take finance from official financial institutions or to participate in have already looked, into the merits of CADE’s decisions. bidding proceedings; (iii) the offender’s inclusion in the Brazilian Consumer Protection Register; (iv) loss of right to instalment payment of federal overdue debts, or full or partial cancellation 1.8 What is the appeals process? of tax incentives or public subsidies; (v) the company’s spin-off, transfer of corporate control, sale of assets, or partial discontinuance CADE’s decisions are final in the administrative sphere, but of activities; (vi) prohibition from doing business in its own name offenders may try to annul CADE’s decisions by filing lawsuits or as a representative of a legal entity for up to five years; and (vii) before federal courts. any other act or measure necessary to eliminate the harmful effects to competition. 1.9 Are private rights of action available and, if so, how Although those remedies are imposed after the conclusion of formal do they differ from government enforcement actions? administrative proceedings, CADE is allowed to adopt interim measures that could cause cessation of the anticompetitive conduct, Yes. Private rights of action are available, although the number setting a term for its compliance as well as the value of the daily fine of private claims is still immaterial. The Brazilian Civil Code for contempt. provides that any party that causes losses to others shall compensate its victims. The 2011 Competition Act also provides that “injured 1.5 How are those remedies determined and/or parties may defend their individual or diffuse interests in court by calculated? way of measures intended to cease anticompetitive practices and seek redress for losses and damages suffered, irrespective of an In imposing the sanctions described above, CADE should take into administrative proceeding or inquiry to that effect, which will not account: (i) the severity of the offence; (ii) the offender’s good be stayed in view of the lawsuit thus filed”. Access to information faith; (iii) the advantages obtained or envisaged by the offender; regarding the offender’s conducts and the statute of limitations (iv) actual or threatened occurrence of the offence; (v) the extent of (three years, counting from the date of knowledge of the offence) damages or threatened damages to open competition, the Brazilian for private actions are perceived to be obstacles. Plaintiffs that economy, consumers, or third parties; (vi) the negative economic seek damages in private claims must prove such damages. In order effects on the market; (vii) the offender’s economic status; and (viii) for CADE to apply a penalty, it is sufficient that CADE proves that recidivism. the practice had the potential to cause harm to the market.

1.6 Describe the process of negotiating commitments or 1.10 Describe any immunities, exemptions, or safe harbors other forms of voluntary resolution. that apply.

CADE may agree on a commitment by the respondent to cease No exemptions are available. The 2011 Competition Act applies the acts under investigation or their harmful effects. If CADE to individuals, public or private companies, as well as to any understands that a settlement agreement is appropriate, it must: individual or corporate associations, established de facto or de jure (a) specify the respondent’s obligations to cease the action under – even on a provisional basis – irrespective of separate legal identity, investigation or its harmful effects; (b) set a daily fine for full or and notwithstanding the exercise of activities regarded as a legal partial contempt of the obligations undertaken; and (c) set the value monopoly (article 31). of the cash contribution to the Diffuse Rights Protection Fund, whenever applicable. The administrative proceeding will be on 1.11 Does enforcement vary between industries or hold while the cease-and-desist commitment is duly complied with. businesses? If a respondent wants to settle with CADE, it must formally request to engage in negotiations. If the negotiations fail, the respondent No, it does not. However, industries that are also regulated may not re-apply for engaging in settlement discussions. The (e.g. telecommunications, power, oil and gas, financial sector, request to engage in negotiations does not stay the investigation. transportation) may face dual scrutiny from CADE and from the CADE may grant confidentiality to the request and to the entire particular regulatory agency. negotiation, upon request of the respondent. The negotiation is

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1.12 How do enforcers and courts take into consideration 1.15 Describe any notable case law developments in the an industry’s regulatory context when assessing past year. competition concerns? CADE rendered important decisions in investigations concerning The laws providing for the powers of the main sector regulators dominant position and vertical agreements. (e.g. telecommunications, power, oil and gas, financial sector In the “Anfape” case, the national association of manufacturers of and transportation) describe the necessary interaction by and auto parts filed a claim against Volkswagen, Fiat and Ford stating between such authorities and CADE in the investigation of that the automakers were abusing their intellectual property rights anticompetitive conducts. Although CADE should have the final

Brazil by enforcing such rights in the aftermarket. Anfape claimed that the say on anticompetitive conducts, CADE normally takes into account intellectual property rights could only be enforced by the automakers opinions rendered by such sector regulators on the investigated in the primary market, i.e, in the market for manufacture of vehicles. conducts. Moreover, when reviewing the regulatory framework, Such rights should not be used by the automakers in the secondary the regulators may take into consideration competition issues in the market (aftermarket) for spare parts. The enforcement of such rights, decision-making process of a policy or of a specific matter. in court and out of court, would constitute abuse of dominant position Notwithstanding some friction in relation to the banking sector, by the automakers, with the effect of foreclosing the aftermarket. CADE has managed to conduct investigations and impose By a split decision, CADE’s Tribunal found Anfape’s claim without sanctions against various financial institutions in the recent past. merits, indicating that there was no reason to distinguish the In February 2018, CADE and the Brazilian Central Bank executed intellectual property rights in the primary and in the secondary market. a Memorandum of Understanding (“MoU”) in order to align CADE’s Tribunal also stated that the evidence was not sufficient to procedures and set out the basis for mutual cooperation. The MoU prove an abuse of the intellectual property rights of the automakers preserves the independency of CADE and the Brazilian Central (Administrative Proceedings No. 08012.002673/2007-51). Bank to review transactions involving the financial sector, but In another matter, CADE’s General Superintendence reviewed the Brazilian Central Bank may unilaterally approve transactions potential price discrimination and margin squeeze by Sabesp against whenever there are imminent and systemic risks to the National Semasa in the market for distribution of water (Preliminary Inquiry Financial System. Moreover, CADE must necessarily consult the No. 08700.011091/2015-18). Semasa’s claim was that Sabesp, Brazilian Central Bank before imposing a sanction to players active the water treatment company of the state of São Paulo, abused in the financial sector. its dominant position by discriminating against the municipal independent distributors of water in some cities. According to 1.13 Describe how your jurisdiction’s political environment Semasa, Sabesp was charging lower prices to the distributors that may or may not affect antitrust enforcement. were vertically integrated with Sabesp, squeezing the margin of the independent distributors that were not integrated. CADE’s CADE is an autonomous de jure agency and has been making General Superintendence closed the investigation after reaching the efforts to maintain its independence and increase transparency in conclusion that there was no price discrimination. its decision-making process. All relevant decisions are made during open-to-the-public judgment sessions and are then published. Federal courts are normally asked to review CADE’s decisions imposing 2 Vertical Agreements sanctions and CADE has a good record in the appeals process. Administrative Tribunal members are nominated by the President 2.1 At a high level, what is the level of concern over, and of the Republic and the nominees must be approved by the Federal scrutiny given to, vertical agreements? Senate. The business community has the legitimate expectation that political nominations to CADE do not jeopardise the institution’s With the enactment of CADE’s Resolution 17 in 2016, CADE very good reputation built over the last 25 years. Moreover, CADE decided to stop reviewing vertical agreements under its pre-deal has a strong and well-prepared technical body, which helps ensure mechanism. CADE continues its efforts to investigate vertical trade CADE’s autonomy. Finally, CADE’s decisions are ordinarily taken restraints in various sectors, although the majority of its financial by majority opinion of the Administrative Tribunal, whose members and human resources have been devoted to fighting cartels. are generally appointed by different Presidents of the Republic, thus contributing to create an environment that is shielded from political interferences and that tend to be technical and neutral from an 2.2 What is the analysis to determine (a) whether there economic perspective. is an agreement, and (b) whether that agreement is vertical?

1.14 What are the current enforcement trends and Since 1999, CADE has considered vertical restrictive practices to be priorities in your jurisdiction? restrictions imposed by producers/suppliers of goods and services in a given market on vertically-related markets – “upstream” or After six years, since the entry into full force and effect of the “downstream” – along the production chain (“target” market). Less Competition Act (in May 2012), CADE’s priorities seem to be the focus seems to be put by CADE on whether or not there is a formal fight against national and international cartels (especially bid rigging agreement. cases), as well as the expeditious review of mergers, acquisitions and joint ventures. Nevertheless, vertical restraints and abuse of dominance cases continue to be on the radar and some important 2.3 What are the laws governing vertical agreements? investigations have been launched and/or concluded by CADE since 2012. The most important law governing vertical agreements is the 2011 Competition Act, which prohibits any acts intended or otherwise

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able to produce the following effects: (a) to limit, restrain or in share below twenty per cent (20%). However, CADE is aware of any way harm open competition or free enterprise; (b) to control a the potential difficulties in calculating market share and defining relevant market of a certain product or service; (c) to increase profits dominance. In a number of cases, the fact that the companies could arbitrarily; and (d) to abuse a dominant position. unilaterally dictate the behaviour of the market was sufficient for CADE to consider that such companies had dominant position.

2.4 Are there any type of vertical agreements or restraints that are absolutely (“per se”) protected? 2.9 What is the role of economic analysis in assessing vertical agreements? No. CADE should always make some sort of rule of reason approach, as under the 2011 Competition Act, it needs to analyse Due to the efforts of CADE’s Economic Studies Department, CADE Brazil the effects or potential effects of the vertical restraint investigated. has been increasingly relying on economic analysis in assessing vertical agreements. Economic analyses are not binding, but they assist the General Superintendence and CADE’s Tribunal in 2.5 What is the analytical framework for assessing vertical agreements? understanding: (i) the scope of specific practices; and (ii) the effects of such practices in the market. After confirming the occurrence of the investigated conduct, CADE The economic analysis was important, for example, in CADE’s normally defines the relevant market, assesses whether the involved investigation into the beer company Ambev’s loyalty programme companies have market power, and examines the negative effects (the “Tô Contigo” case), where CADE relied on the economic study and whether there are efficiencies associated with the conduct. to impose fines against Ambev for abusive use of its dominant CADE also looks into: (i) the proportion of the relevant markets position. There are a number of ongoing cases related to vertical affected by the vertical agreements investigated; (ii) the duration agreements in which CADE has requested specific economic of the restrictive practice; (iii) the barriers to entry into the markets analysis. involved; (iv) the interbrand competition level; (v) the level of substitutability between competing brands; (vi) the price difference 2.10 What is the role of efficiencies in analysing vertical of equivalent products of different brands; (vii) previous conducts agreements? of companies acting on the relevant market in terms of coordinated behaviour; and (viii) the level of consumption before and after the CADE will definitely review the efficiencies alleged whenever vertical agreement. submitted by the parties. The trend seems to be that CADE will be less sceptical about the efficiencies presented by the investigated 2.6 What is the analytical framework for defining a market parties, while transferring to the parties the burden to prove that in vertical agreement cases? the alleged efficiencies: (a) are specific and directly related to an investigated conduct; (b) are shared with the consumers; and (c) can CADE generally defines the relevant market by using the “SSNIP be quantified by the investigated party and the methodology adopted test”, which seeks to identify the smallest relevant market within can be explained to CADE. which a hypothetical monopolist is able to impose a significant, normally between five and 10 per cent, non-transitory increase in 2.11 Are there any special rules for vertical agreements price. The suppliers’ substitutability may also be considered when relating to intellectual property and, if so, how does defining the market. CADE’s analysis is generally qualitative, i.e., the analysis of such rules differ? CADE performs a market test and defines the market based on the input provided by the market participants. In some instances, There are no special rules for vertical agreements relating to CADE performs also quantitative analysis, especially elasticity and intellectual property. demand tests.

2.12 Does the enforcer have to demonstrate 2.7 How are vertical agreements analysed when one of anticompetitive effects? the parties is vertically integrated into the same level as the other party (so called “dual distribution”)? Are CADE has to demonstrate potential effects of the practice, but is not these treated as vertical or horizontal agreements? required to show actual effects of the practice.

CADE has no express/fixed guidelines for dealing with such cases. It should be noted, however, that manufacturers and distributors 2.13 Will enforcers or legal tribunals weigh the harm that act in the same public tender are generally considered to be against potential benefits or efficiencies? competitors. Yes, CADE will weigh the harm against potential benefits or efficiencies (whenever available). 2.8 What is the role of market share in reviewing a vertical agreement? 2.14 What other defences are available to allegations that a From an investigation perspective, considering that the 2011 vertical agreement is anticompetitive? Competition Act sets forth that a dominant position is deemed to occur when a company or group of companies is capable of altering, CADE will review all defences submitted by the parties. Generally, in a unilateral and concerted manner, the market conditions or such defences include: (i) absence of market foreclosure due to when it controls twenty per cent (20%) or more of the relevant existing rivalry and/or imports; (ii) indication that the barriers to market; CADE normally does not pursue investigations into vertical entry are low; (iii) presentation of the benefits/efficiencies of the restraints of trade when the companies involved hold a market vertical agreement (e.g. economies of scale, economies of scope,

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brand protection, price reductions, product safety, reduction efficiencies and commercial justifications for the practice. This in transaction costs, etc.); and (iv) demonstration that vertical was the analysis carried out by CADE in the Ambev “Tô Contigo” agreements aim at preventing free riders. case, in which the beer company Ambev’s loyalty programme was disapproved.

2.15 Have the enforcement authorities issued any formal guidelines regarding vertical agreements? 2.21 How do enforcers and courts examine multi-product or “bundled” discount claims? No. There are no formal guidelines regarding vertical agreements after the enactment of the 2011 Competition Act. There are no specific tests for examining multi-product or “bundled” Brazil discount claims. As in other practices, CADE will generally review: (i) the materiality of the practice; (ii) whether the defendant holds 2.16 How is resale price maintenance treated under the law? a dominant position in the market; (iii) the potential effects of the practice; and (iv) the efficiencies and commercial justifications for the practice. In the 2014 “SKF” case, CADE decided that minimum RPM practices are presumably illegal. However, companies may prove the economic efficiencies of the practice, in which case they would 2.22 What other types of vertical restraints are prohibited be cleared by CADE. The burden lies with the companies. by the applicable laws?

All vertical restraints able to produce the following effects will be 2.17 How do enforcers and courts examine exclusive dealing claims? prohibited in Brazil: (a) to limit, restrain or in any way harm open competition or free enterprise; (b) to control a relevant market of a certain product or service; (c) to increase profits arbitrarily; and (d) There are no specific rules for examining exclusive dealing claims. to abuse a dominant position. As in other vertical restraint cases, CADE will generally investigate: (i) the materiality of the practice; (ii) whether the defendant holds a dominant position in the market; (iii) the scope of the practice 2.23 How are MFNs treated under the law? and the potential for foreclosure; (iv) the potential effects of the practice, mainly to consumers, including the increase in market CADE has not rendered any final decision on MFN cases as of power; (v) the risk of implementation of collusive conducts; and yet. According to the 2011 Competition Act, CADE should apply (vi) the efficiencies and commercial justifications for the practice. a rule of reason approach with respect to MFN clauses and should definitely examine: (i) whether a company imposing such clauses 2.18 How do enforcers and courts examine tying/ holds a dominant position in the market; (ii) the potential effects supplementary obligation claims? of the practice in the Brazilian market place; as well as (iii) the efficiencies and commercial justifications for the practice in view of In previous cases, CADE has used the following test for tying conduct: the situation of the Brazilian market. (i) the existence of two products and/or separate products; (ii) the In one important matter (Preliminary Inquiry No. existence of any coercion element; (iii) the existence of dominant 08700.005679/2016-13), CADE investigated hotel price parity position in the conditioning market; and (iv) anticompetitive effects clauses applied by Booking.com, Decolar.com and Expedia to ensure in the conditioning or in the conditioned markets. If characterised, that these companies would show more advantageous conditions to the positive and negative effects of the practice must be weighted. the consumers in comparison to the conditions of the sales channels of the own hotel or of competing platforms. The three companies settled with CADE in order to cease the use of hotel price parity 2.19 How do enforcers and courts examine price clauses in relation to offline sales channels and competing online discrimination claims? platforms. However, CADE understood that the use of such clauses in relation to the online website of the own hotel would be justified There are no specific tests for examining price discrimination claims. to avoid a free rider effect. CADE will generally investigate whether the price discrimination claim results in exploitative or exclusionary effects. As in other practices, CADE will generally review: (i) the materiality of the 3 Dominant Firms practice; (ii) whether the defendant holds a dominant position in the market; (iii) the potential effects of the practice; and (iv) the efficiencies and commercial justifications for the practice. Even 3.1 At a high level, what is the level of concern over, and though there are ongoing cases in which the applicability of the “as scrutiny given to, unilateral conduct (e.g., abuse of efficient competitor test” is being reviewed, there is no consistent dominance)? decision indicating that this test should apply. Despite the challenges in terms of evidence and examination of efficiency defences, CADE’s General Superintendence seems 2.20 How do enforcers and courts examine loyalty to be working hard to be in a good position to commence new discount claims? investigations on abuse of dominance cases based on complaints filed by third parties or on its own initiative. The cases opened There are no specific tests for examining loyalty discount claims. As recently and investigations underway before CADE’s General in other practices, CADE will generally review: (i) the materiality Superintendence in some key sectors are good news for those of the practice; (ii) whether the defendant holds a dominant position advocating that strong competition policy can only be implemented in the market; (iii) the potential effects of the practice; and (iv) the if appropriate measures are taken against illegal unilateral conducts.

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there is reasonable doubt about the company’s dominance, CADE 3.2 What are the laws governing dominant firms? may also perform quantitative tests.

Dominant firms are governed by the 2011 Competition Act, which 3.7 What is the role of market share in assessing market provides that a dominant position is held to occur when a company dominance? or group of companies is capable of altering, in a unilateral and concerted manner, the market conditions or when it controls twenty CADE’s precedents indicate that it acknowledges the fact that market per cent (20%) or more of the relevant market. shares alone are not sufficient to determine whether a given company is dominant, and that it should also consider the market shares during 3.3 What is the analytical framework for defining a market other years and the position of other companies doing business in Brazil in dominant firm cases? the same market. Nevertheless, CADE tends to look primarily into the market shares given the legal presumption set forth in the 2011 CADE normally examines the two dimensions of the relevant Competition Act (the twenty per cent (20%) threshold). market in which the commercial conduct takes place: the relevant goods or services and the geographic extent of the market. The 3.8 What defences are available to allegations that a firm hypothetical monopolist test is usually employed by CADE. The is abusing its dominance or market power? substitutes of the product under examination are included in the same relevant market as the customers would switch to them in CADE normally examines whether possible justifications and response to the hypothetical situation where the price of the product efficiencies of the conduct outweigh its anticompetitive effects. under examination is raised and maintained above competitive Therefore, the efficiencies argument is the most common. levels. CADE understands that the alternative products do not need to be perfect substitutes. CADE also considers businesses not currently supplying the product under examination but that could, 3.9 What is the role of efficiencies in analysing dominant in a short period of time, supply close substitutes of the product firm behaviour? under examination in response to price increases. This means that supply-side substitutes may also be included in the definition of the Under a rule of reason approach normally used by CADE in relevant market by CADE, which also takes into account the area unilateral conduct cases, conducts that have anticompetitive effects in which the product under examination is being sold and whether which cannot be sufficiently offset by possible compensatory customers have the option to switch to products sold in other areas. benefits/efficiencies should be disapproved. In any event, CADE CADE tends to examine the Brazilian or even regional markets, and normally undertakes the analysis of the efficiencies in order to reach eventually a worldwide relevant market. a decision in relation to the investigated conduct. CADE seems to be aware that empirical assessment of efficiencies can improve the quality of its decisions in unilateral conduct cases. 3.4 What is the market share threshold for enforcers or a court to consider a firm as dominant or a monopolist? 3.10 Do the governing laws apply to “collective” Under the 2011 Competition Act, an undertaking with more than dominance? twenty per cent (20%) market share is presumed to be dominant by CADE. Dominance can eventually be established by CADE Yes, see question 2.2. below or above that figure. Please note that, in practice, CADE rarely relies solely on the twenty per cent (20%) threshold. Instead, 3.11 How do the laws in your jurisdiction apply to it investigates whether the company has the power to independently dominant purchasers? set or modify the market conditions. This should be especially true in tech markets. Dominant purchasers can also be sanctioned provided that their conducts amount to the following effects or potential effects: (a) to 3.5 In general, what are the consequences of being limit, restrain or in any way harm open competition or free enterprise; adjudged “dominant” or a “monopolist”? Is (b) to control a relevant market of a certain product or service; (c) dominance or monopoly illegal per se (or subject to to increase profits arbitrarily; and (d) to abuse a dominant position. regulation), or are there specific types of conduct that are prohibited? 3.12 What counts as abuse of dominance or exclusionary It is not illegal per se to be dominant or monopolist. The 2011 or anticompetitive conduct? Competition Act expressly says that the achievement of market control as a natural result of greater competitive efficiency by a CADE considers that the effect – or the potential effect – of a market player vis-à-vis its competitors does not entail an occurrence dominant company’s conduct on the market should be the focus of an offence. The 2011 Competition Act only considers an for the determination of an abuse of dominance, regardless of how infringement an abuse of the dominant position. the abuse takes place. The 2011 Competition Act contains a list of conducts that may amount to abuse. CADE acknowledges that a conduct may be abusive when it artificially affects the intensity of 3.6 What is the role of economic analysis in assessing existing or potential competition. In this context, dominant firms market dominance? should not allow their conduct to impair competition.

CADE’s analysis is generally qualitative, at least as a first step. In the qualitative analysis, CADE seeks input from market participants, as well as data available in public sources and economic reports. If

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usually applying to regular business practices and policies may be 3.13 What is the role of intellectual property in analysing considered anticompetitive by CADE, provided that the investigated dominant firm behaviour? company has market power and the refusal: (i) involves an essential input; (ii) is related to access to the input by a competitor; or (iii) The 2011 Competition Act expressly states that exercising or is in connection with a product or service whose duplication is exploiting industrial or intellectual property rights, technology or impossible (for various reasons). brands in an abusive manner may constitute an anticompetitive conduct. CADE’s review of the Anfape case, discussed above, reinforced CADE’s position to not evaluate the validity of an 4 Miscellaneous intellectual property granted by the National Institute of Intellectual Brazil Property. 4.1 Please describe and comment on anything unique to your jurisdiction (or not covered above) with regards 3.14 Do enforcers and/or legal tribunals consider “direct to vertical agreements and dominant firms. effects” evidence of market power? Especially in the last two decades, CADE has been praised for Yes. CADE normally looks into the direct effects evidence of its “high standards of integrity, autonomy, sound policy, and fair market power to determine that a company has abused its dominant procedure” (OECD, 2005). Since 2012, CADE has demonstrated position. its intention to intensify investigations into unilateral conduct of dominant firms, which are perhaps more common in Brazil than in other jurisdictions. Despite the challenges in terms of 3.15 How is “platform dominance” assessed in your jurisdiction? evidence and examination of efficiency defences, CADE’s General Superintendence has been working hard in important and difficult cases related to the tech industry and has been trying to build up Currently, there is no case law on platform dominance. reliable substantive standards to evaluate vertical restraints based on solid economic theory. 3.16 Under what circumstances are refusals to deal considered anticompetitive?

After examining CADE’s case law, it seems fair to state that refusals to sell goods or services within the payment conditions

Leonardo Rocha e Silva Daniel Costa Rebello Pinheiro Neto Advogados Pinheiro Neto Advogados SAFS, Quadra 2, Bloco B SAFS, Quadra 2, Bloco B Edifício Via Office – 3° andar Edifício Via Office – 3° andar Brasília-DF Brasília-DF Brazil Brazil

Tel: +55 61 3312 94 88 Tel: +55 61 3312 94 13 Email: [email protected] Email: [email protected] URL: www.pinheironeto.com.br URL: www.pinheironeto.com.br

Leonardo Rocha e Silva has been a partner at Pinheiro Neto Daniel Rebello is a senior associate in Pinheiro Neto Advogados’s Advogados since 2006. He has more than 20 years’ experience of Competition Law Practice Group. Daniel previously worked in the guiding his clients through merger control issues and investigations, Netherlands and holds an LL.M. from Columbia University, New York. including cartels, vertical restraints and abuse of dominance. His He is licensed to practise law in Brazil and in New York. Daniel is the practice areas include antitrust, civil and commercial litigation. former Head of Antitrust Analysis at CADE, dealing with merger control Leonardo previously worked in Switzerland and in the UK, and holds and unilateral behaviour. He has more than 14 years of experience in an LL.M. in International Economic Law from the University of Warwick. competition law and compliance issues.

Pinheiro Neto Advogados’ Competition Law Practice Group is involved in the most important unilateral conduct investigations underway at CADE. The experienced team has in-depth knowledge of the industries involved in the investigations and has participated in various and complex negotiations of settlement agreements. Pinheiro Neto has equity partners and complete teams of associates with expertise in competition law not only in São Paulo but also in Brasília, where the authorities conduct the investigations and judgments. The team has recently been very active in helping clients in the review and/or implementation of internal investigations and compliance training programmes. The team members have published various articles in the field and have been constantly recognised by Who’s Who, Chambers & Partners, Best Lawyers, LACCA Approved and other institutions as leading practitioners in Brazil.

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Canada Randall Hofley

Blake, Cassels & Graydon LLP Evangelia Litsa Kriaris

resolution is not possible, the Commissioner may apply to the 1 General Competition Tribunal (Tribunal) (a specialised court responsible for adjudicating applications relating to civilly reviewable matters), for 1.1 What authorities or agencies investigate and enforce an order remedying the conduct. the laws governing vertical agreements and dominant firm conduct? 1.4 What remedies (e.g., fines, damages, injunctions, etc.) are available to enforcers? The Commissioner of Competition (Commissioner) is responsible for the administration and enforcement of the Competition The remedies ordered by the Tribunal (and sought by the Act, R.S.C. 1985, c. C-34 (Act) and is the head of the Canadian Commissioner) will depend on the relevant provision(s) of the Act in Competition Bureau (Bureau), an independent agency within the issue. The Tribunal can generally prohibit a party from engaging in Ministry of Innovation, Science and Economic Development. The the anti-competitive conduct. Certain provisions contain additional Commissioner investigates and enforces the provisions of the Act remedies, such as ordering a party to supply customers on usual related to vertical agreements and dominant firm conduct. trade terms (in the case of a refusal to deal), ordering a party to accept a third party as a customer on usual trade terms (in the case 1.2 What investigative powers do the responsible of price maintenance), and ordering a party to pay an administrative competition authorities have? monetary penalty (AMP) (in the case of an abuse of dominance).

While the Commissioner will often seek the voluntary cooperation 1.5 How are those remedies determined and/or of the target(s) of an investigation and third parties (such as calculated? competitors, suppliers and customers), the Commissioner has powers under the Act to obtain a court order requiring: a witness The Tribunal will only issue an order where all of the elements of the to be examined under oath (or solemn affirmation); the delivery of provision(s) are established, on a balance of probabilities, and only written responses to questions, under oath (or solemn affirmation); to the extent permissible by the relevant provision(s) and necessary and the production of documents or other records. to address the anti-competitive harm. AMPs cannot be ordered to punish anti-competitive conduct, but 1.3 Describe the steps in the process from the opening of only to promote practices that are in conformity with the purposes an investigation to its resolution. of the abuse of dominance provisions. In determining the amount of the AMP, the Tribunal must consider: the effect on competition A Bureau investigation is typically initiated following the receipt in the relevant market; the gross revenue from sales affected by of a complaint about a party’s conduct, and can lead to the the practice; any actual or anticipated profits from the practice; commencement of a formal inquiry into the matter (required to the financial position of the target(s); the history of the target(s)’ invoke the investigatory powers outlined in the response to question compliance with the Act; and any other relevant factor. 1.2). Launching a formal inquiry is, generally, subject to the Commissioner’s discretion, save in rare circumstances (specified in the Act) where an inquiry must be launched. 1.6 Describe the process of negotiating commitments or other forms of voluntary resolution. The Commissioner will, generally, seek voluntary cooperation from the target and third parties at the outset of his investigation, and Where the Commissioner and the target(s) are able to reach a thereafter may use his formal powers described in the response to resolution, the Commissioner may accept an undertaking(s) from question 1.2 should the investigation progress. All stakeholders, the target(s), but, generally, the parties will enter into a consent notably the target(s) of the investigations, can make submissions to agreement. The consent agreement sets out the target’s obligations the Commissioner. as regards the relevant conduct and any applicable AMPs or costs Where the Commissioner determines that the relevant provisions payable to the Commissioner; it is filed with the Tribunal and has the of the Act have been engaged, he will, generally, try to resolve the same force and effect as an order of the Tribunal. issue(s) with the target on a negotiated basis. Where a negotiated

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regulations may affect a party’s conduct and/or the competitive 1.7 Does the enforcer have to defend its claims in front dynamics in the relevant market. For example, regulations that of a legal tribunal or in other judicial proceedings? If authorise the conduct, expressly or impliedly, may affect the remedy so, what is the legal standard that applies to justify an sought or granted (or whether a remedy will be sought or granted at enforcement action? all) and regulations that limit entry may be important in assessing whether the target(s) has market power, a required element of abuse Absent a negotiated resolution, the Commissioner must apply of dominance. to the Tribunal for relief. To be successful in his application, the Commissioner must establish, on a balance of probabilities, that the relevant provision(s) of the Act has been contravened. 1.13 Describe how your jurisdiction’s political environment

Canada may or may not affect antitrust enforcement.

1.8 What is the appeals process? The Commissioner is an independent law enforcement official and the political environment does not generally affect his enforcement of A Tribunal decision can be appealed to the Federal Court of Appeal the vertical agreement or abuse of dominance provisions of the Act. (with leave on questions of fact and as of right for questions of law). The Federal Court of Appeal’s decision can be appealed to the Supreme Court of Canada, with leave. 1.14 What are the current enforcement trends and priorities in your jurisdiction?

1.9 Are private rights of action available and, if so, how The Bureau is particularly concerned with industries that impact do they differ from government enforcement actions? the greatest number of Canadians. For example, recent Bureau investigations have considered anti-competitive conduct related Parties directly affected by certain vertical conduct can, with leave to residential real estate, securities market data, contracts with of the Tribunal, apply to the Tribunal for relief concerning another Canadian wireless carriers to sell and market smartphones, party’s contravention of the Act’s refusal to deal, price maintenance, agreements relating to e-books, catering services at airports, air exclusive dealing, tied selling and market restriction provisions. transportation, the grocery industry and the travel industry. Relief does not include damages and is limited to the relief available on an application by the Commissioner. No such private right of access is available with respect to abuse of dominance. 1.15 Describe any notable case law developments in the past year. Private rights of action for damages are not available with respect to the vertical agreements or abuse of dominance provisions of the Two notable decisions in the past year concern the Commissioner’s Act, save where a party has suffered damages as a result of another’s abuse of dominance investigations in the real estate industry and breach of a Tribunal order with respect to those provisions. The airport catering services. action can be commenced before a provincial superior court or the Federal Court (not the Tribunal) and can be brought as a class action The Commissioner brought an application before the Tribunal (where applicable) in a provincial superior court. alleging that the Toronto Real Estate Board (TREB) abused its dominant position by restricting its members from using data to offer real estate services over the internet. Following a Federal 1.10 Describe any immunities, exemptions, or safe harbors Court of Appeal finding that section 79 should not be interpreted so that apply. narrowly as to require that the anti-competitive acts be directed at one’s competitor, the Tribunal ruled (in the Commissioner’s favour) No immunities or safe harbours apply to the Act’s vertical agreement that TREB’s restrictions substantially prevented competition for or abuse of dominance provisions, but there are “exemptions” real estate services, especially innovative competition, and were not applicable to certain such provisions, for example where: saved as an exercise of the Board’s intellectual property rights in the ■ the entities are affiliated (price maintenance, exclusive data. The decision was appealed to the Federal Court of Appeal, dealing, tied selling and market restriction); which affirmed the Tribunal’s decision in December 2017. (The ■ proceedings have been commenced or an order is being Commissioner of Competition v. The Toronto Real Estate Board, sought relating to the same conduct under other provisions of 2013 Comp. Trib. 9 (CT-2011-003), rev’d 2014 FCA 29, leave to the Act (price maintenance and abuse of dominance); and appeal to SCC refused, 35799 (July 24, 2014) and The Commissioner ■ the conduct is the exercise or enjoyment of an intellectual or of Competition v The Toronto Real Estate Board, 2016 Comp. Trib. industrial property right (abuse of dominance). 7 (CT-2011-003), aff’d 2017 FCA 236.) TREB has sought leave to appeal the decision to the Supreme Court of Canada (SCC 37932). 1.11 Does enforcement vary between industries or The Commissioner brought an application before the Tribunal alleging businesses? that the Vancouver Airport Authority (VAA) abused its dominant position by denying new suppliers of in-flight catering access to the Generally, no; however, the Bureau may identify certain industries, Vancouver International Airport. The VAA sought disclosure of or even practices, as enforcement priorities, often determined by records the Bureau had obtained from third parties in the course of its their impact on the greatest number of Canadians. abuse of dominance investigation. The Commissioner argued that the records should not be provided to the VAA as they were automatically protected from disclosure on a “class” basis under public interest 1.12 How do enforcers and courts take into consideration an industry’s regulatory context when assessing privilege. The Tribunal agreed, but the Federal Court of Appeal (in competition concerns? January 2018) overturned the decision, finding that the Commissioner could not assert this privilege on a class basis, but would need to The Commissioner and Tribunal will take into account how industry demonstrate, on a case-by-case basis, why certain records should

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be protected from disclosure. (The Commissioner of Competition v Canada (Director of Investigation and Research) v. NutraSweet Vancouver Airport Authority, 2017 Comp. Trib. 6, rev’d 2018 FCA 24.) Co. (1990), 32 C.P.R. (3d) 1 (Comp. Trib.); Commissioner of Competition v. Canada Pipe, 2005 Comp. Trib. 3 (CT-2002-006), aff’d 2006 FCA 236, leave to appeal to SCC refused [2006] S.C.C.A. 2 Vertical Agreements No. 366 and Abuse of Dominance Guidelines (see question 2.15)).

2.1 At a high level, what is the level of concern over, and 2.7 How are vertical agreements analysed when one of scrutiny given to, vertical agreements? the parties is vertically integrated into the same level as the other party (so called “dual distribution”)? Are these treated as vertical or horizontal agreements?

The Commissioner will investigate and may pursue vertical Canada agreements which (or are likely to) substantially lessen or prevent, or have an adverse effect on, competition; however, these provisions The Commissioner will generally assess agreements between of the Act have not been a high enforcement priority for the suppliers and distributors in a dual distribution arrangement as Commissioner and have not been the subject of recent (public) vertical agreements under the civil provisions of the Act. However, enforcement action. where the agreements are, effectively, agreements (to restrain competition) amongst competitors, such as by allocating markets, the Bureau can also consider such agreements under the cartel 2.2 What is the analysis to determine (a) whether there is an (criminal) or competitor collaboration (civil) provisions of the Act. agreement, and (b) whether that agreement is vertical?

The Act’s focus is not on the existence of a “vertical agreement” but 2.8 What is the role of market share in reviewing a vertical on the nature of the vertical (often unilateral) conduct and whether agreement? it contravenes the relevant provision(s) of the Act, e.g., by adversely affecting or substantially lessening or preventing competition. Certain provisions only apply where a target is dominant or is a “major supplier” in a market. Market share will be an important, but not determinative, factor in such cases. 2.3 What are the laws governing vertical agreements? Additionally, the extent of the target’s market power will be important in assessing the relevant conduct’s effect on competition, The main provisions of the Act regulating practices associated with and market share will be a factor in that regard. vertical relationships are: refusal to deal (section 75); price maintenance (section 76); exclusive dealing; tied selling; market restriction (section 77); and abuse of dominance (sections 78–79). (See questions 2.16– 2.9 What is the role of economic analysis in assessing 2.18, 2.22 and Section 3 for a discussion of these provisions.) vertical agreements?

Economic analysis is fundamental to determining the relevant 2.4 Are there any type of vertical agreements or restraints conduct’s actual or likely effect on competition. that are absolutely (“per se”) protected?

No, there are not. 2.10 What is the role of efficiencies in analysing vertical agreements?

2.5 What is the analytical framework for assessing None of the Act’s relevant provisions expressly provide for vertical agreements? efficiencies to be taken into account; however, the business justification(s) which may be based on efficiencies, may be relevant The analytical framework is dependent on the relevant provision(s) to the analysis. Moreover, the promotion of efficient markets is of the Act. (See questions 2.16–2.18, 2.22 and Section 3.) one of the enumerated purposes of the Act and these purposes may be considered by the Tribunal in its analysis of vertical agreements. 2.6 What is the analytical framework for defining a market in vertical agreement cases? 2.11 Are there any special rules for vertical agreements relating to intellectual property and, if so, how does The market has both a product (goods or services) and geographic the analysis of such rules differ? market dimension. The product market will include the product(s) associated with Section 32 of the Act empowers the Federal Court, on application the anti-competitive conduct and any close substitutes. Buyer by the Attorney General of Canada, to make a remedial order(s) if behaviour, product end-use and physical characteristics, switching it finds that a firm has used its IP rights to unduly restrain or injure costs, and price relationships/levels are amongst the factors trade or unduly limit, lessen or prevent competition. Such orders considered in defining the product market. could include declaring any agreement or licence relating to the The geographic market will include the location where the relevant anti-competitive use void, requiring the licensing of the IP right product is sold and any other locations which provide supply substitutes (except in the case of trademarks), revoking the IP right or directing (e.g., the territory where there is competition and in which prices for a that other things be done to prevent its anti-competitive use. product tend towards uniformity). Buyer behaviour, switching costs, Only two such applications have ever been made (in 1969 and 1970), transportation costs, shipment patterns and foreign competition are and both cases were settled before proceeding to full hearings with amongst the factors considered in defining the geographic market. no remedial order being issued. (Canada (Director of Investigation and Research) v. Tele-Direct (See question 3.13 regarding IP rights and the abuse of dominance (Publications) Inc. (1997), 73 C.P.R. (3d) 1 (Comp. Trib.) and provisions of the Act.)

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(a) it is widespread in a market or is engaged in by a major 2.12 Does the enforcer have to demonstrate supplier; anticompetitive effects? (b) it is likely to: (i) impede entry into or expansion of a firm in a market; (ii) impede the introduction of a product into or Yes, either an “adverse effect” on competition, a “substantial expansion of sales of a product in a market; or (iii) have any lessening” or a “substantial lessening or prevention” of competition other exclusionary effect in a market; and (depending on the relevant provision of the Act). (c) competition is or is likely to be lessened substantially. The Commissioner (or a private party, with leave) may apply to the 2.13 Will enforcers or legal tribunals weigh the harm Tribunal for relief and, if successful, the Tribunal can issue an order against potential benefits or efficiencies? prohibiting the conduct from continuing and containing any other Canada requirement that is necessary to restore or stimulate competition in See question 2.10. the market. No order will be issued where the practice is carried on for a reasonable time (only) to facilitate entry of a new supplier or a new product. 2.14 What other defences are available to allegations that a vertical agreement is anticompetitive? 2.18 How do enforcers and courts examine tying/ See question 1.10. supplementary obligation claims?

Tied selling refers to any practice whereby a supplier of a product 2.15 Have the enforcement authorities issued any formal guidelines regarding vertical agreements? either as a condition of supply or through an inducement requires a customer to acquire a second product from the supplier (or its nominee), or refrain from using or distributing, in conjunction Yes. The Bureau has issued guidelines relating to price maintenance with the tying product, another product that is not of a brand or and abuse of dominance. (See Enforcement Guidelines on Price manufacture designated by the supplier (or its nominee). Tied Maintenance, Section 76 of the Competition Act (15 September 2014), selling is only subject to a remedy where: available online at http://www.competitionbureau.gc.ca/eic/site/cb- bc.nsf/eng/03787.html and Enforcement Guidelines on the Abuse of (a) it is widespread in a market or is engaged in by a major supplier; Dominance Provisions, Sections 78 and 79 of the Competition Act (20 September 2012), available online at www.competitionbureau.gc.ca/ (b) it is likely to: (i) impede entry into or expansion of a firm in eic/site/cb-bc.nsf/eng/03497.html (Abuse of Dominance Guidelines)). a market; (ii) impede the introduction of a product into or expansion of sales of a product in a market; or (iii) have any other exclusionary effect in a market; and 2.16 How is resale price maintenance treated under the (c) competition is or is likely to be lessened substantially. law? The Commissioner (or a private party, with leave) may apply to the Tribunal for relief and, if successful, the Tribunal can issue an order Resale price maintenance occurs where a supplier: (a) by “agreement, prohibiting the conduct from continuing and containing any other threat, promise or any like means” influences upward or discourages requirement that is necessary to restore or stimulate competition in the reduction of the price at which a customer or other reseller the market. No order will be issued where the practice is reasonable, supplies, offers to supply, or advertises a product within Canada; having regard to the relationship between the products. or (b) refuses to supply a product to, or otherwise discriminates against, any person because of that person’s low pricing policy, and results in an adverse effect on competition in a market. 2.19 How do enforcers and courts examine price discrimination claims? The price maintenance provisions do not apply where the customer and supplier are in a principal/agent relationship, or the customer used the product(s) as a loss leader or to attract customers to buy There is no provision in the Act that expressly deals with price other products (and not to generate a profit), was making a practice discrimination, but the Commissioner takes the position that such of misleading advertising, or did not provide the level of service that conduct can be considered under the abuse of dominance provisions purchasers of the product would reasonably expect. (see Section 3). The Commissioner (or a private party, with leave) may apply to the Tribunal for relief and if successful, the Tribunal can issue an order 2.20 How do enforcers and courts examine loyalty prohibiting the conduct from continuing or requiring the party to discount claims? accept another person as a customer on usual trade terms. Loyalty discounts are considered under the exclusive dealing (see question 2.17) and abuse of dominance (see Section 3) provisions 2.17 How do enforcers and courts examine exclusive of the Act. dealing claims?

Exclusive dealing refers to any practice whereby a supplier of a 2.21 How do enforcers and courts examine multi-product product either as a condition of supply or through an inducement or “bundled” discount claims? requires a customer to deal only or primarily in certain products, or refrain from dealing with certain products. The practice is only Multi-product or “bundled” discounts are considered under the tied subject to a remedy where: selling (see question 2.18) and abuse of dominance (see Section 3) provisions of the Act.

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2.22 What other types of vertical restraints are prohibited 3.2 What are the laws governing dominant firms? by the applicable laws? The provisions of the Act applicable to dominant firms are sections Refusal to Deal 78 and 79, and to a limited extent section 77 (see questions 2.17, Where a supplier refuses to supply a customer with a product, the 2.18 and 2.22 in that regard). Tribunal will find a contravention of section 75 warranting a remedy Under section 79, abuse of dominance occurs where (Canada where: (Commissioner of Competition) v. Canada Pipe Co. 2006 FCA 233, (a) the product is in ample supply; leave to appeal to SCC refused [2006] S.C.C.A. No. 366):

(b) the customer who is refused supply is: ■ Dominance – One or more firms substantially or completely Canada i. substantially affected in its business or precluded from control(s) a market. carrying on its business; ■ Anti-competitive conduct – The dominant firm(s) has ii. unable to obtain adequate supplies of the product because (have) engaged in a practice of anti-competitive acts. A non- of insufficient competition among suppliers of the product exhaustive list of (potentially) “anti-competitive acts” is set in the market; and out in section 78 and includes margin squeezing, exclusive dealing, predatory pricing, selective introduction of “fighting iii. willing and able to meet the usual trade terms; and brands”, and other conduct. (c) the refusal to deal is having or is likely to have an adverse ■ A substantial prevention or lessening of competition effect on competition in a market. (SPLC) – The anti-competitive conduct has had, is having or The Commissioner (or a private party, with leave) may apply to the is likely to result in a SPLC in a relevant market. Tribunal for relief and, if successful, the Tribunal can issue an order Where the Tribunal finds that section 79 has been engaged it can requiring the party to supply the product on usual trade terms. issue an order prohibiting the firm(s) from continuing to engage Market Restriction in the anti-competitive conduct or where such an order would not Where a party requires a customer to sell a product only in a be effective, it can direct the firm(s) to take certain specific actions defined market as a condition of supplying that product, or exacts (such as the divestiture of assets or shares). Additionally, the a penalty from the customer if it supplies the product outside a Tribunal can order the firm(s) to pay AMPs of no more than C$10 defined market, the Tribunal will find a contravention of section 77 million, for a first order, and C$15 million for subsequent orders. warranting a remedy where the practice is widespread in a market Only the Commissioner can apply to the Tribunal for an order under or is engaged in by a major supplier, and is likely to substantially section 79; there is no private right of access for third parties nor lessen competition in relation to the product. private right of action for damages. The Commissioner (or a private litigant, with leave) may apply to the Tribunal for relief and, if successful, the Tribunal can issue 3.3 What is the analytical framework for defining a market an order prohibiting the conduct from continuing and containing in dominant firm cases? any other requirement that is necessary to restore or stimulate competition in the market. See the response to question 2.6.

2.23 How are MFNs treated under the law? 3.4 What is the market share threshold for enforcers or a court to consider a firm as dominant or a monopolist? MFNs are typically considered under the abuse of dominance provisions of the Act. (See, e.g., Canada (Director of Investigation While the Act does not identify a specific market share threshold that and Research) v. The D & B Companies of Canada Ltd. (1995), 64 will trigger a finding of dominance, a high market share is generally C.P.R. (3d) 216 (Comp. Trib.) and Section 3, below.) However, in a required. The Bureau’s Abuse of Dominance Guidelines note that recent case dealing with e-books, MFNs were also considered under in the case of single firm conduct, a market share of 50% or more section 90.1 of the Act, as part of a collaboration between (potential) will generally prompt review while market shares below 50% (and competitors, with the Commissioner asserting that agreements that more than 35%) will “generally only prompt further examination if included MFN clauses and restricted the ability of e-book retailers it appears the firm is likely to increase its market share through the to discount the retail price for e-books were contrary to section 90.1. alleged anti-competitive conduct within a reasonable period of time”. To date, all of the contested abuse of dominance cases in Canada have involved single firms with market shares in excess of 70%. 3 Dominant Firms In the case of “joint abuse”, the Abuse of Dominance Guidelines provide that a combined market share equal to or exceeding 65% 3.1 At a high level, what is the level of concern over, and “will generally prompt further examination”. scrutiny given to, unilateral conduct (e.g., abuse of dominance)? 3.5 In general, what are the consequences of being adjudged “dominant” or a “monopolist”? Is The Commissioner takes seriously conduct which engages the Act’s dominance or monopoly illegal per se (or subject to abuse of dominance provisions and will take action to remedy such regulation), or are there specific types of conduct that conduct before the Tribunal. Having said that, the Bureau pursues a are prohibited? limited number of such cases before the Tribunal. Neither dominance nor monopoly is illegal under the Act. Only conduct engaged in by a dominant party (parties) or monopolist, where all of the elements of section 79 are established, is problematic (see question 3.2).

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in determining whether the actions of a dominant firm (or jointly 3.6 What is the role of economic analysis in assessing dominant firms) constitute an abuse of dominance; however, there is market dominance? no Tribunal jurisprudence on purchaser dominance.

Economic analysis is fundamental to determining a firm’s 3.12 What counts as abuse of dominance or exclusionary dominance, as well as assessing the anti-competitive conduct’s or anticompetitive conduct? effect on competition.

Section 78 contains a non-exhaustive list of nine acts that could 3.7 What is the role of market share in assessing market trigger the application of section 79. Examples of acts not found in dominance? Canada this list but asserted by the Commissioner to be anti-competitive are: contracting practices requiring or inducing exclusivity; evergreen, Market share will be an important but not determinative factor in meet-or-release or MFN clauses; intimidation through litigation; assessing dominance (see question 3.4). and tied selling.

3.8 What defences are available to allegations that a firm 3.13 What is the role of intellectual property in analysing is abusing its dominance or market power? dominant firm behaviour?

Section 79 contains only a few limitations on its application, notably: Subsection 79(5) of the Act provides that the exercise of an IP right ■ subsection 79(4) provides that the Tribunal must consider will not be considered an anti-competitive act for the purposes of whether a firm’s practice is a result of superior competitive section 79. In its Intellectual Property Guidelines, the Bureau takes performance and the Bureau’s Abuse of Dominance the position that a mere exercise of an IP right will not be regulated Guidelines note that “a firm would not contravene the Act under the general provisions of the Act, but only under section 32. if it attains its market power solely by possessing a superior (Intellectual Property Enforcement Guidelines (31 March 2016), product or process, by introducing an innovative business available online at: http://www.competitionbureau.gc.ca/eic/site/cb- practice or by other reasons of exceptional performance”; and bc.nsf/vwapj/cb-IPEG-e.pdf/$file/cb-IPEG-e.pdf). (See question ■ subsection 79(5) provides that the exercise or enjoyment of 2.11 for a discussion of section 32.) an intellectual or industrial property right is not “an anti- competitive act”. 3.14 Do enforcers and/or legal tribunals consider “direct effects” evidence of market power? 3.9 What is the role of efficiencies in analysing dominant firm behaviour? Yes, direct indicators (e.g., whether profits, pricing policies or customer service indicate market power) will be considered in The promotion of efficient markets is one of the enumerated purposes assessing market power. However, the Bureau has noted in its of the Act and these purposes are to be reflected in the methodology Abuse of Dominance Guidelines that such indicators are not always used to assess whether conduct is likely to prevent or lessen conclusive. As a result, the Bureau (and the Tribunal) will also competition substantially in abuse of dominance cases (Canada consider indirect indicators (such as market share, barriers to entry, (Commissioner of Competition) v. Canada Pipe Co. 2006 FCA 233 countervailing buyer power, etc.) in assessing market power. at para. 48, leave to appeal to SCC refused [2006] S.C.C.A. No. 366). While efficiencies are not expressly referenced in section 79, they are relevant to a consideration of whether the relevant conduct 3.15 How is “platform dominance” assessed in your constitutes an “anti-competitive act” or whether it is in furtherance jurisdiction? of a legitimate business objective. The latter “must be a credible efficiency or pro-competitive rationale for the conduct in question”. The Act assesses conduct that would constitute an abuse of (Canada (Commissioner of Competition) v. Canada Pipe Co. dominance irrespective of the industry; the Tribunal has not 2006 FCA 233 at para. 73, leave to appeal to SCC refused [2006] considered cases where “platform dominance” was in issue. S.C.C.A. No. 366.) The Bureau’s Abuse of Dominance Guidelines note that business justifications could include “reducing the firm’s 3.16 Under what circumstances are refusals to deal costs of production or operation, or improvements in technology considered anticompetitive? or production processes that result in innovative new products or improvements in product quality or service”. See the response to question 2.22.

3.10 Do the governing laws apply to “collective” dominance? 4 Miscellaneous

Yes, however, there is currently no Tribunal jurisprudence on what 4.1 Please describe and comment on anything unique to would constitute an abuse of joint dominance (for example, whether your jurisdiction (or not covered above) with regards co-ordinated behaviour between firms is required or whether to vertical agreements and dominant firms. conscious parallelism would be sufficient). In the spring of 2018, the Bureau issued a revised draft of its Abuse 3.11 How do the laws in your jurisdiction apply to of Dominance Guidelines for public comment. A final version of dominant purchasers? these guidelines is expected to be published by the Bureau.

The Commissioner and Tribunal will undertake the same analysis

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Randall Hofley Evangelia Litsa Kriaris Blake, Cassels & Graydon LLP Blake, Cassels & Graydon LLP 199 Bay Street, Suite 4000 199 Bay Street, Suite 4000 Commerce Court West Commerce Court West Toronto, Ontario, M5L 1A9 Toronto, Ontario, M5L 1A9 Canada Canada

Tel: +1 416 863 2387 Tel: +1 416 863 3891 Email: [email protected] Email: [email protected] URL: www.blakes.com URL: www.blakes.com Canada Randall Hofley is currently serving as General Counsel and Senior Evangelia Litsa Kriaris advises clients on all aspects of Canadian Enforcement Advisor at the Competition Bureau Legal Services for a competition law, including mergers and acquisitions, joint ventures and two-year term. He remains a partner at Blake, Cassels & Graydon strategic alliances, abuse of dominance, conspiracies and bid-rigging, LLP but is on leave under the Government of Canada’s Interchange criminal and civil investigations and compliance matters relating to Program. the Competition Act. She also provides advice on foreign investment review matters relating to the Investment Canada Act. Randall advises clients on all aspects of competition law, with a focus on contentious matters, before the Canadian Competition Tribunal and Litsa has represented clients in complex M&A transactions, all levels of Canadian courts. He is consistently ranked as a leading investigations relating to criminal cartel matters and as litigation competition lawyer and litigator in Canada. counsel in antitrust class actions. She has appeared as counsel before the Federal Court of Canada and the lower level and appellate Randall has worked on many of the most high-profile competition level courts in Ontario and British Columbia. lawmatters, substantially influencing competition laws and policies as they apply to companies doing business in Canada. These matters Litsa is listed in Who’s Who Legal: Competition – Future Leaders 2018, include the first abuse of dominance case to reach the Federal Court which profiles the foremost practitioners in the competition community of Appeal and the Supreme Court of Canada, the only Federal Court aged 45 and under. of Appeal decision to address the application of the Competition Act to patents and the only case considering the (then) new price maintenance provisions of the Competition Act. Randall is a former Special Counsel to the Commissioner of Competition and Law Clerk at the Supreme Court of Canada for the now retired Chief Justice Beverley McLachlin. For over 25 years, he has been a trusted counsel for leading companies and trade associations operating in Canada, leveraging his public and private sector experience.

Blake, Cassels & Graydon LLP (Blakes) is a leading Canadian business law firm. For more than 150 years, Blakes has proudly served many of Canada’s and the world’s leading businesses and organisations. The Blakes Competition, Antitrust & Foreign Investment Group is widely acknowledged as the leading practice in Canada. Named “Competition Law Firm of the Year 2018” by Benchmark Canada, Blakes houses a formidable team of practitioners with recognised expertise in every aspect of competition law and foreign investment review. The Competition Group advises major domestic and international companies and law firms, providing strategic counsel and representation in merger reviews, cartel investigations, abuse of dominance cases, distribution practices, advertising matters and other competition issues. Blakes lawyers have been involved in the largest and most complex mergers in Canadian history, and have led the Canadian aspects of some of the largest global transactions, including internationally recognised innovative matters. Blakes is also a leading firm with respect to securing merger approvals for non-Canadian purchasers under Canada’s foreign investment laws.

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China

DeHeng Law Offices Ding Liang

1 General 1.3 Describe the steps in the process from the opening of an investigation to its resolution.

1.1 What authorities or agencies investigate and enforce the laws governing vertical agreements and dominant After the opening of an investigation, the SAMR may conduct an on- firm conduct? site inspection to collect and fix evidence, conduct interrogations, and request the undertaking under investigation to provide documents. The State Administration for Market Regulation (“SAMR”), a Undertakings which are under investigation and interested parties consolidated anti-monopoly enforcement agency, investigates and have the right to voice their views. The SAMR shall verify the enforces the Anti-monopoly Law of China (“AML”), which regulates facts, reasons and evidence presented by undertakings under vertical agreements and dominant firm conduct. investigation or interested parties. If the undertaking which submits an application agrees to undertake certain specific measures that Before April 2018, the National Development and Reform will lead to the elimination of the effect of suspicious practices Commission (“NDRC”) was responsible for the law enforcement within a time limit designated by the SAMR, then the SAMR may against price-related vertical agreements and abusive conduct, and decide to suspend the investigation. If the SAMR determines that a the State Administration for Industry and Commerce (“SAIC”) suspicious monopolistic conduct violates the AML, the SAMR shall was responsible for investigations into non-price-related vertical make a decision on how to deal with the monopolistic conduct, and agreements and abusive conduct. may publicise its decision. According to the Institutional Reform Plan of the State Council, released by the National People’s Congress on March 18, 2018, “the duties of the SAIC, the duty of the NDRC in price supervision and 1.4 What remedies (e.g., fines, damages, injunctions, etc.) are available to enforcers? antitrust law enforcement, the duty of the Ministry of Commerce in antitrust law enforcement for concentration of undertakings and the duty of the Office of Anti-monopoly Committee of the State Council In the case where an undertaking violates the AML by entering into shall be consolidated to form the SAMR as an organization directly and implementing a vertical monopoly agreement, the SAMR shall under the State Council”. order a halt to illegal activities, confiscate illegal earnings, and impose a fine of between 1% and 10% of the preceding year’s sales revenue; A bureau-level agency under the SAMR carries out antitrust if the monopoly agreement had been entered into but not yet been investigations into vertical agreements and dominant firm conduct. implemented, a fine of no more than RMB 500,000 shall be imposed. Where an undertaking reports, on its own initiative, a monopoly 1.2 What investigative powers do the responsible agreement entered into by said undertaking to the SAMR as well as competition authorities have? providing key evidence, the SAMR may consider a lighter fine, or forgo a fine altogether. When investigating monopolistic conduct, the SAMR may take the Where an undertaking violates the AML by abusing its dominant following measures: market position, the SAMR shall order a halt to the offending 1. enter the business premises of undertakings which are under conduct, confiscate the illegal earnings, and impose a fine of investigation or any other relevant place to inspect; between 1% and 10% of the preceding year’s sales revenue. 2. conduct interrogations of undertakings which are under investigation, interested parties, or other relevant entities or individuals, requiring them to disclose relevant information; 1.5 How are those remedies determined and/or calculated? 3. review and duplicate the relevant business documents, agreements, accounting books, business correspondence, electronic data, files, or documentations of undertakings To determine the specific amount of fines, the SAMR shall consider which are under investigation, interested parties, and other factors such as the nature, extent and duration of the monopoly relevant entities and individuals; conducts. 4. seize and detain the relevant evidence; and Step 1: identify relevant revenues 5. check the bank accounts of undertakings who are under The fine will be imposed on the basis of the preceding year’s sales investigation. revenue. In general, the “preceding year” shall be the year prior to

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the launch of the investigation. In some cases, the “preceding year” 1. timely file the application to suspend the investigation together is the year prior to the decision of imposing the fine. with the initial commitment to establish the foundation of the negotiation between undertakings and the SAMR; The scope of the fine could be narrowed to the relevant products under the investigation and the geographical area covered by the 2. the undertaking may negotiate with the SAMR regarding the monopolistic conduct. If the geographical area concerned is beyond content of commitments; and the territory of China, the SAMR generally takes the China-wide 3. if the SAMR holds that (1) the facts are clear, and (2) the domestic sales revenue of relevant products as the basis for calculating committed measures are sufficient to eliminate the effects fines, but it may take worldwide sales as the basis for calculating fines. caused by the suspicious monopolistic conducts, the SAMR may decide to suspend the investigation. The undertaking subject to the fine could be narrowed down as the undertaking who directly implements the monopolistic conduct. China However, the SAMR may impose fines on a parent company, 1.7 Does the enforcer have to defend its claims in front provided that the parent company can exercise decisive influence of a legal tribunal or in other judicial proceedings? If so, what is the legal standard that applies to justify an over the undertaking which has engaged in the monopolistic conduct. enforcement action? Step 2: identify percentage proportion In general, the initial proportion of the fine against vertical The SAMR as the anti-monopoly law enforcement agency agreements will be 1% according to the Draft Guidelines on designated by the State Council shall be responsible for the AML the Determination of Illegal Gains and Fines in Relation to enforcement. It does not need to defend its claims in front of a legal undertakings’ Monopolistic Conduct (“Draft Guidelines on Fines”). tribunal or in other judicial proceedings before issuing the decision. The initial proportion of the fine against abusive conduct will be 2% or 3%. The initial proportion will be increased by 1% for each year 1.8 What is the appeals process? of the infringement, up to a total of 10%. Step 3: adjust the proportion according to aggravating or Where any party concerned is dissatisfied with any decision made mitigating circumstances by the SAMR about monopoly agreement or abusive conduct, If the undertaking under investigation meets the following criteria, it may apply for an administrative reconsideration or lodge an the proportion will be increased by 1% for each circumstance: administrative lawsuit according to law. 1. playing a leading role in the monopolistic conduct, coercing or inviting other undertakings to implement the monopolistic 1.9 Are private rights of action available and, if so, how conduct, or preventing other undertakings from stopping the do they differ from government enforcement actions? monopolistic conduct; 2. committing multiple infringements in the same case, or Yes. Parties and non-parties to a vertical agreement can bring having infringed the AML in the past; damages claims if they have suffered losses due to an anticompetitive 3. actively compelling or facilitating administrative authorities clause contained in a vertical agreement. Anyone who suffered from or organisations to eliminate or restrict competition through the abusive conduct can file an antitrust suit against the undertaking abusing administrative power; and/or which holds dominant market position to claim damages. 4. continuing the monopoly conduct after being ordered to stop by the SAMR. The differences between the private enforcement and public enforcement are as follows: If the undertaking under investigation meets the following 1. The SAMR treats resale price maintenance (“RPM”) as a per criteria, the proportion will be decreased by 0.5% or 1% for each se violation, but allows the undertaking to justify its conduct circumstance: under Article 15 of the AML. In private enforcement, 1. being coerced by other undertakings to implement however, the RPM is reviewed by the People’s Court under monopolistic conduct; the rule of reason. 2. being forced or coerced by administrative authorities or 2. The plaintiff of a private action can withdraw the complaint, administrative organisations to implement the monopolistic which means it has certain control over the proceeding. conduct; However, after the SAMR initiated the antitrust investigation 3. cooperating with administrative agencies in the investigation based on the report of the whistle blower, the whistle blower and making meritorious contribution; cannot stop the public enforcement by withdrawing the report. 4. actively eliminating or mitigating the negative effect of 3. The fine imposed by the SAMR will be much higher than the monopolistic conduct; and/or damage ruled by the People’s Court. 5. voluntarily providing relevant evidence of other undertakings’ violation of the AML. 1.10 Describe any immunities, exemptions, or safe harbors The SAMR has full discretion to adjust the initial proportion of fines that apply. by considering the above aggravating or mitigating circumstances. Article 15 of the AML lists the circumstances under which an agreement containing a vertical restraint can be exempted from the 1.6 Describe the process of negotiating commitments or other forms of voluntary resolution. prohibition under the AML. These circumstances are: 1. advancing technology, or researching and developing new The leniency policy and the commitment negotiation do not apply to products; vertical agreements. A possible solution to avoid fines in a vertical 2. improving product quality, lowering cost, increasing agreement investigation is to apply the exemption under Article 15 efficiency, unifying specifications and standards, or of the AML (please refer to the response under question 1.10). implementing a division of labour based on specialisation; 3. improving the operation efficiency and competitiveness of The investigation against abusive conduct may be suspended small- and medium-sized undertakings; through commitment negotiation. The process is as follows:

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4. realising public interests such as energy conservation, environmental protection, and rescue and relief efforts; 1.15 Describe any notable case law developments in the 5. alleviating problems related to a serious drop in sales or past year. obvious overproduction during an economic downturn; 6. protecting legitimate interests during foreign trade or foreign In an antitrust litigation against an infringement decision issued by economic cooperation; or the Hainan Provincial Price Bureau concerning an RPM violation, the Hainan Higher People’s Court ruled in the second instance 7. if the undertaking claims that one of the first five circumstances exists, it must also prove that the agreement that AML enforcement agencies were not required to prove that does not significantly restrict competition in the relevant the RPM in question had the effect of eliminating or restricting competition, and thereby supported the Price Bureau’s infringement

China market and allows consumers a share of the resulting benefit. decision. This case endorsed the SAMR’s per se approach in the RPM investigation. 1.11 Does enforcement vary between industries or businesses? In 2017, the NDRC fined two pharmaceutical firms, Second Pharma Co, Ltd of Zhejiang Province and Tianjin Handewei The AML does not contain any provisions on vertical agreement and Pharmaceuticals Co, Ltd for selling Isoniazid active pharmaceutical abusive conduct that apply to specific sectors. The Anti-monopoly ingredients (API) at excessively high prices and for refusal to deal, Guideline in the Automobile Sector has been drafted and released which violates the AML. For the first time, the NDRC applied for public comments; however, the Guideline has not been issued. the collective dominance to find Handewei, a company with over Based on the current laws and regulations, the anti-monopoly 10% of the market share to be collectively dominant with Second enforcement does not vary between industries or businesses. Pharma, where the combined market share of the two companies exceeded two thirds on the relevant market. The two companies raised the price of Isoniazid API to a range between 3.52 and 19 1.12 How do enforcers and courts take into consideration times of the price at other time periods and of other batches, which an industry’s regulatory context when assessing were considered excessively high by the NDRC. competition concerns? In 2017, the NDRC investigated Shanghai and Tianjin port and found the following AML violations: (1) the imposition of restrictions on The SAMR and the People’s Court will consider the regulatory shipping companies to use services provided by subsidiaries of the context of the industries of vital economic or national security ports; (2) charging unfairly high prices in non-contestable local importance in which the state-owed sector of the economy holds the international trade container services; and (3) the imposition of position of control or industries, which implement monopolisation unreasonable trading conditions on trading parties such as loyalty legally. Article 7 of the AML provides, “the state protects the lawful terms. Thirty-nine ports were asked to conduct self-examinations business activities of the undertakings from industries of vital and rectify their practices. economic or national security importance in which the state-owned sector of the economy holds the position of control or industries which implement monopolization legally…”. 2 Vertical Agreements

1.13 Describe how your jurisdiction’s political environment 2.1 At a high level, what is the level of concern over, and may or may not affect antitrust enforcement. scrutiny given to, vertical agreements?

In general, the SAMR shall only consider competition issues when Article 14 of the AML states that the RPM is prohibited. The making the decision. The political environment does not affect wording of Article 14 is strong and the SAMR treats the RPM as anti-monopoly enforcement. However, the industrial policy may be per se illegal. In addition, Article 46 of the AML authorises the considered by the SAMR. For instance, when an undertaking applies anti-monopoly enforcement agency to impose a fine of 1% to 10% for exemption under Article 15 of the AML, most circumstances listed of sales revenue of the preceding year, which is no difference to the in that provision are related to industrial policy. The exemption is to cartel. The explicit wording of the AML and the practice of public find a balance between the competition policy and the industrial policy. enforcement indicate that China takes a high level of concern over illegal vertical agreements. 1.14 What are the current enforcement trends and priorities in your jurisdiction? 2.2 What is the analysis to determine (a) whether there is an agreement, and (b) whether that agreement is In 2017, the NDRC strengthened law enforcement in upstream vertical? industries of pharmaceutical and chemical industries, and the SAIC strengthened law enforcement against natural monopoly Article 13 of the AML defines a monopoly agreement as an “agreement, enterprises. In 2017, the NDRC imposed fines in 20 anti-monopoly decision or other concerted practice which eliminates or restricts enforcements; two of them were against upstream enterprises in competition”. The agreement does not need to be in written form. the pharmaceutical industry and 18 of them were against upstream enterprises in the chemical industry. In 2017, nearly 80% of the Vertical agreement is a kind of agreement made by undertakings in anti-monopoly enforcement cases published by SAIC were against different markets, which have upstream and downstream relationships. natural monopoly enterprises. It is hard to predict the enforcement trends after the consolidation 2.3 What are the laws governing vertical agreements? of the SAMR. The laws governing vertical agreements are Article 14, Article 15 and Article 46 of the AML. Currently, there are no antitrust

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regulations, which provide more detailed rules beyond the scope of the above provisions. 2.8 What is the role of market share in reviewing a vertical agreement?

2.4 Are there any type of vertical agreements or restraints If the undertaking in a vertical agreement has a large market share, that are absolutely (“per se”) protected? it is more likely that the vertical restraint has a negative effect on competition. More importantly, the vertical restraint could be There are no laws and regulations to state that any type of vertical considered as abusive conduct if the undertaking holds a market agreements or restraints are a per se violation. The People’s Court share of more than 50%. will evaluate the vertical agreement under rule of reason. However, the SAMR treats the RPM as a per se violation, but allows the China undertaking under investigation to submit the application for 2.9 What is the role of economic analysis in assessing exemption under Article 15 of the AML. vertical agreements?

Economic analysis is inevitable in every antitrust case, including 2.5 What is the analytical framework for assessing cases involving vertical agreement. According to Article 10 of the vertical agreements? Provisions of the Supreme People’s Court on Application of Laws in the Trial of Civil Disputes arising from Monopolistic Practices, the The general analytical framework underpinning the assessment of parties may apply to the People’s Court for permission to engage vertical agreements under the AML is as follows: if the SAMR finds professional organisations or personnel to conduct market research that an agreement fixes resale prices or sets minimum resale prices, or make economic analysis reports with respect to the relevant it is likely to conclude that entering such vertical agreement violates professional issues. Article 14 of the AML. However, the undertakings can still argue In addition, according to Article 7 of the Guidelines of the Anti- that the prohibition in Article 14 should be exempted on the grounds monopoly Commission under the State Council Concerning that the agreement fulfils one of the circumstances listed in Article the Definition of Relevant Markets, the SAMR shall encourage 15 of the AML and the agreement does not significantly restrict undertakings to define relevant markets according to the specific competition in the relevant market and allows consumers a share of circumstances of each case by using objective, genuine data and the resulting benefit. adopting economic analysis methods.

2.6 What is the analytical framework for defining a market in vertical agreement cases? 2.10 What is the role of efficiencies in analysing vertical agreements? Because a vertical agreement is concluded between undertakings In general, the AML pursues multiple objectives, which include at two different markets, it may involve two relevant markets. both micro-economic efficiency and macro-economic development. However, as a vertical agreement will only affect the completion of These objectives would also apply to the regulation of vertical one relevant market, the market definition may only focus on the agreements. Specifically, these objectives are: market affected. 1. preventing and prohibiting monopolistic conduct; The analytical framework for defining a relevant market in a vertical agreement case will be no different to any other antitrust case. The 2. protecting market competition; relevant product market and the geographic market will be defined. 3. promoting efficiency of economic operations; In defining the relevant market, demand substitution may be analysed 4. safeguarding the interests of consumers and the general based on the characteristics, purpose, and price of product. Supply public; and substitution may, when necessary, also be analysed. If the scope of 5. promoting the healthy development of the socialist market the market in which undertakings compete is unclear or difficult to economy. define, the relevant market may be defined according to the SSNIP. In addition, Article 15 of the AML provides the possibility to exempt “monopoly” agreements, including vertical ones, if certain 2.7 How are vertical agreements analysed when one of conditions are fulfilled, including increasing efficiency. the parties is vertically integrated into the same level as the other party (so called “dual distribution”)? Are these treated as vertical or horizontal agreements? 2.11 Are there any special rules for vertical agreements relating to intellectual property and, if so, how does the analysis of such rules differ? When dealing with the dual distribution, the integration of the other party should be considered. Assume party A is a manufacturer and The SAIC issued the Rules on Prohibition of Restriction or has its own distribution channel, and party B is just a distributor Elimination of Competition through Abuse of Intellectual Property for distributing goods for party A; the relationship between party A Right in 2015, which address the issue of exclusive grant-back of and party B is vertical. Assume party A is a manufacturer and has technology improvement, prohibition of challenging the validity of its own distribution channel, party B is a competing manufacturer the IPR, etc. The Rules do not change the analysis framework of and also has its own distribution channel. Party A enters a vertical vertical agreements under the AML. agreement with party B to distribute its products through party B’s channel. In such case, even if the agreement is vertical on its face, the relationship between party A and party B is horizontal. Such 2.12 Does the enforcer have to demonstrate “vertical” agreement will be considered as a horizontal agreement. anticompetitive effects?

When the SAMR decides whether a vertical agreement is illegal, it only needs to determine whether the agreement falls under the circumstances

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described in Article 14 of the AML. The anticompetitive effects may In an antitrust lawsuit, because it is not sufficient for the plaintiff to be evaluated only when the undertaking under investigation files an presume dominance solely on the basis of high market share, and it application of exemption under Article 15 of the AML. is hard to prove the anticompetitive effect of the exclusive dealing, it is harder for the plaintiff to succeed on the exclusive dealing claims.

2.13 Will enforcers or legal tribunals weigh the harm against potential benefits or efficiencies? 2.18 How do enforcers and courts examine tying/ supplementary obligation claims? The People’s Court will weigh the harm against potential benefits or efficiencies in a litigation regarding vertical agreement. The SAMR Tying is an abusive conduct regulated under Article 17 of the AML. China may not consider benefits or efficiencies unless there is an application Tying is not a target of vertical agreement investigation unless the of exemption under Article 15 of the AML. In addition, according to undertaking holds dominant market position in the relevant market. Article 46 of the AML, where the monopoly agreement has not been Article 6 of the Provisions of the Industry and Commerce implemented, a fine of less than RMB 500,000 may be imposed. Administration Organs on Prohibition of Abuse of Dominant Market Position provides that an undertaking with dominant market 2.14 What other defences are available to allegations that a position is prohibited from engaging in tie-in sales of products vertical agreement is anticompetitive? without justified reasons, such as: forcing different products to be sold as a bundle or package that would not normally be bundled A possible defence against allegations that a vertical agreement is together according to normal transaction practice and consumption anticompetitive is to argue that there is no vertical agreement under habits; or disregard of the functions of the products. the AML. A so-called “vertical agreement” could be an agent- In several SAIC tobacco antitrust investigations, the local AIC principal agreement in which an undertaking agrees to perform found the tobacco companies bundled the sale of popular tobacco certain services on a supplier’s behalf for a sales-based commission with unpopular tobacco brands by restricting the supply of popular payment. Such agent-principal agreement is not considered a brands. In the NDRC Qualcomm antitrust investigation, the vertical monopoly agreement under the AML. NDRC found Qualcomm abused its dominant market position in the wireless SEP licensing market by tying non-SEP licensing with SEP licensing without justification. In the retrial of Wu Xiaoqin v. 2.15 Have the enforcement authorities issued any formal guidelines regarding vertical agreements? Shaanxi Radio and Television Network Media (Group) Co., Ltd., the Supreme People’s Court decided that the undertaking with a market dominant position which bundled sales of separate services There are no formal guidelines regarding vertical agreements. or products constituted a tie-in sell prohibited by the AML.

2.16 How is resale price maintenance treated under the law? 2.19 How do enforcers and courts examine price discrimination claims? The AML mainly stipulates the resale price maintenance on Article 14, Article 15 and Article 46. Article 14 (1) and (2) respectively prohibit Price discrimination is an abusive conduct regulated under Article fixing the price of commodities for resale to a third party and restricting 17 of the AML. Price discrimination is not a target of vertical the minimum price of commodities for resale to a third party. agreement investigation unless the undertaking holds dominant The SAMR treats RPM as per se illegal. The People’s Court will market position in the relevant market. evaluate the anticompetitive effect. In Rainbow v. Johnson & Johnson, Assuming that an undertaking holds a dominant market position, the Higher People’s Court of Shanghai held that when analysing the it will be very difficult for the SAMR and the People’s Court to nature of the RPM, there are four prongs that should be considered, identify the price discrimination. First, it is normal for a firm to and that constitute the basic method for the Shanghai Higher People’s provide different prices to different trading counterparts. The price Court to analyse and evaluate the RPM. They are: difference within a reasonable range will be legal under the AML, 1. whether the relevant market competition is sufficient; even for dominant firms. Second, it is very hard for enforcers 2. whether the defendant has very strong market position; or judges to draw a line for what price difference constitutes 3. the motive of the defendant to impose the RPM; and discrimination, because the markets vary from one to another, and 4. the competition effect of the RPM. as the markets are changing, the enforcers and courts cannot set up a benchmark that is forever correct.

2.17 How do enforcers and courts examine exclusive dealing claims? 2.20 How do enforcers and courts examine loyalty discount claims? Exclusive dealing is an abusive conduct regulated under Article 17 of the AML. Exclusive dealing is not a target of vertical agreement Loyalty discount is an abusive conduct regulated under Article 17 investigation unless the undertaking holds dominant market position of the AML. Loyalty discount is not a target of vertical agreement in the relevant market. investigation unless the undertaking holds dominant market position in the relevant market. Assuming that an undertaking holds the dominant market position, the exclusive dealing in a vertical arrangement is very sensitive. In the antitrust investigation against Tetra, the SAIC concluded that The SAMR can presume the firm holds dominance if the market from 2009 to 2013, Tetra abused its dominant market position in share of the firm is above 50%. The SAMR is likely to determine three relevant markets in China, and concluded that the company exclusive dealing by a dominant firm violating Article 17 of the had no legitimate reason to carry out loyalty discounts. In the AML, unless there is an acceptable justification. penalty decision, the SAIC recognised that discount is a common commercial behaviour, which can promote market competition and

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benefit consumers. In the meantime, the SAIC believe the loyalty 3. the Regulations on the Procedures for Administrative Anti- discount implemented by undertakings with dominant market Price Monopoly Law Enforcement by the NDRC; position should be regulated when it combines with specific market 4. the Regulations on Anti-Price Monopolies by the NDRC; and conditions and has obvious anticompetitive effect. 5. the Regulation on Prohibition of Abuses of Intellectual Property Rights by the SAIC. 2.21 How do enforcers and courts examine multi-product or “bundled” discount claims? 3.3 What is the analytical framework for defining a market in dominant firm cases? There is no provision under the AML for regulated bundled discount. Bundled discount has aspects of, but is different from predatory The analytical framework for defining a relevant market in dominant China pricing, tying, and exclusive dealing under Article 17 of the AML. firm case will be no different to any other antitrust case. The relevant Bundled discount may be determined illegal if the bundle is priced product market and the geographic market will be defined. In below cost, or a competitor providing a competitive product cannot defining the relevant market, demand substitution may be analysed match the discount without pricing below cost on that product. based on the characteristics, purpose, and price of a product. Supply substitution may, when necessary, also be analysed. If the scope of 2.22 What other types of vertical restraints are prohibited the market in which undertakings compete is unclear or difficult to by the applicable laws? define, the relevant market may be defined according to the SSNIP.

The territory allocation among distributors is mentioned in many 3.4 What is the market share threshold for enforcers or a decisions issued by the anti-monopoly enforcement agency. court to consider a firm as dominant or a monopolist? Territory allocation in a vertical agreement may facilitate the horizontal agreement between distributors. It could be a cartel According to the Article 19 of the AML, it may be assumed that one under the cover of a “vertical agreement”. or more undertakings have a dominant market position if: 1. an undertaking has one half or a higher market share in a 2.23 How are MFNs treated under the law? relevant market; 2. two undertakings have a two-thirds or higher market share in Most favoured nation (“MFN”) clauses in the context of vertical a relevant market; or agreements are most favoured customer clauses, where the supplier 3. three undertakings have a three-quarters or higher market grants the distributor a price that will not be less favourable than share in a relevant market. the prices granted to its other customers. MFN may reduce the If one of the undertakings under the circumstances of Item 2 or 3 incentive to lower the resale price and may facilitate RPM. There of the preceding paragraph has a market share of less than 10%, the are no fines against MFN. undertaking shall not be assumed to have a dominant market position. Where there is evidence showing that an undertaking which has 3 Dominant Firms been assumed to hold a dominant market position does not hold such a position, the undertaking shall not be determined to hold a dominant market position. 3.1 At a high level, what is the level of concern over, and scrutiny given to, unilateral conduct (e.g., abuse of dominance)? 3.5 In general, what are the consequences of being adjudged “dominant” or a “monopolist”? Is dominance or monopoly illegal per se (or subject to regulation), or China attaches great importance to the abuse of dominance. In 2017, are there specific types of conduct that are prohibited? the SAIC conducted nine antitrust investigations. Seven of them related to the abuse of dominant market position. Considerable The AML does not prohibit market dominance itself, only the abuse antitrust litigation is against abusive conduct by dominant firms. of dominant market position. No abusive conduct by the dominant The law also requires undertakings who abuse their market firm is per se illegal. dominance to bear high legal liability. According to Article 47 of the AML, “where an undertaking violates the provisions of this Law 3.6 What is the role of economic analysis in assessing by abusing their dominant market position, the anti-monopoly law market dominance? enforcement authorities shall order a halt to the offending behavior, confiscate the illegal earnings, and impose a fine of between 1% and Economic analysis is crucial in assessing market dominance. In 10% of the preceding year’s sales revenue”. determining the dominant market position of an undertaking, the following factors should be taken into consideration: 3.2 What are the laws governing dominant firms? 1. the market share of the undertaking and the competitive conditions in the relevant market; Articles 6, 17–19, and 47 of the AML regulate abusive conduct by 2. the ability of the undertaking to control the retail market or the dominant firms. The following regulations also regulate the procurement market for raw materials; dominant firms: 3. the financial status and technical conditions or capabilities of 1. the Regulations on Procedures for Investigating and Handling the undertaking; Cases of Monopoly Agreements and Abuse of Market 4. the extent of dependence on the undertaking by other Dominance by the SAIC; undertakings in transactions; 2. the Regulations on the Prohibition of Abuse of Dominant 5. the level of difficulty for other undertakings to enter the Market Positions by the SAIC; relevant market; and

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6. other factors relating to the determination of the dominant economic models will be established and calculation is involved. market position of the undertaking. The efficiencies will be touched on in the above economic analysis. None of the above factors are decisive. 3.10 Do the governing laws apply to “collective” 3.7 What is the role of market share in assessing market dominance? dominance? Article 19 of the AML does apply to collective dominance. If two Market share is very important in assessing market dominance, but undertakings have a two-thirds or higher market share in a relevant it is not the only factor that determines the dominant position of the market; or three undertakings have a three-quarters or higher market China market. The market dominance should be determined on a case by share in a relevant market, they could be assumed to hold dominance case basis. in the relevant market. Since the application of collective dominance In Qihoo 360 v. Tencent, even though QQ has had a market share in a case must meet many conditions, collective dominance is rarely of over 70% in the instant message market in China for more than used in China. The Isoniazid API investigation in 2017 is the first seven years, the Supreme Court did not determine that Tencent time the collective dominance has been used by the NDRC. holds a dominant market position in the relevant market because the market competition on the internet is dynamic. 3.11 How do the laws in your jurisdiction apply to dominant purchasers?

3.8 What defences are available to allegations that a firm is abusing its dominance or market power? Dominant purchasers are subject to the AML. Article 17 of the AML expressly prohibits undertakings with dominant market positions The most frequently used defences in a private enforcement case from purchasing goods at unfairly low prices. against abusive conduct are: According to the Administrative Measures on Fair Trade Between 1. the market definition is incorrect; Retailers and Suppliers 2006, retailers may not abuse their advanced position to conduct the following unfair dealing: 2. the market share data is inaccurate; 1. to refuse to accept the products after entering into a supply 3. there is no dominant market position of the undertaking, contract, unless the refusal may be attributed to suppliers, or because (1) the market share is under 50%, (2) the undertaking upon the consent of suppliers, unless the retailers are willing has no ability to control the retail market or procurement to bear the occurred loss; market for raw materials, (3) there is no substantial difference between the undertaking and other competitors on financial 2. to request suppliers to bear the liabilities for the loss of the status and technical capabilities, (4) the trading partners are products unstipulated in advance; not dependent on the undertaking, and (5) there is no barrier 3. retailers have no justifiable reasons to remove the products of for other undertakings to enter into the relevant market; suppliers, unless retailers remove the products of suppliers in 4. there is no abusive conduct under Article 17 of the AML; accordance with the laws and regulations or the administrative decisions made by administrative authorities under law; 5. there is no anticompetitive effect derived from the abusive conduct; 4. to impel suppliers to unconditionally return sales profits, or stipulating return of sales profit based on a certain 6. there are justifications to justify the conduct; sales amount, or request return sales profits without 7. the plaintiff has no standing to file the lawsuit; accomplishment of the agreed sales amount; or 8. there is no damage to the plaintiff by the alleged conduct; and 5. to impel suppliers to purchase the designated products or 9. there is no causation between the conduct and the alleged accept the designated service. damage.

3.12 What counts as abuse of dominance or exclusionary 3.9 What is the role of efficiencies in analysing dominant or anticompetitive conduct? firm behaviour? According to the Article 17 of the AML, an operator who holds a In general, the AML pursues multiple objectives, which include dominant market position is prohibited from engaging in the following both micro-economic efficiency and macro-economic development. practices of abuse of the said position: These objectives would also apply to the regulation of vertical 1. selling products at unfairly high prices or buying products at agreements. Specifically, these objectives are: unfairly low prices; 1. preventing and prohibiting monopolistic conduct; 2. selling products at a price lower than cost without justified 2. protecting market competition; reasons; 3. promoting efficiency of economic operations; 3. refusing to trade with relevant trading counterparts without 4. safeguarding the interests of consumers and the general justified reasons; public; and 4. restricting trading counterparts to the trading only with the said 5. promoting the healthy development of the socialist market operator or its designated undertaking without justified reasons; economy. 5. conducing tie-in sales without justified reasons, or adding other Normally, the economic analysis will be aimed to specific economic unreasonable conditions to the trading; issues, such as defining the relevant product market and geographic 6. discriminating against trading counterparts of the same market, to prove dominance, to evaluate the anticompetitive effect, qualifications with regard to transaction price, etc., without calculate damages, and to prove the causation. In some cases, justified reasons; and 7. other practices determined by the anti-monopoly law enforcement authorities as abuse of dominant market position.

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of the platform market is introduced by the defendant in several 3.13 What is the role of intellectual property in analysing civil antitrust litigations. The aim of the defendant is to make it dominant firm behaviour? more difficult for the plaintiff to define the relevant market and to establish dominance. Without the tool of discovery under the Article 55 of the AML provides that: “this Law is not applicable common law it will be difficult to evaluate the platform dominance. to the undertakings’ conduct in exercise of intellectual property It is possible for the SAMR to collect data in a public enforcement rights pursuant to provisions of laws or administrative regulations case, but to prove platform dominance will still be a big challenge. on intellectual property rights; but this Law is applicable to undertakings’ conduct that eliminate or restrict market competition by abusing its intellectual property rights”. 3.16 Under what circumstances are refusals to deal considered anticompetitive? China According to the Provisions on the Prohibition of the Abuse of Intellectual Property Rights to Eliminate or Restrict Competition, Article 17 (3) of the AML stipulates that an operator who holds a undertakings with dominant market position are prohibited from dominant market position is prohibited from “refusing to trade with engaging in certain types of conduct in exercising their IP rights that relevant trading counterparts without justified reasons”. are deemed to constitute an abusive conduct, which includes: On November 16, 2017, the NDRC issued the Guideline to the 1. refusal to license IP rights that amount to “essential facilities”; Price behavior of undertakings of shortage drugs and API (the 2. imposing certain exclusivity restrictions; API Guideline), in which the abuse of market dominance, such as 3. imposing unjustified tying and bundling requirements; refusing to trade, were refined. According to the API Guideline, 4. attaching unreasonable trading conditions to an IP agreement, the undertakings of drugs and API with dominant position may not, including inserting no-challenge clauses; without justified reason, refuse to deal with the relative party in 5. engaging in discriminatory treatment; and disguise by setting an excessively high selling price or an excessively 6. engaging in practices that are inconsistent with fair, low purchase price. In analysing whether refusal to deal is justified, reasonable and non-discriminatory (“FRAND”) principles in the API Guideline explicitly considers its impact on competition in relation to the licensing of standard essential patents. the downstream market, namely that “the undertaking’s existing capacity cannot meet the market supply, or the product needs to be produced for its own use, and its supply or self-use behavior has not 3.14 Do enforcers and/or legal tribunals consider “direct seriously excluded competition in the downstream market”. effects” evidence of market power?

Direct effects analysis was used in several antitrust litigation cases 4 Miscellaneous by submitting an expert report by economists. However, the judges are inclined to follow the traditional way to prove dominant market position. In practice, it is hard to let enforcers and judges consider 4.1 Please describe and comment on anything unique to direct effects evidence of market power. your jurisdiction (or not covered above) with regards to vertical agreements and dominant firms.

3.15 How is “platform dominance” assessed in your Compared with cartels, the compliance level regarding vertical jurisdiction? agreements and abusive conduct is low. RPM or disguised RPM can be identified in the daily practice of many undertakings in China. The Platform dominance is very difficult to prove in China, because it anticompetitive effect of abusive conduct is hardly to be understood involves a two-sided market, and the data are all in hands of the by many dominant firms, which triggers more antitrust litigation and defendant, which cannot be obtained by the plaintiff. The concept antitrust investigations against dominant firms in China.

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Ding Liang DeHeng Law Offices 12/F, Tower B, Focus Place No.19 Finance Street, Xicheng District Beijing, 100033 P. R. China

Tel: +86 10 5268 2977 Email: [email protected] URL: http://new.dhl.com.cn China

Mr. Ding specialises in Antitrust and Competition Law. He is the head of DeHeng’s antitrust practice. Practice experience: ■■ OCI’s acquisition of a 100% equity interest in the Tokuyama Malaysia merger filing; ■■ JAC and Volkswagen joint venture in the China merger filing in China and Chile; ■■ Shandong Gold’s acquisition of a 50% share of Minera Argentina Gold from the Barrick Gold merger filing in China and Argentina; ■■ Holcim/Lafarge merger; ■■ Naning Sugar Fund’s acquisition of a share of four sugar companies from AB Sugar; ■■ Hytera vs. Motorola; ■■ Qihoo 360 vs. Tencent; ■■ Ningbo Magnet Companies vs. Hitachi Metals; ■■ Emiage vs. Qihoo 360; and ■■ the antitrust investigation against the container liner shipping companies regarding THC. Educational background: ■■ Master Degrees of Law in Georgetown University Law Center (2001, 2002); and ■■ Master Degree of Law in UIBE. Honours: ■■ Chambers Asia-Pacific Leading Lawyers in competition/antitrust 2018; ■■ Asia Law Leading Lawyers in area of competition & antitrust 2016/2017; ■■ Legal Band Top Antitrust Lawyers in China, Top International Trade Lawyers in China 2015/2016/2017; and ■■ ALB Client Choice Top 20 Lawyers in China 2014.

The aim of DeHeng is to be the leading Chinese law firm and to provide legal service of the highest standard with professional integrity and proficiency for our Chinese and international clients. The DeHeng antitrust team provides a full range of antitrust legal services for both domestic and international clients on merger filing, antitrust litigation, antitrust investigation, and antitrust compliance. With rich experience in antitrust litigation and a strong antitrust litigator team, the DeHeng antitrust team has served the best interests of its clients in a number of high profile antitrust civil litigations, e.g.Huawei vs. InterDigital, Qihoo 360 vs. Tencent, and Ningbo Magnet Companies vs. Hitachi Metals. The DeHeng antitrust team has dealt with many antitrust investigations regarding telecommunications, shipping, pharmaceuticals, automobiles, hotel online bookings, tobacco etc., on behalf of multinational or domestic companies.

30 WWW.ICLG.COM ICLG TO: VERTICAL AGREEMENTS AND DOMINANT FIRMS 2018 Chapter 5

Denmark Martin André Dittmer

Gorrissen Federspiel Kristian Helge Andersen

1 General 1.4 What remedies (e.g., fines, damages, injunctions, etc.) are available to enforcers?

1.1 What authorities or agencies investigate and enforce the laws governing vertical agreements and dominant The DCCA can render administrative decisions, but does not have firm conduct? competence to levy fines. In certain instances the DCCA may enter into a fixed penalty notice with the undertaking and/or individuals. In Denmark, the Danish Competition and Consumer Authority The DCCA can issue orders; e.g., order the parties to cease with (the ‘DCCA’) is the primary authority responsible for the the practice. In certain instances, the DCCA can also order interim administrative enforcement of the Danish Act on Competition measures. and the EU competition rules. Four divisions handle different Infringements of the Danish Act on Competition can lead to fines to both sectors and one handles investigations and cartels. At the outset, undertakings and individuals. There is a prison sentence for cartels. the individual divisions render decisions themselves, however the Danish Competition Council will render decisions of principle or of particular importance. 1.5 How are those remedies determined and/or calculated? The Danish Public Prosecutor for Serious Economic and International Crime (the ‘Danish Public Prosecutor’) is responsible The base amount is below EUR 538,000 for less serious for the criminal enforcement of the competition rules. infringements, between EUR 538,000 and EUR 2,689,000 for serious infringements, and above EUR 2,689,000 for very serious 1.2 What investigative powers do the responsible infringements. For individuals, the amounts are EUR 6,700, EUR competition authorities have? 13,400, and EUR 26,900. The base amount is subject to adjustment for the duration of the The DCCA may request information, carry out surprise inspections infringement: no increase for less than one year, up to 50 per cent of (dawn raids), and make sector inquiries. If the DCCA has a suspicion the base amount for one to five years, and up to 10 per cent for each of an infringement, the DCCA cannot compel an undertaking to year for more than five years. provide information or subject itself to a dawn raid, but only to Further adjustments may take place considering the turnover of the volunteer information (see the Danish Act on Legal Protection in undertaking and any aggravating/mitigating circumstances. Relation to Coercive Measures). The Danish Public Prosecutor investigates cases as any other type of criminal prosecution and can, e.g., make searches and conduct 1.6 Describe the process of negotiating commitments or other forms of voluntary resolution. interrogations.

The DCCA may accept commitments. There is no formalised 1.3 Describe the steps in the process from the opening of procedure for this, but it generally requires that the infringement an investigation to its resolution. is of a type that is suitable for commitments and that it will save resources for the authorities. The DCCA will conduct a preliminary investigation and, e.g., request information or conduct a dawn raid. If the DCCA wishes to continue the case and issue an order, it will prepare a brief 1.7 Does the enforcer have to defend its claims in front of a legal tribunal or in other judicial proceedings? If memorandum of concerns followed by a statement of objections so, what is the legal standard that applies to justify an (basically a draft decision). After this the DCCA will render the enforcement action? decision. The Danish Public Prosecutor will conduct a preliminary Only if the parties appeal the decision by the DCCA; see the answer investigation and may then decide to bring charges against the to question 1.8 below. undertaking and/or individuals. If the undertaking/individual will The Danish Public Prosecutor will need to litigate criminal cases not accept a fixed penalty notice, the Public Prosecutor will litigate before the ordinary courts if the parties will not accept a fixed the case before the ordinary courts. penalty notice.

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1.8 What is the appeals process? 1.15 Describe any notable case law developments in the past year. Decisions by the DCCA are subject to appeal to the Danish Competition Appeals Tribunal within a period of four weeks. If In December 2017, the Danish Competition Council closed a case the parties do not appeal, the decision is final and the parties cannot following commitments. The Council had voiced both vertical subsequently challenge it, including in subsequent private damages and unilateral concerns with a three-year and five-month de facto cases. Decisions by the Competition Appeals Tribunal are subject exclusivity obligation entered into between a cash management to appeal to the ordinary courts of law – normally the Danish company and 50 Danish financial institutions. Maritime and Commercial Court. Judgments by the Maritime In December 2017, the Danish Competition Council found that a

Denmark and Commercial Court are subject to appeal to either the Danish purchase cooperative had coordinated prices on products sold by Supreme Court or the Danish High Court. around 50 stores in the cooperative. The Council considered both The Danish Public Prosecutor litigates criminal cases before the the horizontal and vertical aspects of the cooperation. ordinary courts of law, normally starting at the City Court level. In January 2018, the Danish Competition Council found that a pharmaceutical distributor had abused its dominant position. The 1.9 Are private rights of action available and, if so, how distributor held a dominant position in the six-month period where do they differ from government enforcement actions? the distributor had secured exclusivity towards a customer. By increasing the price by approximately 2,000 per cent, the price was Such actions are available. The primary difference is that private excessive. parties do not have the same means of obtaining information as the In May 2018, the Western division of the Danish High Court DCCA or the Danish Public Prosecutor. overturned a 2007 decision finding that a wholesaler of physical electricity had charged excessive prices.

1.10 Describe any immunities, exemptions, or safe harbors that apply. 2 Vertical Agreements

Please refer to the answers to questions 2.3, 2.10, 2.14, 3.2, and 3.8 below. 2.1 At a high level, what is the level of concern over, and scrutiny given to, vertical agreements?

1.11 Does enforcement vary between industries or The DCCA and the Danish Public Prosecutor quite actively enforce businesses? the rules against anti-competitive vertical agreements. Since certain vertical agreements – particularly concerning resale price The DCCA does have enforcement priorities and from time to time maintenance – do not require any considerable resources, the gives a sector particular focus. However, the enforcement does not number of enforcement decisions and particularly fines is relatively as such vary between industries or businesses. high.

1.12 How do enforcers and courts take into consideration 2.2 What is the analysis to determine (a) whether there an industry’s regulatory context when assessing is an agreement, and (b) whether that agreement is competition concerns? vertical?

If an anti-competitive practice is a direct or necessary consequence An agreement is a very broad concept under Danish competition of public regulation, the Danish Act on Competition does not apply law. An agreement may exist both as an agreement requiring a to it. concurrence of wills (encompassing consent by contract or consent When considering whether a practice has an anti-competitive object, by conduct) or a concerted practice (however, this is seen very rarely the DCCA will take the regulatory context into account (when if ever at all in vertical arrangements). assessing the legal and economic context). A vertical agreement means an agreement between two independent undertakings which for the purposes of the agreement are active at 1.13 Describe how your jurisdiction’s political environment two different levels of trade, e.g. a manufacturer and a distributor. A may or may not affect antitrust enforcement. vertical agreement may include both horizontal and vertical aspects, e.g. if two competitors enter into a distribution agreement. The DCCA is a completely independent authority and not subject to any political whims. 2.3 What are the laws governing vertical agreements?

1.14 What are the current enforcement trends and Section 6 of the Danish Act on Competition and Article 101 of the priorities in your jurisdiction? Treaty on the Functioning of the European Union prohibit anti- competitive practices. The DCCA and the Danish Public Prosecutor are very harsh on There are three block exemptions which exempt certain types of resale price maintenance. The DCCA has also stated that it will be vertical agreements. These are almost verbatim incorporations focusing on abuse of dominance cases. of their EU equivalents. See executive order no 739 of 23 June

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2010 on block exemption of categories of vertical agreements and level and – in case of services – the supplier is a provider of services concerted practices, executive order no 760 of 23 June 2010 on at several levels of trade, while the buyer provides its goods or block exemption of categories of vertical agreements and concerted services at the retail level and is not a competing undertaking at the practices in the motor vehicle sector, and executive order no 417 level of trade where it purchases the contract services. of 28 April 2014 on block exemption of categories of technology There are several cases concerning services where the DCCA has transfer agreements. rejected the application of the block exemption and considered the Particularly the vertical block exemption is of great practical agreement to be of a horizontal nature and problematic. relevance. It exempts vertical agreements if certain criteria are met, including that the parties are not competitors (see the answer 2.8 What is the role of market share in reviewing a vertical to question 2.7 below for the two exceptions), the supplier has a agreement? market share below 30 per cent on the selling market, the buyer Denmark has a market share below 30 per cent on the buying market, and the Market shares play an important role. They may cause an agreement does not contain black-listed provisions (e.g. resale price agreement to fall outside the prohibition due to being de minimis or maintenance). If the agreement contains grey-listed provisions (e.g. because a block exemption applies. Outside the block exemptions a non-competition clause) this clause will fall outside the protection market shares also form part of the assessment of whether different of the block exemption and require assessment under the normal restrictions (e.g. exclusive dealing, non-competition obligations, competition rules. tying/bundling, etc.) are in fact anti-competitive or can qualify for an individual exemption. 2.4 Are there any type of vertical agreements or restraints that are absolutely (“per se”) protected? 2.9 What is the role of economic analysis in assessing vertical agreements? Danish competition law does not as such award per se protection to any agreements. However, purely group-internal agreements fall Economic analysis forms an important part in defining relevant outside the prohibition. Please also refer questions 2.3, 2.10, and markets, establishing whether a restriction has as an anti-competitive 2.14 for exceptions and exemptions. effect, and whether the agreement brings about efficiencies. Danish law does not contain any per se restrictions. However, e.g., resale price maintenance and restrictions of passive sales will normally have as their object to restriction competition and will only 2.10 What is the role of efficiencies in analysing vertical agreements? in exceptional circumstances be legal.

If an agreement is anti-competitive, the parties may raise an 2.5 What is the analytical framework for assessing efficiency defence. There are four cumulative criteria under Section vertical agreements? 8 of the Danish Act on Competition and it is the parties who have the burden of proof. In order for an efficiency defence to be successful, It is necessary to assess whether (1) there is an agreement or concerted the agreement must: practice between two or more independent undertakings, (2) it has as ■ Contribute to improving the production or distribution of its object or effect the restriction of competition, (3) the restriction goods or to promoting technical or economic progress. is a direct or necessary consequence of public regulation, (4) it ■ Allow consumers a fair share of the resulting benefit, i.e. the appreciably affects competition (quantitatively and qualitatively), (5) agreement must at least be neutral to the consumers. a block exemption applies, and (6) it entails efficiencies. ■ Not impose restrictions which are dispensable to the attainment of these objectives. 2.6 What is the analytical framework for defining a market ■ Not afford the undertakings the possibility of eliminating in vertical agreement cases? competition in respect of a substantial part of the products in question. The relevant market consists of a relevant product market and a relevant geographic market (see section 5a of the Danish Act on 2.11 Are there any special rules for vertical agreements Competition). The definition of the relevant product market under relating to intellectual property and, if so, how does Danish law follows the methodology for defining the relevant the analysis of such rules differ? product market under EU competition law. The definition of the relevant market depends on substitutability from the demand side There is a block exemption for certain technology transfer but also from the supply side. Although section 5a of the Act refers agreements. See the answer to question 2.3 above. The European to potential competition, this does not form part of the market Commission has also issued guidelines – which the DCCA will use definition but only when assessing whether there is an infringement. as a reference point – for technology transfer agreements. Generally, the possibilities of restricting active and passive sales 2.7 How are vertical agreements analysed when one of are greater for technology transfer agreements than for distribution the parties is vertically integrated into the same level agreements. Danish practice within this area is quite limited. as the other party (so called “dual distribution”)? Are these treated as vertical or horizontal agreements? 2.12 Does the enforcer have to demonstrate For such agreements it is necessary to consider both the horizontal anticompetitive effects? aspects and the vertical aspects. The vertical block exemption covers such arrangement if – in case of products – the supplier Danish competition law draws a distinction between agreements is a manufacturer and a distributor of goods, while the buyer is a having as their object the restriction of competition (e.g. resale price distributor and not a competing undertaking at the manufacturing maintenance) or as their effect the restriction of competition (e.g. a

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non-competition clause). For agreements in the former category, the DCCA does not have to demonstrate anti-competitive effects. 2.18 How do enforcers and courts examine tying/ For agreements in the latter category, the DCCA will have to supplementary obligation claims? demonstrate actual or potential anti-competitive effects. If the vertical block exemption applies it will generally exempt tying/supplementary obligations. 2.13 Will enforcers or legal tribunals weigh the harm against potential benefits or efficiencies? Outside the vertical block exemption it is necessary with a case- specific examination taking into account, e.g. the market position of the supplier, the number and size of competitors, barriers to entry, The weighing of pro- and anti-competitive effects will not form part and buyer power. of the assessment of whether the agreement is anti-competitive. Denmark If the agreement is anti-competitive, the parties may raise an efficiency defence. The authorities will then have to consider such 2.19 How do enforcers and courts examine price defence. Please refer to the answer to question 2.10 above. discrimination claims?

If the vertical block exemption applies it will exempt price 2.14 What other defences are available to allegations that a discrimination between different distributors. Outside the block vertical agreement is anticompetitive? exemption, price discrimination is generally not an issue for non- dominant undertakings. The parties may claim that (1) the conduct is a direct or necessary If the supplier charges different prices depending on where or to consequence of public regulation, (2) the conduct does not whom the distributor resells the products, this will amount to an appreciably affect competition (quantitatively or qualitatively), (3) indirect sales restriction, which normally is anti-competitive. the agreement benefits from a block exemption, or (4) the agreement entails efficiencies. 2.20 How do enforcers and courts examine loyalty discount claims? 2.15 Have the enforcement authorities issued any formal guidelines regarding vertical agreements? If the vertical block exemption applies, it will exempt loyalty discounts. This assumes that the discounts do not amount to an The European Commission has issued guidelines – which the indirect non-competition clause exceeding five years or underlies DCCA will use as a reference point – for vertical agreements and an otherwise anti-competitive practice, e.g. requiring that the technology transfer agreements. Special Danish guidelines exist for distributor follows recommended resale prices. voluntary chains. The DCCA also from time to time issues written guidance on specific questions – in addition to general guidance on Outside the vertical block exemption loyalty discounts are generally the Danish Act on Competition – which the DCCA publishes on its permissible for non-dominant undertakings provided they do not website. The DCCA is generally quite approachable for informal constitute an anti-competitive non-competition clause or underlies guidance in specific cases. an otherwise anti-competitive practice as per the above.

2.16 How is resale price maintenance treated under the 2.21 How do enforcers and courts examine multi-product law? or “bundled” discount claims?

Resale price maintenance is generally illegal, both inside and Please refer to the answers to questions 2.18 and 2.20 above. outside of the block exemptions. The DCCA will typically seek to enter into a fixed penalty notice with the undertaking or refer such 2.22 What other types of vertical restraints are prohibited cases to the Danish Public Prosecutor for criminal prosecution. It by the applicable laws? is only where the case gives rise to novel or principal issues that the DCCA will render an administrative decision. Danish competition law does not provide an exhaustive list of potentially anti-competitive vertical restraints. In addition to the 2.17 How do enforcers and courts examine exclusive above, there is often great focus on non-competition clauses. The dealing claims? vertical block exemption exempts these up to a period of five years. Practice is very restrictive when it comes to post-term If the vertical block exemption applies, it will exempt certain non-competition obligations where the Supreme Court in a 1997 exclusive dealing arrangements. This generally requires that the judgment invalidated such a clause. supplier appoints a sole distributor for a given territory and/or a given customer group and that no other group-external distributor(s) may 2.23 How are MFNs treated under the law? make active sales into this area, i.e. actively approach customers. It is generally never possible to restrict passive sales, i.e. responding Danish practice has generally been negative towards MFN clauses. to unsolicited requests from customers. In 2015, the DCCA closed an investigation into the use of MFN Outside the vertical block exemption it is necessary, with a case- clauses by hotel booking portals after the undertakings had changed specific examination taking into account e.g. the market position of their agreements. the supplier, the number and size of competitors, barriers to entry, buyer power, maturity of the market, level of trade, and combination with other restrictions.

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undertaking that, through recourse to methods different from those 3 Dominant Firms governing normal competition on the basis of the performance of commercial operators, has the effect, to the detriment of consumers, 3.1 At a high level, what is the level of concern over, and of hindering the maintenance of the degree of competition existing scrutiny given to, unilateral conduct (e.g., abuse of in the market or the growth of that competition. It is an objective dominance)? concept, although it is possible to take subjective matters into account. An abuse can generally be exclusionary (harming The DCCA actively enforces the rules against abuse of dominance. competitors), exploitative (harming customers or suppliers), or Since abuse of dominance cases require considerable resources, the discriminatory (harming trading partners in the relations with each number of enforcement decisions tends to be fairly low. To date other). There is no de minimis exception. there has only been one fine for abuse of dominance. Examples of abuses include: Denmark ■ Too high prices (excessive pricing). 3.2 What are the laws governing dominant firms? ■ Too low prices (predatory pricing). ■ Selectively low prices. Section 11 of the Danish Act on Competition and Article 102 of the ■ Margin squeeze. Treaty on the Functioning of the European Union prohibit the abuse ■ Exclusivity. of a dominant position by one or more undertakings. There are no ■ Certain rebates (exclusivity rebates and other loyalty- block exemptions covering unilateral conduct. inducing rebates). ■ Refusal to supply. 3.3 What is the analytical framework for defining a market ■ Discrimination (placing trading partners at a competitive in dominant firm cases? disadvantage with each other, on the basis of nationality or geography, or directly harming consumers). The analytical framework is the same as for vertical agreements. ■ Bundling, tying, and mixed bundling. Please refer to the response to question 2.6 above. ■ Unfair business terms (e.g. payment for services not delivered, unreasonable payment terms, too long notice 3.4 What is the market share threshold for enforcers or a periods, and English clauses). court to consider a firm as dominant or a monopolist? ■ Other abuses (e.g. structural abuses, vexatious litigation, abuse of public processes, and cross-subsidies). There are no market share thresholds. The establishment of a dominant position is an overall legal and economic assessment of whether an 3.6 What is the role of economic analysis in assessing undertaking holds such a strong market position that it can behave market dominance? independently of its competitors, customers, suppliers, and, ultimately, consumers. In this assessment, market shares do play an important Please refer to the answer to question 3.4 above. role as evidentiary starting points, but are not in themselves decisive (despite the travaux préparatoires referring to them as presumptions): ■ 50 per cent and more: Can in itself be evidence of dominance. 3.7 What is the role of market share in assessing market dominance? ■ 40–50 per cent: Not in itself sufficient to establish dominance, but requires additional factors. Please refer to the answer to question 3.4 above. ■ 25–40 per cent: Indication the undertaking is not dominant, but not altogether possible to exclude (there is one Danish case indicating the undertaking in question could be dominant 3.8 What defences are available to allegations that a firm with only 30 per cent). is abusing its dominance or market power? ■ Below 25 per cent: Rarely sufficient to establish dominance (there is no known Danish practice finding dominance at this The prohibition in Section 11 of the Danish Act on Competition level). does not apply if the conduct is a direct or necessary consequence Additional elements include competitors’ market shares, the of public regulation. development in market shares, barriers to entry and expansion (e.g. The dominant undertaking also has the possibility of objectively legal barriers, IP rights, investments, spare capacity, economies of justifying its conduct. First, the conduct may be objectively scale, vertical integration, and switching costs), and buyer power. necessary, e.g. refusal to supply if the undertaking cannot obtain the necessary raw materials itself. Second, the conduct may be 3.5 In general, what are the consequences of being necessary for the dominant undertaking to defend its interests adjudged “dominant” or a “monopolist”? Is dominance when these are being attacked, e.g. under the meeting competition or monopoly illegal per se (or subject to regulation), or defence. Third, conduct may be justified by efficiencies; please are there specific types of conduct that are prohibited? refer to the answer to question 3.9 below.

It is not illegal to hold a dominant position. It is the abuse of a 3.9 What is the role of efficiencies in analysing dominant dominant position that is illegal. firm behaviour? Danish competition law does not contain any per se infringements, although there is a distinction between abuses capable of affecting Neither Section 11 of the Danish Act on Competition nor the competition in themselves and abuses where the anti-competitive travaux préparatoires make any reference to efficiencies. However, effects must be probable. Danish practice has since 1998 recognised efficiencies as a defence. The prohibition applies, in particular, to the conduct of a dominant Following recent case law from the European Court of Justice under

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Article 102 there is no doubt that this is a legitimate defence. The conduct of an undertaking as evidence of that undertaking having criteria are the same as under EU competition law: a dominant position. In a 1998 decision, the DCCA found that a ■ Efficiency gains counteract any likely negative effects. market share of 25–40 per cent likely was not sufficient to establish ■ Those gains have been, or are likely to be, brought about as a a dominant position, but nonetheless found that the undertaking was result of that conduct. dominant citing its conduct on the market. ■ Such conduct is necessary for the achievement of those gains in efficiency. 3.15 How is “platform dominance” assessed in your ■ It does not eliminate effective competition, by removing all jurisdiction? or most existing sources of actual or potential competition. There are no platform dominance cases in Denmark yet. Denmark 3.10 Do the governing laws apply to “collective” dominance? 3.16 Under what circumstances are refusals to deal considered anticompetitive? Yes, Section 11 of the Danish Act on Competition extends to any abuse of a dominant position by ‘one or more undertakings’. It is The starting point is that an undertaking – also a dominant one – is necessary to establish: free to choose its own trading partners. There may, however, be an ■ A collective unit: This requires that the undertakings can reach obligation to supply in particular circumstances: terms of coordination, that they can monitor deviations, that ■ There is a refusal to supply: This includes constructive refusals, they can put deterrent mechanisms in place, and that outsiders e.g. only offering to supply under unreasonable terms. cannot jeopardise the coordination. ■ It is possible to define two separate markets: One market ■ Collective dominance: Please refer to the answer to question constituted by the product or service and for which the 3.4 above. undertaking refusing to supply holds a dominant position ■ Collective abuse: The abuse does not have to be the action of all and a neighbouring market (which may be potential or even the undertakings being collectively dominant. However, it must hypothetical) on which the product or service is used in the be possible to identify the abuse as one of the manifestations of manufacture of another product or for the supply of another the undertakings holding such a joint dominant position. service. There are a few Danish decisions considering collective dominance, ■ The refusal relates to a product or service indispensable to the including decisions finding an infringement. exercise of a particular activity on a neighbouring market. ■ The refusal is of such a kind as to exclude any effective competition on that neighbouring market. 3.11 How do the laws in your jurisdiction apply to dominant purchasers? These criteria apply to all types of refusal to supply, but there are a few peculiarities within certain areas: At the outset the rules apply both to dominant suppliers and dominant ■ IP rights: It is an additional criterion that the refusal prevents purchasers. There are Danish cases concerning dominant purchasers, the appearance of a new product for which there is potential consumer demand (see e.g. case T-201/04, Microsoft). e.g. unfair trading terms, too high purchase prices (a form of predatory pricing), and too low purchase prices (a form of excessive pricing). ■ Customer wishes to simply resell the products: Under EU competition law it is not entirely clear whether it will constitute an abuse to refuse to supply a product which the 3.12 What counts as abuse of dominance or exclusionary customer will simply resell without adding any value. Old or anticompetitive conduct? Danish practice has found an abuse in such circumstances, but it is questionable whether it is possible to uphold this Please refer to the answer to question 3.5 above. practice today. When the DCCA faced the question in a 2013 case, it sidestepped the issue by saying the buyer in fact did add value to the products. 3.13 What is the role of intellectual property in analysing ■ Restricting parallel trade: If a dominant undertaking refuses dominant firm behaviour? to supply products or services in order to restrict parallel trade within the European Union, the DCCA has found this IP rights may enter into the overall assessment of whether an constitutes an abuse. undertaking holds a dominant position; please refer to the answer to question 3.4 above. 4 Miscellaneous Refusing to license an intellectual property may constitute an abuse of dominance; please refer to the answer to question 3.16 below. The right to bring an action for infringement forms part of the rights 4.1 Please describe and comment on anything unique to of the proprietor of an IP right, with the result that the exercise of your jurisdiction (or not covered above) with regards such a right, even if it is the act of an undertaking holding a dominant to vertical agreements and dominant firms. position, cannot in itself constitute an abuse of a dominant position; however, it may do so in extraordinary circumstances, e.g. if the Under the Danish Act on Competition it is still – if there is no effect dominant undertaking has offered to license on FRAND terms (see on trade between EU Member States – possible to get a negative e.g. Case C-170/13, Huawei Technologies). clearance (i.e. that there is no infringement of Section 6 or Section 11 of the Danish Act on Competition), an individual exemption (i.e. that there is no infringement of Section 6 of the Danish Act on 3.14 Do enforcers and/or legal tribunals consider “direct effects” evidence of market power? Competition due to the existence of efficiencies), and a statement of non-dominance. Such requests are, however, quite rare. It follows from the travaux préparatoires that it is possible to use the

36 WWW.ICLG.COM ICLG TO: VERTICAL AGREEMENTS AND DOMINANT FIRMS 2018 Gorrissen Federspiel Denmark

Martin André Dittmer Kristian Helge Andersen Gorrissen Federspiel Gorrissen Federspiel Axel Towers Axel Towers Axeltorv 2 Axeltorv 2 1609 Copenhagen V 1609 Copenhagen V Denmark Denmark

Tel: +45 33 41 41 43 Tel: +45 33 41 43 30 Email: [email protected] Email: [email protected] URL: www.gorrissenfederspiel.com URL: www.gorrissenfederspiel.com

Martin André Dittmer is partner and head of EU & Competition with Kristian Helge Andersen is senior legal counsel with Gorrissen Denmark Gorrissen Federspiel. He advises on all aspects of Danish and EU Federspiel and has worked with competition law for more than 10 years. competition law and has extensive practical experience. Martin André He advises clients on distribution agreements and other cooperation Dittmer deals with merger applications to the European Commission, of a horizontal or vertical nature as well as conduct by dominant the Danish competition authorities, and foreign competition authorities undertakings. Kristian Helge Andersen has extensive experience and advises clients on horizontal and vertical agreements, matters of with merger control work. He is a part-time lecturer at the University abuse of dominance, and all other types of issues within Danish and of Copenhagen, a frequent speaker at conferences, and author and EU competition law. Furthermore, Martin André Dittmer advises both co-author of several publications on competition law, including writing contracting entities and tenderers in relation to public procurement the chapters on merger control and abuse of dominance for the Danish issues. Martin André Dittmer has special insight into the energy, Act on Competition with Commentary (fourth edition, 2018). He has airline, shipping, and telecommunications sectors and is a regular been an international associate in the United States with the law firm speaker on topics concerning competition law. Simpson Thacher & Bartlett LLP, New York, and special advisor with the Danish Competition and Consumer Authority.

Gorrissen Federspiel is one of the leading corporate law firms in Denmark with strong and long-standing international relations. This position is a result of consistent dedication to quality and understanding of our clients’ needs. Over the years, we have acted on behalf of our clients in many of Denmark’s largest and most complex transactions and Gorrissen Federspiel’s partners have litigated in some of the recent years’ most high profiled and critical lawsuits. Our aim is to provide advice at the highest professional and ethical level, tailored to the client’s individual situation and requirements. We are accessible whenever our clients need our assistance. Our practice areas cover all branches of Danish and EU commercial law. We maintain close relations with leading lawyers worldwide and, at short notice, are able to provide our clients with the professional assistance wherever they need it.

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European Union Jean-Louis Fourgoux

Fourgoux-Djavadi&Associés Leyla Djavadi

companies concerned, pronounce injunctions or impose special 1 General conditions. It may also accept commitments from the companies concerned, or enter into a settlement agreement by which the 1.1 What authorities or agencies investigate and enforce companies concerned choose not to challenge the Commission’s the laws governing vertical agreements and dominant findings in exchange for a reduced fine. firm conduct?

1.5 How are those remedies determined and/or The European Commission (“EU Commission”), as well as National calculated? Competition Authorities (“NCAs”), are in charge of investigating and enforcing EU competition law, including the rules governing Article 23 of Regulation 1/2003 defines the method of fine vertical agreements and abuse of dominance. calculation. Pursuant to Article 23§1, fines of up to 1% of the total turnover are to be administrated for failing to cooperate with, 1.2 What investigative powers do the responsible or providing incorrect information to, the authorities during the competition authorities have? procedure. Pursuant to Article 23§2 and §3, the Commission or the CJEU are Officials of the EU Commission and NCAs have the power to able to fine undertakings for infringing Articles 101 or 102 TFEU. carry out investigations in companies’ premises, land and means In doing so, the judge shall calculate a basis amount, taking into of transport for professional use, as well as request the delivery of account the value of sales affected by the infringement during the specific documents. They may also place any commercial premises, last year of participation in the infringement. This amount may be documents and information media under seal for the duration of the subsequently increased or decreased, taking into account the gravity inspection. of the infringement, its length, the dissuasion objective of the fine and finally any mitigating or aggravating circumstances. 1.3 Describe the steps in the process from the opening of Penalties are set individually for each undertaking sanctioned; they an investigation to its resolution. are capped at €3 million where infringers are not undertakings, and at 10% of the worldwide turnover where infringers are undertakings. Investigations may start with either a complaint from a competitor, a leniency application, the opening of an own-initiative investigation, 1.6 Describe the process of negotiating commitments or with information reported by individuals via the “whistleblower other forms of voluntary resolution. tool”, following the results of a sectorial investigation, or with a warning from Member States. Parties may decide to offer commitments to the Commission after Interim measures may be granted on a complainant’s request in the it has opened an investigation, but before it issues the statement case of emergency. of objection. Commitments aim at remedying the competition In the ordinary procedure, the official in charge of the investigation concerns expressed by the Commission. If the Commission accepts may decide to close the investigation if it reveals no infringement, them, they are made binding and the investigation is closed. As a accept commitments from the parties or send a statement of objections result, the undertaking is not fined. to the parties, which are then invited to present their written or oral For an undertaking which took part in a cartel, leniency consists of observations before the Commission issues its decision. letting the Commission know about such infringement and bringing If the parties decide not to challenge the statement of objections, all the evidence in its possession. The leniency procedure used will they may enter into a transaction with the Commission (see the be subject to whether the undertaking offers enough evidence to answer to question 1.6). avoid opening an investigation (leniency type A), or enough to open the investigation (leniency type B). Depending on the arrival rank of the undertaking to the Commission, it may either escape the fine 1.4 What remedies (e.g., fines, damages, injunctions, etc.) completely, or have its fine reduced by 15%. are available to enforcers? Finally, the transaction is a form of voluntary resolution as the Where there is a competition law infringement, the Commission undertakings agrees not to contest the grievances and gives up some may impose fines of up to 10% of the worldwide turnover of the of its procedural rights in exchange for a reduction of the fine.

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and restrictions on prices. The final report from the Commission 1.7 Does the enforcer have to defend its claims in front published on 10 May 2017 concluded that the VBER expires in May of a legal tribunal or in other judicial proceedings? If 2022, and the results of the e-commerce sector inquiry confirm that so, what is the legal standard that applies to justify an there is no need to anticipate its review (§73 COM(2017) 229 final). enforcement action?

The Commission is independent and in charge of the competition 1.11 Does enforcement vary between industries or policy under the scrutiny of the General Court. The General Court businesses? is made up of at least one judge from each Member State (44 judges in office as at 19 September 2016). The judges are appointed According to the definition of an undertaking given by the General by common accord of the governments of the Member States Court in the Höfner case (C-41/90, 23 April 1991), the enforcement after consultation of a panel responsible for giving an opinion on should not vary on the nature of the activity undertaken.

candidates’ suitability to perform the duties of a judge. However, due to the specificities of certain industries, the European European Union authorities adopted a more lenient approach towards these sectors. 1.8 What is the appeals process? In the agricultural sector, specific exemption regulations exist. Beyond these specific regulations, in its conclusions under case Pursuant to Article 31 of Regulation 1/2003, “[t]he Court of Justice APVE (C-671/15), Advocate General N. Wahl recognised that some shall have unlimited jurisdiction to review decisions whereby the practices carried out by the producers’ organisations and associations Commission has fixed a fine or periodic penalty payment”. Under producers’ organisations, which are strictly necessary to achieving Article 263 TFEU, the applicant shall form its appeal no later than their missions, can escape the application of competition rules. We two months from the publication or the notification of the decision. now have to wait for the interpretation of the General Court. In order to see the decision challenged, the applicant may invoke the incompetence, substantial forms’ violation, treaties’ violation or 1.12 How do enforcers and courts take into consideration misuse of power. an industry’s regulatory context when assessing competition concerns? 1.9 Are private rights of action available and, if so, how do they differ from government enforcement actions? Specific industries’ regulations are taken into account, especially if they confer a legal monopoly to an undertaking. However, where Private rights of action are now available under Directive 2014/104/ the regulations provide for an activity to be open to competition, the CE. Private enforcement differs from public enforcement as it is Commission applies competition law rules to the industry’s players rendered in the private interest of the victim and in front of the civil as in any non-regulated activity. courts, whereas public enforcement is rendered in the name of the State, in front of administrative authorities. 1.13 Describe how your jurisdiction’s political environment may or may not affect antitrust enforcement. 1.10 Describe any immunities, exemptions, or safe harbors that apply. The Competition Commissioner (Margrethe Vestager) has an initiative power on EU policies (the sector for inquiry, regulation, As for cartels, a first exemption is stated under Article 101§3, where and soft law). The Commission pursues under her initiative an the practice contributes to improving the production or distribution effective enforcement of competition rules in the areas of antitrust of goods or to promoting technical or economic progress, while and cartels, mergers and state aid, maintaining competition allowing consumers a fair share of the resulting benefit that instruments aligned with market developments. The Commission is proportionate and does not eliminate the competition. This follows an economic, as well as a legal, approach to the assessment exemption can hypothetically always be fulfilled, even in cases of of competition issues. “hardcore restrictions”. The Chief Competition Economist, who provides economic advice, The usual exemptions for cartels nowadays are block exemption and the Hearing Officers, whose mission is to ensure due process, regulations. Three types of practices can be justified on this ground: safeguard the parties’ procedural rights and contribute to the quality cooperation agreements; vertical restrictions; and research and of the decision-making are independent and, as such, are not affected development agreements. To be exempted, infringers’ market share by the political environment. should not exceed the market share threshold set in the Regulation, and the practice should not bear any hardcore or unjustified restrictions. 1.14 What are the current enforcement trends and As regards abuse of dominant position, Article 102 TFEU does not priorities in your jurisdiction? mention any exemption possibilities. However, the case law has always recognised a derogation for “objective necessities” such as The top priority for the Commission remains, since Mario Monti public order or public health. More effectively, the General Court stated it in his 2001 speech, “breaking cartels (…), in particular held in the Post Danemark I case (C-209/10, 27 March 2012) that when they affect important consumer goods” (Commissioner economic efficiencies could exempt the infringement, in the same Margrethe Vestager in charge of competition policy). way as Article 101§3 allows for a justification. One of the Commission’s priorities at the moment is the e-commerce The 330/2010 vertical block exemption regulation gives companies sector. The final report of the Commission on e-commerce was freedom to decide how their products are distributed, provided published on 10 May 2017. Its main finding was that e-commerce their agreements do not contain price-fixing or other hardcore is an important driver of price transparency and price competition. restrictions, and both manufacturer and distributor do not have It also identified some business practices which may limit online more than a 30% market share. Approved distributors are free to sell competition such as geo-blocking practices, which may restrict on the Internet without limitation on quantities, customers’ location competition in the single market.

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1.15 Describe any notable case law developments in the 2.5 What is the analytical framework for assessing past year. vertical agreements?

No notable case law developments happened in the last year. Many The Commission, similarly to every EU NCA, due to the direct disputes focused on State aids with a special focus on fiscal aids. effect of Regulation 330/2010, considers that vertical agreements Precisions were offered on the distinction between object restrictions are generally less harmful than horizontal restraints and may and restrictions by effect (Maxima Latvja C-345/14, 26 November provide substantial scope for efficiencies. As such, where the 2015; Genentech C-567/14, 7 July 2016). A growing importance is companies have limited market power (not exceeding 30%) and being given to fundamental rights in competition procedures (DHL providing that the agreement contains no hardcore restrictions of C-428/14, 20 July 2016; Eturas C-74/14, 21 January 2016). No competition, the Commission will find that the agreement usually condemnation was inflicted for abuse of dominant position. has no anticompetitive effects.

European Union However, for agreements concluded between companies whose 2 Vertical Agreements market share exceeds 30%, there is no such presumption. The Commission will therefore assess the potential anticompetitive effects of the agreement by comparing the actual or likely future 2.1 At a high level, what is the level of concern over, and situation in the relevant market with the vertical restraints in place scrutiny given to, vertical agreements? with the situation that would prevail had the vertical agreement not been concluded. Vertical agreements are always scrutinised by the Commission and the NCA. As regards vertical restraints, resale price maintenance 2.6 What is the analytical framework for defining a market (“RPM”) is considered a very serious offence, while other vertical in vertical agreement cases? restraints (prohibition of passive sales, exclusivities) are judged less severely even if they may also give rise to sanctions. In order to define the relevant market, the relevant product market and geographic market must be defined. The relevant product 2.2 What is the analysis to determine (a) whether there markets comprise any goods or services regarded by the consumers is an agreement, and (b) whether that agreement is as interchangeable, by reason of their characteristics, prices and vertical? intended use. The relevant geographic market is the area in which the companies are involved in the supply and demand of relevant To determine whether there is an agreement, the Commission goods or services, in which the conditions of competition are focuses on whether there was a common will of the undertakings. sufficiently homogeneous, and which can be distinguished from The Commission pursues a non-formal approach. Indeed, the neighbouring geographic areas. common will does not have to be embodied in a contract; it may be an oral agreement or a series of actions. 2.7 How are vertical agreements analysed when one of To determine whether an agreement is vertical, the Commission the parties is vertically integrated into the same level examines whether the participants to the agreement are at the as the other party (so called “dual distribution”)? Are same production phase. If they are, the agreement is deemed to be these treated as vertical or horizontal agreements? horizontal, if not, it is vertical. Article 2(4) of Regulation 330/2010 contains exceptions to the general exclusion of vertical agreements, one of which regards dual 2.3 What are the laws governing vertical agreements? distribution. In case of dual distribution, any potential impact on the competitive relation between the producer and the distributor Article 101 of the Treaty on the Functioning of the European is considered not as harmful for the competition as any impact Union (“TFEU”) applies to vertical agreements where they restrict of the vertical supply agreement on competition in general at the competition within the common market or a substantial part of it and producing or retail levels. affect trade between the EU Member States. Because vertical agreements are considered not as dangerous 2.8 What is the role of market share in reviewing a vertical for competition as horizontal ones, vertical agreements may be agreement? exempted under Block Exemption Regulation 330/2010. Such an exemption may happen where the parties’ market share does Market share is crucial as it determines whether a vertical agreement not exceed 30% and where there are no hardcore or unjustified enters the scope of Regulation 330/2010 and, as such, is likely to be restrictions of competition. Such hardcore restrictions would be, exempted if it does not bear any hardcore restrictions, or whether it for instance, price fixing. does not enter its scope and has to forego individual assessment by the Commission. 2.4 Are there any type of vertical agreements or restraints that are absolutely (“per se”) protected? 2.9 What is the role of economic analysis in assessing vertical agreements? Resale price maintenance is considered a very serious competition law infringement and is always sanctioned even if franchise Where a practice does not fit into the scope of Regulation 330/2010, networks claim a more pragmatic approach. the Commission examines the potential anticompetitive effects of

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the practice pursuant to an effect-based approach. In this regard, the the production or distribution of goods or to promoting technical Commission uses a counter factual test and compares the actual or or economic progress, while allowing consumers a fair share of the likely scenario with the scenario which would have happened had resulting benefit, and that it is proportionate and necessary. the agreement not been concluded.

Where the practice fits into the scope of Regulation 330/2010 and 2.15 Have the enforcement authorities issued any formal contains no hardcore restrictions, no economic analysis is used as guidelines regarding vertical agreements? the practice is purely exempted. The Commission issued detailed Guidelines on Vertical Restraints 2.10 What is the role of efficiencies in analysing vertical in 2010 (C(2010) 2365). agreements? 2.16 How is resale price maintenance treated under the

Efficiencies are not taken into account when qualifying vertical law? European Union restraints, but they can be claimed by companies subject to a Commission investigation. Where they do so, companies have to Resale price maintenance is considered as a hardcore restriction demonstrate that the claimed efficiencies meet all the conditions of under Article 4a) of Regulation 330/2010 which therefore prevents the individual exemption laid down in Article 101§3 of the TFEU. the exemption of the agreement. The Commission can also find efficiencies when weighing up the competitive effects and the anticompetitive effects, and as such, find 2.17 How do enforcers and courts examine exclusive that the agreement does not infringe Article 101 of the TFEU. dealing claims?

2.11 Are there any special rules for vertical agreements The Commission considers in its guidelines that exclusive relating to intellectual property and, if so, how does distribution is exempted by Regulation 330/2010 when the the analysis of such rules differ? combined supplier’s and buyer’s market share does not exceed 30%. Combining exclusive and selective distribution is allowed by the Article 2(3) of the Block Exemption Regulation applies to vertical Commission only where active selling in other territories is not agreements containing provisions on intellectual property rights limited. (“IPR”) when the following five conditions are met: ■ the IPR provisions are part of a vertical agreement; 2.18 How do enforcers and courts examine tying/ ■ the IPR are assigned to or licensed for use by the buyer; supplementary obligation claims? ■ the IPR provisions do not constitute the primary object of the agreement; Tying is block exempted when the market share of the producer ■ the IPR provisions are directly related to the use, sale or on both the markets of the tied and tying products, and the market resale of goods or services by the buyer of his customers; and share of the distributor on the upstream market do not exceed 30%. ■ the IPR provisions, in relation to the contract goods or Where the market share exceeds 30%, the Commission has to services, must not contain restrictions of competition. examine whether tying leads to anticompetitive foreclosure effects in the tied market, the tying market, or both. 2.12 Does the enforcer have to demonstrate anticompetitive effects? 2.19 How do enforcers and courts examine price discrimination claims? The Commission can either establish that the agreement bears an anticompetitive object, which thus presumes anticompetitive effects, Price discrimination in vertical agreements is not prohibited per se or the Commission has to demonstrate anticompetitive effects. and the reasoning depends on the parties’ market shares (see the answer to question 1.10). In this regard, the Commission follows an 2.13 Will enforcers or legal tribunals weigh the harm effects-based approach. against potential benefits or efficiencies? 2.20 How do enforcers and courts examine loyalty When assessing whether an agreement is anticompetitive, the discount claims? Commission is not required to weigh the harm against potential benefits or efficiencies, unless the parties to the agreement claim the As loyalty discounts do not constitute a hardcore restriction under existence of such benefits or efficiencies. Regulation 330/2010, where the parties’ combined market share does not exceed 30% the agreement is exempted. However, 2.14 What other defences are available to allegations that a where the market share exceeds 30%, the Commission weighs the vertical agreement is anticompetitive? competitive and anticompetitive effects of the practice, pursuant to an effects-based approach. Where a vertical agreement is deemed anticompetitive, the parties to the agreement may claim an individual exemption under Article 2.21 How do enforcers and courts examine multi-product 101§3 of the TFEU. For them to benefit from the exemption, the or “bundled” discount claims? parties have to demonstrate that the agreement either results from the application of the law or has efficiency gains. It is very hard Multi-product or “bundled” discount is examined in the same way to establish efficiencies of an agreement as the parties would be as tying, discrimination and loyalty discounts. required to demonstrate that the practice contribute to improving

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2.22 What other types of vertical restraints are prohibited 3.6 What is the role of economic analysis in assessing by the applicable laws? market dominance?

Generally speaking, all vertical restraints having an anticompetitive The Commission occasionally uses the “hypothetical monopolist object or effect may be prohibited under Article 101 of the TFEU. test”, also known as the SSNIP (“small but significant and non-transitory increase in price”) test, to assess the degree of substitutability of products and areas considered, and thus defines 2.23 How are MFNs treated under the law? markets and assesses dominance.

The Commission considers in its guidelines that MFNs are not stand- alone but are combined measures which can contribute to reducing 3.7 What is the role of market share in assessing market the buyer’s incentive to lowering the resale price. In this regard, if dominance? European Union MFNs are used to create or facilitate resale price maintenance, they shall be considered as anticompetitive by object under Article 4a) of Market shares are a crucial criteria used by the Commission in Regulation 330/2010. determining market dominance, as it can establish the dominant Apart from this scenario, MFNs will not be considered position of the undertaking, but it is not the only element taken into anticompetitive per se, but the Commission will have to establish account. The analysis of the market share of the undertaking must their anticompetitive effect. A wide supranational investigation was take into account the market concentration. launched five years ago, jointly with French, Swedish and Italian NCAs in the Hotel Booking Platforms cases. 3.8 What defences are available to allegations that a firm is abusing its dominance or market power?

3 Dominant Firms Under EU law, the defences available to allegations that a firm is abusing its dominance include: the dominant firm may claim that its 3.1 At a high level, what is the level of concern over, and behaviour is objectively necessary or that its anticompetitive effects scrutiny given to, unilateral conduct (e.g., abuse of are balanced by efficiency gains. However, such claims are usually dominance)? rejected as unsubstantiated.

Dominant firms’ conduct is actively monitored by the Commission, 3.9 What is the role of efficiencies in analysing dominant which also regularly receives complaints against dominant firms. firm behaviour?

3.2 What are the laws governing dominant firms? See the answer to question 3.8.

Article 102 of the TFEU applies to unilateral conduct of dominant 3.10 Do the governing laws apply to “collective” firms by prohibiting the “abuse by one or more undertakings of a dominance? dominant position with the internal market”. Yes, Article 102 of the TFEU prohibits the abuse of a dominant 3.3 What is the analytical framework for defining a market position by both an undertaking or by a group of undertakings. (EU in dominant firm cases? Tribunal T-193/02, 26 January 2005, Laurent Piau.)

The analytical framework is the same as the one described for 3.11 How do the laws in your jurisdiction apply to defining a market in vertical agreements (see question 2.6). dominant purchasers?

3.4 What is the market share threshold for enforcers or a Article 102 of the TFEU applies to dominant purchasers. court to consider a firm as dominant or a monopolist? Such an abuse constitutes an abuse of monopsony purchasing power (envisaged in EU Federación Nacional de Empresas de The Commission takes into account several structural factors in Instrumentación Científica 4 March é003 T-319/99). assessing dominance. The dominant firm’s market shares are the most important ones, but the Commission also considers 3.12 What counts as abuse of dominance or exclusionary competitors’ market shares, as well as the absence of competitive or anticompetitive conduct? constraints from competitors or of countervailing buyer power. Under EU law, market shares above 50% are considered as Abusive conducts may constitute in “directly or indirectly indicative of dominance. imposing unfair purchase or selling prices or other unfair trading conditions”; “limiting production, markets or technical development 3.5 In general, what are the consequences of being to the prejudice of consumers”; “applying dissimilar conditions adjudged “dominant” or a “monopolist”? Is dominance to equivalent transactions with other trading parties, thereby or monopoly illegal per se (or subject to regulation), or placing them at a competitive disadvantage”; and “making the are there specific types of conduct that are prohibited? conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according Dominance and monopolies are not illegal per se, it is the abusive to commercial usage, have no connection with the subject of such conduct that is illegal. Specific conducts which may lead to an contracts” (Article 102 of the TFEU). abuse are detailed under question 3.12.

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3.13 What is the role of intellectual property in analysing 3.16 Under what circumstances are refusals to deal dominant firm behaviour? considered anticompetitive?

The European Court of Justice has made clear that the possession of Refusals to deal are not prohibited per se, and complaints on this a patent or any other intellectual property right does not necessarily ground may be rejected (e.g. case AT39921, 2014). However, they give the firm a dominant position in spite of its exclusive nature (18 may be considered anticompetitive in certain circumstances. February 1971, Sirena, aff. 40/70; 29 February 1968, Parke Davis, aff. 24/67). However, a refusal to make available an intellectual property right for other competitors can be qualified as an abuse 4 Miscellaneous of dominant position, especially when it is considered an essential facility (6 April 1995, Magill, C-241/91, 29 April 2004, IMS Health 4.1 Please describe and comment on anything unique to GmbH & Co). your jurisdiction (or not covered above) with regards European Union to vertical agreements and dominant firms. 3.14 Do enforcers and/or legal tribunals consider “direct effects” evidence of market power? EU rules on vertical agreements and the abuse of a dominant position embody the so-called “modernisation” of EU competition law as they There are no precedents of the use of “direct effects” evidence of adopt a more effect-based and economic approach. There are still market power under EU law. some remnants of a formalistic approach, as seen under Regulation 330/2010, yet for every agreement where the parties’ market share exceed 30% a balance is struck between pro-competitive effects and 3.15 How is “platform dominance” assessed in your anticompetitive effects. Since the 2009 Commission Guidelines on jurisdiction? abuse of dominance, the same approach has been adopted for Article 102. No per se or “hardcore” restriction exists under Article 102, Although there are no platform dominance cases as yet under EU and every practice can be exempted if its pro-competitive effects are law, the reasoning of the European Court of Justice in Article 101 more important than its anticompetitive effects, allowing for a fairer cases (e.g. Cartes Bancaires, 2014) may be interpreted as indicating and more liberal approach. that the link between the different sides of a multi-sided platform will also be considered in Article 102 cases too.

Jean-Louis Fourgoux Leyla Djavadi Fourgoux-Djavadi&Associés Fourgoux-Djavadi&Associés 76 Avenue de Wagram 76 Avenue de Wagram 75017 Paris 75017 Paris France France

Tel: +33 15565 1665 Tel: +33 15565 1665 Email: [email protected] Email: [email protected] URL: www.avocats-fourgoux.com URL: www.avocats-fourgoux.com

Jean-Louis Fourgoux is a member of the Paris and Brussels Bars, Leyla Djavadi is a member of the Paris Bar, and has been a specialising in economic law and European competition law. He is competition law practitioner for more than 20 years. She is an AFEC Chairman of the French Competition Law Association (AFEC), as member and board member of the APDC (Association of Lawyers well as a visiting lecturer in competition law at Versailles University Practising Competition Law), as well as a member of the ICC and at IEP Paris Sciences Po. Jean-Louis is also a speaker at École competition Commission. Leyla is co-author of “Guide du Contentieux Nationale de la Magistrature (national school for judges), and French de la concurrence” and author of Juris-Classeur “la procedure de la rapporteur of the research conducted by the Starclyde University Law concurrence”. She is also a visiting lecturer at the University of Nantes, School and the European Commission on private enforcement. He Master II, and a trainer in the fields of distribution and competition law is the author of the study on French competition law for Lexis-Nexis for EFE and Lexis Nexis. Juris-classeur Commercial.

Fourgoux-Djavadi&Associés, created in 1947, is a specialised law firm which brings together experienced lawyers with an assiduous practice of litigation. From the outset, the partners have turned to economic law and business law. The development of Community law has led the associates to join the Brussels Bar and to open a branch to better respond to the needs of clients in accompanying proceedings before the European Commission. The three partners, the counsel and associates are registered at the Paris Bar and have been trained to build judicial strategies and competition authorities, but also to assist the legal services of large companies in various fields (franchising, selective distribution, car retail, etc.). Fourgoux- Djavadi&Associés is a member of a national lawyers’ network (Gesica), with 22 law firms and more than 1,000 lawyers across France, and is able to handle immediate dawn raids.

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France

HLG Avocats Helen Coulibaly-Le Gac

1 General 1.3 Describe the steps in the process from the opening of an investigation to its resolution.

1.1 What authorities or agencies investigate and enforce the laws governing vertical agreements and dominant During a preliminary phase (non-adversary proceedings), the ADLC firm conduct? shall study the various evidence available. If the preliminary investigation leads to consider that the practices may be anti- The French Competition Authority (“l’Autorité de la concurrence” competitive, the ADLC’s head of the investigation services (the or “ADLC”) is an independent administrative authority empowered “Rapporteur Général” or “RG”) shall issue a statement of objections to investigate and enforce the French competition law, including the (“SO”). From this issuance, the notified parties shall be entitled to rules governing vertical agreements and abuse of dominance. study the ADLC’s file (including all evidence available) and provide a statement of defence within two months. It is worth noting that the minister for economic affairs has authority to impose injunction remedies and settlements for practices affecting Then, an investigative report shall be sent by the investigation local markets when the turnover generated in France by each services to the notified parties. The parties then shall have two undertaking concerned (last audited financial year) does not exceed additional months to reply to this report. 50 million euros and their combined turnover does not exceed 200 Finally, the parties shall be entitled to express their views and million euros. Under the authority of the minister, the amount of the positions during a hearing before the ADLC (“the College”). settlement shall not exceed 150,000 euros or 5% of the turnover of The ADLC then shall issue a decision either: the undertakings if this figure is lower. ■ to dismiss the case (no grounds to follow the proceedings); Commercial litigations in relation with the application of rules ■ to settle the proceedings with a moderated fine due to the governing vertical agreements and abuse of dominance (namely settlement; or Articles L. 420-1 to L. 420-5 of the Commercial Code (“CC”) ■ to impose fines to the parties as well as injunctions and/or shall be entrusted to eight French commercial courts (Marseille, commitments to modify the behaviour or to comply with law. Bordeaux, Lille, Fort de France, Lyon, Nancy, Paris, and Rennes). The ADLC may also impose the publication (or an extract) of the decision. 1.2 What investigative powers do the responsible Finally, in very few cases (hard-core conduct involving natural competition authorities have? persons), the ADLC can refer the case to criminal courts. It is to be noted that, after the preliminary phase, the ADLC shall In France, two types of investigations (ordinary or judicial) may also decide not to open the adversary phase for different reasons: occur. The investigations may be conducted either by the ADLC ■ lack of legal interest; itself or by the agents of the Directorate General for Competition, ■ case time-barred; or Consumer Affairs and the Prevention of Fraud (“DGCCRF”). ■ no relevant evidence. During an ordinary investigation, officials ofADLC or the DGCCRF may access any place used as professional offices or professional Interim measures may also be adopted at the beginning of the means of transport, are empowered to request delivery and copies of proceedings under specific conditions. professional documents, and to interview employees provided the latter have been informed of the purpose of the investigation. 1.4 What remedies (e.g., fines, damages, injunctions, etc.) During a judicial investigation (dawn raid), officials investigate under are available to enforcers? the control of the judge and usually in the presence of police officers. Under this procedure, officials shall be entitled to access private and The ADLC shall be entitled to adopt interim measures to stop the business premises to conduct searches and seizure operations. They practices or suspend an illicit action. Those measures have to be can obtain or take copies of any documents that may be useful for strictly limited to what it is necessary. the purpose of the investigation (either hard or electronic copies) In addition, as mentioned in question 1.3, the ADLC: including electronic mailboxes, except if the documents are legally ■ shall request to cease the anti-competitive practices and/ privileged (e.g. legal opinions from external lawyers). They shall be or modify through injunctions or commitments the illicit entitled to request statements from employees. behaviour and comply with competition law for the future;

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■ shall impose a fine up to 10% of the highest worldwide After the notification of the judgment of the PCA, the judgment turnover achieved by the group of companies concerned in may be referred before the Cour de Cassation (Higher Civil Court) any financial year during the period the illicit practices took within one month. place; Interim measures may also be challenged before the PCA within 10 ■ shall impose fines up to 5% of the daily average turnover days following the notification of the interim measures. achieved by the party concerned, per day of delay in implementing an injunction or a commitment; and The decisions to appeal are not suspensive. However, upon specific ■ shall impose the publication of the decision in a well-known request, the president of the PCA may suspend the implementation newspaper and sometimes on the website of the parties of a decision if it is likely that the decision of the ADLC will concerned. have manifestly excessive consequences or because new facts of

excessive gravity are raised. France The ADLC shall not be entitled to award damages to the plaintiffs or the victims of the anticompetitive practices. 1.9 Are private rights of action available and, if so, how do they differ from government enforcement actions? 1.5 How are those remedies determined and/or calculated? As mentioned in question 1.1, paragraph 3, any entity demonstrating a legal interest has the possibility to bring a case before the The criteria used to determine the financial penalties are set out by commercial court to obtain the ending of the illicit practices, the law and were specified by the authority in 2011. Thus, the fine must payment of civil damages and eventually the nullity of an agreement be proportionate to the seriousness of the violation and to the damage in relation to anticompetitive practices. Appeals of those judgments caused to the economy. The financial situation of the undertaking are also dealt with by the PCA. sanctioned shall also be taken into consideration as well as the reiteration, if any, of an anticompetitive practice. Fines are determined A class action regime is also available under French law. It allows and justified individually for each undertaking sanctioned. certain authorised consumers’ associations to launch collective actions before civil and commercial courts for damages suffered by individuals as the result of the application on an anticompetitive 1.6 Describe the process of negotiating commitments or practice. other forms of voluntary resolution.

Commitments proceedings is an efficient tool to regulate commercial 1.10 Describe any immunities, exemptions, or safe harbors practices and enforce competition law. The implementation of that apply. commitments proceedings assumes that no SO was issued by the RG. The RG shall expose its preliminary assessment of the alleged Under Article L. 464-6-1 of the CC, the ADLC shall decide not to practices to the undertakings concerned which, then, have to formalise pursue the procedure concerning anticompetitive practices when and submit their commitments within a minimum period of one the combined market shares of the undertakings concerned do not month. Then, the RG shall transfer the commitments to the plaintiff, if exceed: any, and to the public ministry and shall publish a summary of the case ■ 10%, when the parties of the agreement are actual or potential with the proposed commitments to allow third parties to provide their competitors on the concerned market; or observations, if any. All the observations must be communicated to the ■ 15%, when the parties of the agreements are not actual or RG within a minimum period of one month. Undertakings concerned potential competitors on the concerned market. shall also have the opportunity to present observations during an oral The “de minimis” exemption shall not apply to hard-core restrictions hearing. Then, the ADLC shall adopt a binding decision of acceptance. such as price fixing, limitation of the production or sales, etc. The ADLC shall monitor the application of the commitments Regarding vertical agreements, the European Regulation No regularly during a specified period and reporting documents from 330/2010 of 20 April 2010 on the application of Article 101(3) of the the undertakings concerned must be provided on a regular basis. Treaty on the Functioning of the European Union to categories of A settlement proceedings may be enforced after the communication vertical agreements and concerted practices (the “EU vertical block of an SO providing the parties agree not to challenge the grounds on exemption”) which sets forth a safe harbour for vertical agreements, which the SO is based. The settlement shall fix the minimum and the providing that the supplier and the buyer have a market share below maximum amount of the potential fines to be adopted by theCollege in 30%, shall also be used as a guidance. Hard-core restrictions are not its decision of condemnation. The parties may also propose to modify covered by the exemption. their behaviours and to comply with competition law in the settlement. Leniency programmes are available to companies that have infringed Article L. 420-1 of the CC which prohibits anticompetitive 1.7 Does the enforcer have to defend its claims in front practices. However, this procedure applies mainly to cartels of a legal tribunal or in other judicial proceedings? If between competitors involving hard-core restrictions such as price so, what is the legal standard that applies to justify an fixing, market sharing, and bid-rigging. enforcement action?

1.11 Does enforcement vary between industries or No, they do not. businesses?

1.8 What is the appeals process? The ADLC does mention variation of enforcement between industries or businesses. In 2018, sectors involved in a decision, The parties and the minister of economic affairs may appeal the commitments or ongoing proceedings are varied (agriculture, decision of the ADLC before the Paris Court of Appeal (“PCA”), publicity, the healthcare industry, etc.). within one month after the notification of the decision to the parties.

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Then, the ADLC identifies whether the parties to an agreement are 1.12 How do enforcers and courts take into consideration active at different stage of the production chain of a product or a an industry’s regulatory context when assessing service (by opposition to a competitor which competes at the same competition concerns? level of the chain) to classify the agreement as vertical.

The ADLC shall duly take into consideration regulatory constraints when assessing practices. In any event, in France, regulatory rules 2.3 What are the laws governing vertical agreements? do not prevent the application of competition law. The law governing vertical agreements is covered by Article L. 420-1 of the Commercial Code which prohibits express or implied

France 1.13 Describe how your jurisdiction’s political environment agreements and concerted practiced and coalition which – as their may or may not affect antitrust enforcement. object or effect – prevent, restrict or distort competition. Articles 101 and 101-3 of the Treaty on the Functioning of the EU (the The ADLC is an independent administrative authority and its actions TFEU) are also enforceable when the vertical agreements restrict shall not be influenced by the political environment and the changes competition within the common market or a substantial part of it and in government. affect trade between the EU Member States. Article L. 420-4 of the CC provides for specific conditions where a 1.14 What are the current enforcement trends and vertical agreements considered as anticompetitive under Article L. priorities in your jurisdiction? 420-1 may benefit from an exemption pursuant to Article L.420-4 (see question 2.5). Specific regulations may exempt certain types Potentially all sectors and industries are under the scrutiny of the of agreements. In addition, an anticompetitive agreement can be ADLC. However, as per the annual 2016–2017 report of the ADLC, exempted if the undertakings concerned are able to demonstrate its action has been particularly focused on the following sectors: that the agreement provides (i) economic progress, (ii) that the health; agriculture; digital economy, telecoms; media and energy. profitability is fairly passed on to the end-user, and (iii) without eliminating the competition for a substantial part of the products/ 1.15 Describe any notable case law developments in the services concerned. Finally, the restrictions to competition must past year. be limited to what it is strictly indispensable to implement the agreement in the context of the economic progress. On 21 December 2017, the ADLC rendered an unprecedented decision based on Article L. 464-2 of the CC fining a company (Brenntag Group) 2.4 Are there any type of vertical agreements or restraints for having obstructed the ongoing investigation. The undertaking was that are absolutely (“per se”) protected? suspected of anticompetitive practices but had provided the ADLC with incomplete responses to the request for information inter alia See question 1.10. (Decision 17-D-27). The financial penalty amounted to 30 million euros which represents 0.29% of the Group’s combined turnover. According to the authority, the penalty’s large amount had a deterrent 2.5 What is the analytical framework for assessing vertical agreements? and a remarkable purpose. It is worth noting that the procedure has lasted for 16 years. This decision is currently pending before the PCA. As a rule of thumb, the ADLC shall follow the common practice of Upon the application of a settlement procedure (Article L. 464-2-III the European Commission for assessing vertical restraints. of the CC), the ADLC fined Engie for having abused its dominant position after the opening to competition of the actual gas and After having defined the market(s) concerned, the ADLC shall use electricity market. The ADLC hold against Engie the use of material – as guidance – the EU vertical block exemption to assess a vertical (customer data base) and immaterial (infrastructure) means which agreement. The ADLC shall examine whether each of the parties’ led to eviction and confusion practices. Upon the settlement, the respective market share(s) on the relevant market(s) exceeds 30% financial penalty amounted to a moderate fine of 100 million euros. and whether the vertical agreement includes a hard-core restriction listed under the EU block exemption. Providing the parties’ markets shares do not exceed 30% and the agreement does not contain hard- 2 Vertical Agreements core restrictions (except in very specific situation such as penetration of a new market for instance (new entrant)), the agreement will be exempted. By contrast, if market shares are over 30%, the ADLC 2.1 At a high level, what is the level of concern over, and shall assess whether the vertical agreement has an anticompetitive scrutiny given to, vertical agreements? object or effect. However, an agreement considered as anticompetitive may benefit Vertical agreements shall be actively scrutinised by the ADLC and from an exemption (see question 2.3). competent jurisdictions. The ADLC has a strong knowledge of the distribution and retail sectors in France and shall monitor them regularly. 2.6 What is the analytical framework for defining a market in vertical agreement cases?

2.2 What is the analysis to determine (a) whether there is an agreement, and (b) whether that agreement is vertical? The Competition Authority uses the analytical framework of the European Commission. The product market and the geographic market must be identified, in order to define the relevant market. In this respect, the ADLC shall follow the European commission’s practice and shall examine if the undertakings concerned have The relevant product market is defined as any goods or service mutually exchanged their consent, whether in oral or written form, regarded by consumers as interchangeable, by reasons of tacitly or expressly. characteristics, prices or intended uses. The geographic market

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is defined as the area in which the companies are involved in the supply or demand of relevant goods or services, in which the 2.13 Will enforcers or legal tribunals weigh the harm conditions of competition are sufficiently homogeneous, and which against potential benefits or efficiencies? can be distinguished from the neighbouring geographic area. As mentioned in question 2.3, the ADLC will determine if the four conditions, including efficiencies, are met in order to determine the 2.7 How are vertical agreements analysed when one of application of an individual exemption. the parties is vertically integrated into the same level as the other party (so called “dual distribution”)? Are these treated as vertical or horizontal agreements? 2.14 What other defences are available to allegations that a

vertical agreement is anticompetitive? France Following EU law, the dual distribution is treated as a vertical agreement when: (i) the supplier is a manufacturer and a distributor See questions 2.3, 2.5 and 2.10. of goods, while the buyer is a distributor and not a competing undertaking at the manufacturing level; and (ii) the supplier is 2.15 Have the enforcement authorities issued any formal a provider of services at several levels of trade, while the buyer guidelines regarding vertical agreements? provides its goods or services at the retail level and is not a competing undertaking at the level of trade where it purchases the The ADLC relies on the formal guidelines issued by the European contract services. Commission for the implementation of the European block exemption. 2.8 What is the role of market share in reviewing a vertical agreement? 2.16 How is resale price maintenance treated under the law? Under French law, the calculation of the market share is crucial and indispensable to assess a vertical agreement and determine whether Resale price maintenance shall be considered as being an it shall fall under the EU block exemption regime. It also provides anticompetitive restriction by object and as such, seen as a hard-core for the market power of the undertaking concerned, which is a key restriction preventing the application of the EU block exemption element in assessing an anticompetitive practice. and Article L. 464-6-1 of the CC.

2.9 What is the role of economic analysis in assessing 2.17 How do enforcers and courts examine exclusive vertical agreements? dealing claims?

Economic analysis may be used by the ADLC notably to compare Exclusive dealing clauses in vertical agreements are not forbidden the effects of the vertical agreement with a scenario which per se (except for French overseas territories where those practices would have happened if the agreement had not been concluded. are regulated). The ADLC and courts shall examine if those clauses The undertaking concerned may also use economic studies to have an anticompetitive effect following several criteria: the market demonstrate the efficiencies of the vertical agreement or the absence power of the parties; the nature and proportion of products involved of damage to the economy. in the agreement; the duration of the exclusivity; the presence or not of other similar contracts; the existence of justifications and 2.10 What is the role of efficiencies in analysing vertical the economic counterpart obtained by the party bound by the agreements? exclusivity, etc. If the agreement contains an exclusivity supply provision, the contract term shall be limited to 10 years, pursuant to Efficiencies are notably used to demonstrate that although a vertical Article L. 330-1 of the CC. agreement restrains competition, it can benefit from an individual exemption. 2.18 How do enforcers and courts examine tying/ supplementary obligation claims? 2.11 Are there any special rules for vertical agreements relating to intellectual property and, if so, how does Tying obligations are only examined under the potential abuse of the analysis of such rules differ? a dominant position, expect in case of evidenced unfair trading practices. No, there are not.

2.19 How do enforcers and courts examine price 2.12 Does the enforcer have to demonstrate discrimination claims? anticompetitive effects? Price discrimination claims are mainly examined under the potential The ADLC shall not have to demonstrate anticompetitive effects abuse of a dominant position. of a restriction which is considered as having an anticompetitive object (for example, retail price maintenance). Otherwise, the anticompetitive effects shall be demonstrated. 2.20 How do enforcers and courts examine loyalty discount claims?

Loyalty discount claims are mainly examined under the prohibition of the abuse of a dominant position.

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competitors, the constraints exerted by other competitors, the type 2.21 How do enforcers and courts examine multi-product of customers involved (countervailing purchasing power), and the or “bundled” discount claims? maturity of the market.

Multi-product or “bundled” discount claims are mainly examined under the prohibition of the abuse of a dominant position. 3.5 In general, what are the consequences of being adjudged “dominant” or a “monopolist”? Is dominance or monopoly illegal per se (or subject to 2.22 What other types of vertical restraints are prohibited regulation), or are there specific types of conduct that by the applicable laws? are prohibited? France The ADLC highly scrutinises all vertical restraints which have as the Being “dominant” is not illegal per se and does not have any object or effect the possibility of monitoring the consumer prices, consequences as long as the undertaking does not abuse its dominant the various channels of distribution (resale) (including Internet) of position. However, certain practices must be monitored as soon as the distributor, the sharing of customers, etc. the undertaking has a significant market share such as refusal to sell, tying practices, etc.; not only are effective effects scrutinised, but also potential effects. 2.23 How are MFNs treated under the law?

Under Article L. 442-6 II d) of the CC, clause or contracts allowing 3.6 What is the role of economic analysis in assessing market dominance? a party to benefit automatically from more advantageous terms granted to competing undertakings by the co-contracting party are null and void. Thus, MFN clauses are prohibited under French law. Economic analysis shall be used as a useful and efficient tool to assess the market dominance and notably to define the product and geographic relevant markets, to determine the methodology 3 Dominant Firms of calculation of the market shares, to define the degree of actual competition, the potential competitors and the potential or actual countervailing buying power of the customers. 3.1 At a high level, what is the level of concern over, and scrutiny given to, unilateral conduct (e.g., abuse of dominance)? 3.7 What is the role of market share in assessing market dominance? Abuse of dominant position is actively scrutinised by the ADLC and courts. The market shares play a key role in assessing market dominance, as we can see in question 3.4.

3.2 What are the laws governing dominant firms? 3.8 What defences are available to allegations that a firm Article L. 420-2 of the CC prohibits the abuse of dominant position is abusing its dominance or market power? by an undertaking or group of undertakings when it has as its object of effect the prevention, restriction or distortion of competition. This Article L. 420-4 of the CC provides for exemptions to the prohibition first paragraph provides a non-exhaustive list of examples, such as: of abuse of dominant position such as: the refusal to sell; tying practices; discriminatory terms of sale; or ■ the practices resulting from the application of statute or the termination of established commercial relationships for the sole regulation; and reason that the partner refuses to accept unjustified commercial terms. ■ the practices gathering the following cumulative criteria: Article L. 420-4 of the CC provides for individual exemptions i) the practices lead to an economic progress including by creating or maintaining jobs; ii) it reserves a fair share of providing the undertaking concerned demonstrates the economic the resulting profit to end-users; iii) it does not eliminate efficiency of the practice and the fair share of the benefits of the competition for a substantial part of the products in question; practice to the consumers. and iv) it does not include restrictions which go beyond what is indispensable to achieve the economic progress targeted. 3.3 What is the analytical framework for defining a market in dominant firm cases? 3.9 What is the role of efficiencies in analysing dominant firm behaviour? The ADLC uses the analytical framework used by the European Commission and provided by the EU law. See question 2.6. See question 3.8.

3.4 What is the market share threshold for enforcers or a 3.10 Do the governing laws apply to “collective” court to consider a firm as dominant or a monopolist? dominance?

Under French law, there is no market share threshold above The law also applies to “collective” dominance under Article L. 420- which enforcers or a court has to consider a firm as dominant or a 2 of the CC. The ADLC examines three cumulative criteria provided monopolist. However, the ADLC considers that the market shares by the EU case law (e.g. TPICE, T-342/99, Airtours v Commission; give a first substantial indication and very large shares, more than Cons. Conc. decision n°06-D-02), i.e.: i) transparency of the market, 50%, usually evidence dominance. meaning that each member of the group concerned must have the The ADLC may characterise a dominance over 40% and depending possibility to know the behaviour of the other members in order to on the nature of the market, the market shares of the other define if they follow the same course of action; ii) the possibility

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of a tacit and sustainable coordination; and iii) the absence of foreseeable contestability from competitors and customers on the 3.14 Do enforcers and/or legal tribunals consider “direct expected results of the common policy. effects” evidence of market power? The undertakings must be able to adopt a common policy on the Direct effects evidence is not really relevant under French law. market and to act to a considerable extent independently from their competitors, their customers, and from consumers (CJCE, 16 March 2000, C-395/96 P, Compagnie Maritime Belge Transports SA v 3.15 How is “platform dominance” assessed in your Commission). Collective dominance does not necessarily involve jurisdiction? an absence of competition between parties (TPICE, 30 September

2003, T-191/98, Atlantic Container Line v Commission). To date, no specific case law may be used to support the way France platform dominance is analysed. However, it is certain that the multi-sides markets on which an actor can play over the customers 3.11 How do the laws in your jurisdiction apply to dominant purchasers? via a dominant platform may have an impact on the market power of the undertaking concerned. The judgment of the Cour de Cassation dated 6 December 2016, confirming the decision of thePCA dated 12 French law applies similarly to both dominant purchasers and May 2016, illustrates the complexity of determining the platform’s dominant suppliers. relevant market and thus the platform dominance. The event-driven online sales market could not be identified since the actors are direct 3.12 What counts as abuse of dominance or exclusionary competitors with other suppliers, offline and online, who organise or or anticompetitive conduct? also make flash sales. Therefore, the dominant position of “vente- privée.com” could not be evidenced. Potentially abusive conduct which falls under the scope of Article L. 420-2 of the CC includes, among others: rebate schemes; pricing 3.16 Under what circumstances are refusals to deal discrimination; exclusive dealings; margin squeezes; disparagement; considered anticompetitive? predatory pricing; tying and bundling practices; and use on a competitive market of advantages derived from a legal monopoly. Refusals to deal are not prohibited per se. Nevertheless, in certain Furthermore, as per Article 102 TFEU, abusive conduct may circumstances, they may be considered as anticompetitive when constitute in “directly or indirectly imposing unfair purchase the undertaking concerned is in a dominant position. Concerning or selling prices or other unfair trading conditions”; “applying refusal to sell, three cumulative criteria have to be gathered in dissimilar conditions to equivalent transactions with other trading order to determine whether the refusal to access or to supply the parties, thereby placing them at a competitive disadvantage”; product is abusive or not: i) the essential character of the product “limiting production, markets or technical development to the of which access is refused; ii) the effect on the competition; and prejudice of consumers”; and “making the conclusion of contracts iii) the innovative nature of the product (Aut. Conc. n° 12-D-01, 10 subject to acceptance by the other parties of supplementary January 2012). obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts”. 4 Miscellaneous 3.13 What is the role of intellectual property in analysing dominant firm behaviour? 4.1 Please describe and comment on anything unique to your jurisdiction (or not covered above) with regards Intellectual property (“IP”) can play a role in analysing dominant firm to vertical agreements and dominant firms. behaviours. The use of IP rights from an undertaking can be abusive when this one has a dominant position. For instance, the refusal to This is not applicable. treat or to grant a licence can be considered abusive, in particular if the IP right is classified as an essential facility. Nevertheless, the possession of a patent or any other intellectual property rights does not necessarily give the firm a dominant position.

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Helen Coulibaly-Le Gac HLG Avocats 42 A rue Montgrand 13006 Marseille France

Tel: +33 4 84 25 54 03 Email: [email protected] URL: www.hlgavocats.fr France The founding partner of HLG Avocats Law Firm, Helen is specialised in competition law, distribution law and contract law. Helen has acquired significant international experience through her positions as both in-house and outside legal counsel. Helen holds a Ph.D. in French Law from the University of Paris 1 Panthéon-Sorbonne, for which she received the highest distinction with congratulations of the jury. She is a former member of the Paris Bar and she is currently a member of the Marseille Bar. Helen has also worked as in-house counsel in the pharmaceutical industry and contributed to the setting up of a wholesalers’ network in a strictly regulated environment. She regularly advises international firms in their development of franchise networks in France. Helen speaks English and French.

HLG Avocats is a French independent law firm specialised in competition, distribution, consumer law and contract law, and advises clients throughout the development of their contractual relationships with suppliers or distributors. HLG Avocats has an extensive experience of French and international environments, and is able to work with small businesses and larger companies, in terms of B2B and B2C relationships. In particular, the firm advises and assists clients in the redaction and the negotiation of business contracts (franchise agreements, commercial agency agreements, pre-contractual information document, general conditions of sales, etc.). Our law firm also has extensive experience in French and European competition law, such as anti-competitive practices, merger filings, or unfair competition law. HLG Avocats has developed specific skills in the health, retail distribution, food processing, sports and electronics industries.

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Germany Peter Stauber

Noerr LLP Robert Pahlen

1 General 1.3 Describe the steps in the process from the opening of an investigation to its resolution.

1.1 What authorities or agencies investigate and enforce the laws governing vertical agreements and dominant The FCO may open an investigation on its own initiative (e.g., as firm conduct? an outcome of a sector inquiry or merger control proceedings) or following a complaint by an affected third party, an anonymous In Germany, the Federal Cartel Office (Bundeskartellamt – “FCO”) tip-off or a leniency application by a participant in an antitrust located in Bonn is the primary authority tasked with the enforcement infringement. Generally, the FCO may conduct an investigation in of the rules concerning vertical agreements and dominant firms. The the form of an administrative procedure (Verwaltungsverfahren) as FCO consists of 12 independent decision divisions, of which nine are provided for by the Act against Restraints of Competition (Gesetz organised according to certain economic sectors (e.g., health care, gegen Wettbewerbsbeschränkungen – “ARC”) or, alternatively, as an financial services, media, telecommunications, etc.); three divisions administrative offence procedure which is additionally governed by exclusively deal with the cross-sector investigation of cartels. In the Act on Administrative Offences (Ordnungswidrigkeitengesetz) addition, the FCO has recently established a decision division which and the Code on Criminal Procedure (Strafprozessordnung). has the exclusive competence for consumer protection. The FCO usually opts for an administrative procedure if novel Apart from the FCO, each of the 16 German Federal states has a legal questions arise in connection with the suspected antitrust state competition authority (Landeskartellbehörde). In practice, the infringement, e.g. in the case of new business models, and if the role of these state authorities is limited as they only handle cases that main goal is to bring the suspected antitrust infringement to an affect only the local or regional market within the respective Federal end, thus setting a new precedent. Meanwhile, an administrative state. Against this backdrop, the following statements will, as far offence procedure would be chosen to investigate cases involving as powers and practice of governmental authorities are concerned, serious antitrust infringements as in the case of cartels (restrictive mainly refer to the FCO. Nevertheless, all statements apply mutatis agreements and concerted practices between competitors) or mutandis also to the competition authorities of the Federal states abusive market conduct on a large scale, for example. Further since the same legal basis applies. criteria applied in choosing the appropriate procedure are, inter alia, the structure of the affected market(s), gravity of the infringement, products concerned and the extent of the damage 1.2 What investigative powers do the responsible (potentially) caused by the infringement. Since the administrative competition authorities have? offence procedure requires a higher standard of proof, the evidence that might potentially be used by the FCO may also serve as a The competent competition authority – predominantly the FCO – deciding factor. disposes of a variety of investigative powers. In order to collect In all cases, the FCO will start its investigation with gathering relevant information and relevant evidence in particular, the FCO may information and potential evidence using its investigative powers informally request parties to voluntarily disclose information or, described in the response to question 1.2 above. If the assessment alternatively, send formal information requests. Further, subject of all information gathered, including information provided by third to a prior court order, it may search premises of undertakings and parties on their own accord or in the course of market tests, confirms individuals, seize documents (both hard and electronic copies), the existence of an antitrust violation, the FCO will issue a statement interrogate persons concerned, and hear witnesses and experts. of objections to the parties under investigation detailing its factual Further, the FCO may also conduct so-called sector inquiries if and legal findings. The parties concerned then have the opportunity rigid prices or specific circumstances suggest that competition in (but no legal obligation) to respond to the statement of objections, Germany may be distorted. Such a sector inquiry may lead to the refute legal findings and submit counterevidence. The parties under opening of individual procedures against undertakings as described investigation may at all times, both before or after statements of in the response to question 1.3 below. In recent years, the FCO has objections have been issued, offer commitments to the FCO in order carried out sector inquiries in industries as diverse as food retail, to address the potential competition concerns. domestic retail sale of petrol and diesel through gas stations, district The last step is the adoption of a formal decision by the FCO. heating, milk production and distribution, and sub-metering of heating and water usage, cement and ready-mixed concrete, as well At every step of both the administrative and the administrative as online advertising. offence procedure, the FCO may at its discretion discontinue its

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investigation, e.g., for lack of evidence, due to an intermediary The FCO may estimate this infringement-related turnover if a change in statutory or case law or simply from a resources point of precise calculation is not possible. In order to take account of the view. The same applies for initiating or refraining from initiating undertaking’s sensitivity to punishment, the amount of the profit proceedings. and damage potential is multiplied by a factor of between two and six or higher, depending on the size of the respective undertaking (a factor of two for undertakings with worldwide group turnover 1.4 What remedies (e.g., fines, damages, injunctions, etc.) are available to enforcers? of less than 100 million Euro and a factor of six for undertakings with worldwide group turnover of more than 100 billion Euro). In a third step, the calculated fining range is compared with the statutory Within the framework of an administrative procedure, the FCO may upper limit for administrative fines. If the fining range exceeds the impose all remedies that are necessary and appropriate to effectively

Germany statutory upper limit of 10% of worldwide group turnover, the latter end an antitrust infringement (Sec. 32 et seq. ARC). This includes prevails as the case-specific maximum fine. Otherwise, the upper the issue of cease-and-desist orders, the imposition of structural limit will be set by the calculated maximum amount of the fining remedies or, in exceptional cases, of behavioural remedies. In case range. As the fourth and last step, the FCO determines the actual of urgency, particularly if the suspected infringement threatens amount of the fine by considering various infringement, as well as to cause serious and irreparable damage to competition, the FCO offender-related criteria. The former encompasses, inter alia, the may also order interim measures ex officio. Such interim measures type and duration of the infringement, the geographical scope of shall be effective only for a limited period of time which should not the markets affected, the significance of the undertakings involved exceed more than one year (cf. Sec. 32a(2) ARC). Further, the FCO in the infringement on the affected market, the overall economic may also order the disgorgement of profits that have been gained as significance of the products affected and the degree of organisation a result of the antitrust infringement (Sec. 34(1) ARC). among the parties involved in the infringement. Offender-related Furthermore, the FCO may fine undertakings as well as individuals criteria are, for example, the role of the relevant undertaking in the for antitrust infringements (Sec. 81 ARC). Individuals that may be infringement and the degree of culpability (intent/negligence). It fined encompass all authorised representatives of an undertaking, is also taken into consideration whether the undertaking is a repeat e.g. executives and management, proxy holders, and general agents, offender. Further, the FCO will consider the undertaking’s conduct who were actively involved in the infringement. Further, it has to subsequent to the infringement, e.g. its level of cooperation in be noted that authorised representatives of an undertaking as well the course of the investigation. Lastly, the FCO may grant a fine as its owner may also be fined if they lack any personal knowledge reduction of up to 10% if the proceedings can be concluded by way of and involvement in the infringement. In the case of the latter, of a settlement. the sanction would be based on their apparent failure to undertake Administrative fines may be waived in full or in part if an undertaking all measures necessary to prevent an antitrust infringement, e.g. applies for leniency. Only the first applicant providing the FCO providing proper guidance to employees, and ensuring appropriate with sufficient information for uncovering the antitrust infringement training and supervision. may be granted full immunity from a fine, unless he qualifies as “ringleader” or coerced other undertakings to participate in the 1.5 How are those remedies determined and/or infringement. Further applicants may qualify for partial immunity calculated? of up to 50% of the fine amount if they provide decisive evidence for establishing an infringement. With regard to injunctive, structural or behavioural remedies, the It has to be noted, however, that the FCO established its leniency FCO has wide discretion in determining the appropriate measures to programme as an incentive for uncovering cartels, i.e. restrictive bring the infringement to an end and to restore effective competition. (horizontal) agreements and concerted practices between competitors. The maximum amount of administrative fines differs between Consequently, the leniency programme is not directly applicable in individuals and undertakings. While individuals may be sanctioned cases of antitrust infringements caused by vertical agreements and, with a fine of up to one million Euro, the administrative fine for respectively, by abusing a market-dominant position. undertakings may be up to 10% of the undertaking’s worldwide turnover. With regard to the latter, the term “undertaking” 1.6 Describe the process of negotiating commitments or encompasses all companies operating as a single economic entity. other forms of voluntary resolution. In June 2013, the FCO issued a detailed guideline setting out its calculation method and the aspects to be taken into account Apart from the settlement procedure (as outlined in the above for determining the final amount of the administrative fine. The response to question 1.5), which generally expedites and shortens calculation consists of four steps. First, the FCO determines the complex and resource-intensive proceedings and reduces the fine statutory framework of the fine. The lower limit is a minimum imposed by the FCO, different ways of voluntarily reaching a fine of five Euro, and the upper limit is an amount equivalent to resolution exist in vertical cases as well as in dominance cases. 10% of worldwide group turnover. In the case of negligence, this In administrative proceedings, undertakings may offer commitments upper limit is reduced to 5% of worldwide group turnover. Second, to the FCO in order to conclude proceedings and avoid a full the FCO then determines the case-specific framework of the fine, infringement decision. Usually, such commitments are offered the so-called fining range. For this purpose, the potential ofthe after the affected undertaking has been informed by the FCO about antitrust infringement to provide the cartel participant with a profit its preliminary findings. If the offered commitments are found and – inversely – to cause damage for third parties (profit and appropriate for rectifying the competition concerns, the FCO will damage potential) is multiplied with the undertaking’s sensitivity issue a decision declaring the commitments binding upon the to punishment. This profit and damage potential is considered undertaking (Sec. 32b ARC). Depending on the specifics of the to equal 10% of the undertaking’s turnover related to the offence case, the FCO may also consult with market participants in order to and generated over the duration of the antitrust infringement. test the appropriateness of the commitments offered.

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as well as documents held by the opposite party, an extension of 1.7 Does the enforcer have to defend its claims in front the applicable limitation periods, limitation of the first leniency of a legal tribunal or in other judicial proceedings? If applicant’s liability for damages, and certain details concerning the so, what is the legal standard that applies to justify an joint and several liability of the offending undertakings. enforcement action?

No, the FCO may adopt all of its decisions, including but not limited 1.10 Describe any immunities, exemptions, or safe harbors to commitment decisions and decisions imposing administrative that apply. fines, without the need to obtain approval by a legal tribunal or in other judicial proceedings. Because of their quasi-criminal nature, The provisions of the ARC concerning the prohibition of administrative fine decisions have to abide by the legal standard restrictive agreements and concerted practices, the prohibition Germany applicable to criminal proceedings in general, i.e. the FCO must to abuse a market-dominant position, and the related procedural fully prove the existence of an antitrust infringement as well as and sanctioning provisions must not be applied to the Deutsche culpability of the participating undertakings and individuals, Bundesbank and the Kreditanstalt für Wiederaufbau (Sec. 185(1) respectively. In the case of decisions taken within the framework (3) ARC). Further, charges and dues under public law may not be of administrative proceedings, the legal standard is lower insofar scrutinised under the high standards of the prohibition to abuse a as individual culpability does not need to be shown and proven by market-dominant position (Sec. 185(1)(2) ARC). the FCO. An important exemption concerns the energy sector, namely electricity and gas networks. With respect to their operation, the establishment 1.8 What is the appeals process? of network connections, and the grant of access to such networks, the provisions of the German Energy Sector Act (Energiewirtschaftsgesetz) and associated governmental decrees fully suppress the German Decisions of the FCO are subject to judicial review by the Higher prohibition of abusing a market-dominant position (Sec. 19, 20, and Regional Court of Düsseldorf; decisions of the Federal states’ 29 ARC). Instead, the special provisions of Sec. 111 et seq. of the competition authorities may be appealed with the Higher Regional German Energy Sector Act are applied by the Federal Network Agency Court in whose district the authority resides. The appeals court may (“FNetA”). Still, the FCO retains its jurisdiction with respect to any review a decision both on points of facts and law. Appeals shall other business activities of undertakings in the energy sector and, in be addressed to the respective authority and be brought within two particular, with respect to investigating and sanctioning restrictive weeks in administrative offence proceedings and, respectively, in agreements and concerted practices between competitors, as well as in administrative proceedings within one month after the decision has relation to suppliers or customers. been received by the addressee. Further, limited exemptions from the prohibition of restrictive As part of its decision on the appeal, the Higher Regional Court may agreements and concerted practices apply in the agricultural sector grant and, respectively, deny leave to appeal to the Federal Court of (Sec. 28 ARC). In relation to the distribution of newspapers and Justice (Bundesgerichtshof). In the case of the latter, the affected magazines, Sec. 30 ARC provides a statutory basis for Germany- party may appeal to the Federal Court of Justice against this denial wide fixed prices for such products. Furthermore, Sec. 31ARC of leave to appeal. provides for a special set of rules – both with respect to restrictive agreements and concerted practices as well as the abuse of a market- 1.9 Are private rights of action available and, if so, how dominant position – applicable only for the public supply of water. do they differ from government enforcement actions? Apart from the above sector-specific immunities and exemptions, the following general exemptions and safe harbours are provided Germany has a long tradition of private enforcement of antitrust for by European and German law, as well as associated case law: laws. Until mid-2017, the legal basis for private enforcement was formed by Sec. 33 ARC. However, the German legislature The most relevant exemptions and safe harbours applicable to in the meantime adopted the so-called 9th Amendment Package vertical agreements are provided for by European law, more to the ARC which, inter alia, served to transpose the European precisely: the so-called block exemption regulations, which Sec. Antitrust Damages Directive 2014/104/EU into national law. The 2(2) ARC orders to be applied mutatis mutandis for cases that do 9th Amendment Package entered into force on 9 June 2017 and has not affect trade between Member States of the European Union. been the applicable law since then. In general, vertical agreements may profit from the safe harbour In the case of an antitrust infringement, e.g. a violation of Art. 101, offered by Commission Regulation (EU) No 330/2010 of 20 102 TFEU and, respectively, breach of a binding order by the FCO, April 2010 on the application of Art. 101(3) of the Treaty on the anyone affected may claim for termination of the anti-competitive Functioning of the European Union to categories of vertical conduct, removal of its effects, and damages (Sec. 33(1), 33a(1) agreements and concerted practices (“VBER”). The VBER applies ARC). In the case of vertical agreements, claims are usually aimed to all vertical agreements regardless of industry or service sector. at declaring clauses or the whole agreement as invalid, while claims Provided that the supplier in the vertical relationship does not have a for damages arising out of the alleged antitrust violation only have market share in excess of 30% and the purchaser’s share of demand secondary importance. In dominance cases, the potential claims in the market for the respective goods and services does not exceed may range from seeking access to a certain service or product, 30%, the vertical agreement is deemed to be exempted from the e.g. in refusal of access and refusal of supply cases, invalidation prohibition of Art. 101(1) TFEU. This block exemption does not of contractual clauses to claims for damages including lost profits. apply to vertical agreements that contain the following, so-called “hard core” restrictions as provided for in Art. 4 VBER: As mentioned above, the 9th Amendment Package of the ARC ■ the restriction of the purchaser’s ability to determine its sales transposed the European Antitrust Damages Directive into German price (except for the imposition of a maximum sales price and, law. Only some provisions of this Directive have brought about respectively, the mere recommendation of sales prices which significant changes to German law. This includes in particular the do not amount to fixed or minimum prices due to the exertion provisions concerning access to the competition authority’s files of pressure or the offering of incentives by the supplier);

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■ the restriction of the territory into which, or of the customers to whom, the purchaser may sell the goods or services 1.11 Does enforcement vary between industries or procured from the supplier; businesses? ■ the restriction of active or passive sales to end users by members of a selective distribution system operating on Generally, the FCO does not discriminate between industries or the retail level and the restriction of cross-supplies between businesses. Although the FCO regularly promulgates on which distributors within a selective distribution system; and industry sectors it will focus, public enforcement of competition law ■ the restriction agreed between a supplier of components and a is exercised by the FCO’s decision divisions which independently purchaser who incorporates those components, which limits the decide on their enforcement agenda. supplier’s ability to sell the components as spare parts to end With respect to vertical agreements, the FCO’s enforcement actions users, to repairers or to other service providers not entrusted by Germany currently concentrate on the e-commerce sector with a focus on the purchaser with the repair or servicing of its goods. “most favoured customer” clauses and provisions restricting the use It has to be noted that the VBER provides certain counter-exemptions of third-party distribution platforms. to the aforementioned restrictions: In the area of dominant firms, the FCO recently focused on the ■ the supplier is allowed to impose a maximum sales price and, review of utilities prices, e.g. for water and district heating, as well respectively, merely recommend sales prices, if and to the as the allocation of rights of way for the construction and operation extent these do not amount to fixed or minimum prices due to the exertion of pressure or the offering of incentives by the of electricity and gas networks. A second focus in this area has been supplier; the e-commerce sector, namely online advertising and Facebook’s business activities with regard to the collection and usage of data. ■ the supplier may reserve a territory or a customer group exclusively for himself or a third purchaser and prohibit the purchaser from making active sales into such territory or to 1.12 How do enforcers and courts take into consideration such customer groups; an industry’s regulatory context when assessing ■ a buyer operating on the wholesale level of trade may be competition concerns? prohibited from making direct sales to end customers; ■ members of a selective distribution system may be prohibited Generally, the ARC is applied to regulated industries in the same from active and passive sales into a territory which the way as to other industry sectors. As a matter of course, the supplier has reserved for himself; and regulatory context is taken into account in the legal assessment. ■ the purchaser may be prohibited from selling components In the case of vertical agreements, this may mean that decisions of that have been procured from the supplier for incorporation sector-specific regulatory bodies may take precedence over and, to customers who would use them for manufacturing similar respectively, exclude a separate assessment of the same question of goods as those produced by the supplier. law by the FCO. For example, in connection with the operation of If the vertical agreement contains any of the above “hard core” and access to electricity and gas networks, the FNetA establishes restrictions, the agreement does not qualify for a block exemption a maximum volume for network access fees and the FCO is then from the prohibition of restrictive agreements. In this case, barred from replacing the FNetA’s assessment with its own (see also an individual exemption pursuant to Art. 101(3) TFEU would the response to question 1.10). In case the FCO’s jurisdiction is theoretically be possible. For this purpose, the parties to the vertical not excluded or restricted by the jurisdiction of another regulatory agreement would have to prove that the restriction: authority, the FCO will still regularly consult with sector-specific ■ contributes to the improvement of production or distribution regulators in order to obtain a better understanding of the market of goods or the promotion of technical or economic progress and its dynamics. Similar to the electricity and gas sector, the (efficiencies); FNetA also has jurisdiction for the telecommunications, postal ■ allows consumers a fair share of the resulting benefit; services, and the railways sectors, in particular for the ex ante or ■ does not impose restrictions upon the undertakings concerned ex post determination of access fees for various services offered by which are not indispensable to the attainment of these market-dominant operators in the respective markets. objectives; and ■ does not make it possible for the undertakings concerned to 1.13 Describe how your jurisdiction’s political environment eliminate competition in respect of a substantial part of the may or may not affect antitrust enforcement. products in question. However, both the European Commission and the FCO generally The FCO is an independent federal authority under the jurisdiction consider that “hard core” restrictions fulfil the above conditions of the Federal Ministry of Economics and Energy. However, the only under very exceptional circumstances, i.e. practically never. ministry’s jurisdiction encompasses only supervisory functions as Another general exemption from the prohibition of restrictive to the legality of the FCO’s operations and does not entail any right agreements and concerted practices results from the requirement that to issue instructions or orders to the President and decision divisions vertical restraints shall have an appreciable effect. The FCO detailed of the FCO, or any of the FCO’s public officials. Moreover, the its understanding of this criterion in special guidelines published in decision divisions within the FCO are also independent of the March 2007 (“De Minimis” Notice). According to this, the FCO will President of the FCO in carrying out their enforcement mandate. not investigate vertical restraints if the market share of each party to Within the decision divisions, each case is decided upon by a the agreement does not exceed 15% on any affected market; while collegiate body consisting of the division’s chairman and two in relation to “hard core” restrictions the relevant threshold is 10%. associate members. A decision requires a majority vote. Given the Regardless of the parties’ market share, the De Minimis exemption long-standing tradition of this independence, the FCO’s officials are does not apply to the most serious forms of “hard core” restrictions, very immune to outside political pressure. i.e. the fixing of resale prices and other trading conditions, the limitation or control of production, markets, technical development, or investment, and the allocation of markets or sources of supply.

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aspect being vetted for abuse (which begs questions such as 1.14 What are the current enforcement trends and whether an appropriate counter-performance was given) was priorities in your jurisdiction? not the buyer’s general demand for rebates but the specific individual conditions it demanded. One aspect that played In recent years, the FCO has intensified its already strong interest a role in the Court’s classification of the retailer’s demands in the digital economy and the ecommerce sector. With regard to as abusive was that some of the conditions were retroactive vertical restraints, the FCO investigated a number of cases dealing special conditions that related to a time period long before the merger of the retailer and a competitor. The Düsseldorf with online sales restrictions, resale price maintenance and most Higher Regional Court’s reasoning – that even retroactive favoured nation clauses and imposed considerable fines, e.g. a “cherry picking” can be justified if the supplier has an fine for resale price maintenance of several beer companies that equivalent countervailing bargaining power and the agreed amounted to 112 million Euro in total. In particular, the FCO conditions are the result of a commercial negotiation process Germany maintains its focus on restrictions of sales via online shops, auction – was deemed by the Federal Court of Justice, at least in this platforms, and internet marketplaces. specific case, not to be convincing enough to rule out abusive The FCO intends to continue to take a lead in enforcing competition market tactics on the whole. laws in the digital economy and e-commerce sector in the ■ Likewise, the FCJ was of the opinion that the demand (as forthcoming years and even expand those activities. The fact that such) for “partnership remuneration”, i.e. that the suppliers the digital economy remains an enforcement priority of the FCO make financial contributions to the modernisation of stores, was not objectively justified. The Higher Regional Court is emphasised by the establishment of a task force within the FCO Düsseldorf had seen the redecorating and modernisation as which shall tackle the issues arising from the enforcement of adequate counter-performance by the retailer because it had competition law in the internet sector. Further, the FCO is currently increased the attractiveness and thus improved the product investigating if Facebook abused an alleged dominant position presentation of the stores which the retailer had acquired, by including clauses into its terms of use that are allegedly not in which would also benefit the suppliers. compliance with German data protection requirements. ■ In March 2018, the Higher Regional Court of Düsseldorf significantly raised the fine against a drugstore chain ina vertical price-fixing case from 5.25 million Euro to approx. 30 1.15 Describe any notable case law developments in the past year. million Euro. In 2015, the FCO had concluded its proceeding against vertical price fixing in the sale of roasted coffee (filter coffee, whole bean coffee) by imposing a fine of 5.25 million In July 2017, the FCO imposed fines amounting to 10.9 million Euro against the drugstore chain. The proceeding was one Euro in total against a producer as well as a retailer for resale of several proceedings the FCO conducted against brand price maintenance (and, cumulatively restrictions on active online manufacturers and retailers (food retailers and drugstore sales) in the area of the sale of clothes (in particular the sale of companies) for illegally fixing retail prices. In total, the outdoor jackets). These decisions show that the FCO continues FCO imposed fines totalling 260.5 million Euro against 27 with its earlier, cautiously established practice in case of vertical companies. The Higher Regional Court of Düsseldorf fully restraints that not only the party supplying goods or services, which confirmed these findings and found the drugstore chain supposedly has the strongest interest in fixing resale prices, will be guilty of having intentionally engaged in illegal vertical price fixing. According to the Court, both sides benefited sanctioned with a fine, but also its counterparties, i.e. companies from this agreement. By including the drugstore chain in its active on the wholesale and/or retail level of trade. price steering system, the producer protected itself against Further notable developments in connection with vertical restraints price moves by the drugstore chain and the drugstore chain were, inter alia, the following: benefited by gaining information on the pricing behaviour of ■ In April 2016, the Higher Regional Court Düsseldorf upheld its competitors in the retail trade, which made their future the FCO’s decision prohibiting a clause used by Asics in its promotion prices more predictable for the drugstore chain distribution agreements that barred distributors from the use and thus helped it steer its promotion prices accordingly. of price comparison sites. The court particularly held that The Court set its fine with a view to the fact that the case such prohibitions are not justified with the aim of preserving concerned a vertical infringement of competition law with the manufacturer’s brand image. nationwide horizontal effects in the sale of a major consumer good. ■ In July 2017, the FCO published its “Guidance note on the prohibition of vertical price fixing in the brick-and-mortar food retail sector” (“Guidance Note”). The Guidance Note is 2 Vertical Agreements intended to serve as a guideline to companies in the food retail sector and to inform them by means of practical examples about the background, purpose and scope of the prohibition 2.1 At a high level, what is the level of concern over, and of vertical price fixing in the food retail sector (see, in detail, scrutiny given to, vertical agreements? the response to question 2.15 below). ■ In January 2018, the Federal Court of Justice confirmed Although vertical agreements are said to raise fewer competitive aspects of the restrictive approach taken by the FCO to concerns than horizontal agreements and concerted practices, the “wedding rebates” in the food retail sector. The court FCO has initiated and concluded a vast amount of cases regarding reversed a 2015 decision by the Higher Regional Court of vertical agreements, with a specific focus on vertical restraints in Düsseldorf that had adjudicated the issue significantly more generously towards the food retailers. The Federal Court of e-commerce and the digital economy. Justice saw the retroactive demand for more favourable price In particular, online sales restrictions, resale price maintenance and components of certain products without regard to the price “most favoured customer” clauses were under intense scrutiny and structures otherwise in use (“cherry picking” in the context of with regard to the latter, the FCO imposed stricter conditions on the “best value comparison”) as abusive in any case. Thus, the legality as national competition authorities in other European the Federal Court of Justice has taken the position that the countries (see also the response to question 1.15).

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It can be understood from recent cases handled by the FCO that opposite market side. Since the applicability of the VBER depends consumer harm is a major concern of the authority, i.e. the more on the market share of both the supplier as well as the purchaser, this customers and end consumers in particular that are affected, the analysis thus has to be conducted for both parties’ opposing sides. more likely the authority will investigate specific clauses in vertical The FCO also regularly applies the SSNIP test. The same applies agreements. for defining the relevant geographic market. In case of the latter, the FCO will review cross-border barriers for trade, entry of new participants, the homogeneity of market conditions, etc. 2.2 What is the analysis to determine (a) whether there is an agreement, and (b) whether that agreement is vertical? 2.7 How are vertical agreements analysed when one of the parties is vertically integrated into the same level Germany The ARC does not provide for a definition of the terms “agreement” as the other party (so called “dual distribution”)? Are or “vertical agreement”, respectively. In general terms, an these treated as vertical or horizontal agreements? “agreement” is considered being a bilateral or multilateral understanding between independent undertakings, while the term In the case that one party to a vertical agreement is vertically “vertical” requires that these undertakings are active on different integrated and active on the same level of trade as the other party levels of trade (production and distribution chain) as far as the to the agreement, one would typically assess the agreement both respective agreement is concerned. Further, the agreement needs within the analytical framework for vertical agreements as well as to concern the conditions for the supply and resale of goods and from the viewpoint of horizontal cooperation between competitors. services. In this respect, it has also to be noted that the possibility for a block exemption under the VBER will be restricted. Vertical agreements 2.3 What are the laws governing vertical agreements? between competitors are only covered by the VBER if (a) the agreement is non-reciprocal, (b) the supplier is a manufacturer and a distributor of goods, while the purchaser is a distributor and Sec. 1 ARC provides for the general prohibition of (horizontal and/ not a competing undertaking at the manufacturing level, or (c) the or vertical) agreements and concerted practices which have the supplier is a provider of services at several levels of trade, while the purpose or the effect of restricting competition. The provision is purchaser provides its goods or services at the retail level and is not essentially identical to Art. 101(1) TFEU (except that trade between a competing undertaking at the level of trade where it purchases the Member States of the European Union does not need to be affected). contracted products (Art. 2(4) VBER). In case these conditions are Sec. 2 ARC stipulates the conditions under which restrictive not met, the vertical agreement may still qualify for an individual agreements are exempt from the general prohibition. Similarly to exemption pursuant to Art. 101(3) TFEU, Sec. 2 ARC. In addition, the above, this provision is almost identical to Art. 101(3) TFEU the agreement will have to be analysed from the viewpoint of (see also the response to question 1.10). It has to be noted that horizontal cooperation. In general, this will often result in stricter pursuant to European law, the FCO will be obliged to apply Art. 101 provisions for the exchange of competitively relevant information TFEU in parallel to similar national rules if trade between Member (e.g. information on actual and projected sales, sales prices and States of the European Union is affected. margins, etc.).

2.4 Are there any type of vertical agreements or restraints that are absolutely (“per se”) protected? 2.8 What is the role of market share in reviewing a vertical agreement?

No. Please also refer to the response to question 1.10. As mentioned before, the possibility for a block exemption under the VBER requires that the market share of both parties to the 2.5 What is the analytical framework for assessing agreement does not exceed 30%, while the threshold for the vertical agreements? appreciability criterion is 10–15%. Accordingly, determining the affected product and geographic market and identifying the parties’ First of all, it needs to be established that a vertical agreement respective share (from supply- and demand-side, respectively) is of triggers the applicability of Sec. 1 ARC. This is the case if the high importance for the overall legal analysis under European and arrangement under scrutiny is an agreement, concerted practice German law. Moreover, the FCO also takes into account cumulative between undertakings or a binding decision by an association of effects arising from a parallel series of vertical restraints which may undertakings which have as their object or effect the prevention, result in market foreclosure effects. restriction or distortion of competition. As set out above, certain exemptions apply for specific sectors. If the agreement has an 2.9 What is the role of economic analysis in assessing appreciable effect on competition within the meaning of the FCO’s vertical agreements? De Minimis Notice, it may qualify for a block exemption under the VBER and, respectively, for an individual exemption pursuant to Art. Economic analysis does not play a prominent role in assessing vertical 101(3) TFEU, Sec. 2 ARC (see the response to question 1.10 above). restraints. This does not mean that the FCO would not take economic analysis into account. In the recent past, the FCO has entertained 2.6 What is the analytical framework for defining a market arguments concerning, for example, the admissibility of resale price in vertical agreement cases? maintenance. However, since both European and German law explicitly provide for a per se prohibition of restrictive agreements and concerted The analytical framework for defining a market in vertical agreement practices, the arguments developed in the US (and elsewhere) on the cases is the same as applied in merger control and dominance cases, basis of the rule of reason approach are regularly refused given this respectively. The FCO will assess the substitutability of the product difference in the analytical framework. Nevertheless, other aspects in governed by the vertical agreement from the viewpoint of the connection with the assessment of vertical restraints, e.g. the definition

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of the affected markets, the appreciable effect on competition, the competitive effects. Generally, all contractual provisions that identification of efficiencies, and justifying the scope of the vertical qualify as “hard core” restrictions within the meaning of the VBER restraint, offer ample possibilities for and may certainly profit from are considered as having an anti-competitive object. In all other introducing economic analysis into the assessment. cases, the FCO will need to demonstrate that a given restraint has an anti-competitive effect, otherwise the restraint would not be covered by the prohibition of restrictive agreements. 2.10 What is the role of efficiencies in analysing vertical agreements? 2.13 Will enforcers or legal tribunals weigh the harm Identifying and quantifying efficiencies arising out of vertical against potential benefits or efficiencies? restraints is one precondition for an individual exemption from the prohibition of restrictive agreements (cf. Art. 101(3)(a) TFEU). Harm potentially caused by a vertical restraint will be weighed Germany Accordingly, if the parties to a vertical agreement are unable to prove against potential benefits (efficiencies) if the vertical agreement that the vertical restraint under review results in actual efficiencies, does not qualify for a block exemption under the VBER and thus the the FCO and the courts must not grant the individual exemption. preconditions for an individual exemption pursuant to Art. 101(3) In their decision practice the FCO and courts have accepted that TFEU, Sec. 2 ARC have to be assessed. vertical restraints may have positive results such as promoting non- price competition, resulting in a higher quality of service, solving 2.14 What other defences are available to allegations that a ‘free rider’ problems, easing the entry into new markets, etc. vertical agreement is anticompetitive?

2.11 Are there any special rules for vertical agreements Generally, a vertical agreement needs first to qualify as a restrictive relating to intellectual property and, if so, how does (anti-competitive) agreement within the meaning of Art. 101(1) the analysis of such rules differ? TFEU, Sec. 1 ARC. In this respect, the following factors are taken into account in order to establish whether the agreements result in In case that a vertical agreement concerning the supply and resale of an appreciable restriction of competition: nature of the agreement; goods or services also contains provisions on intellectual property market position of the parties; competitors and buyers of the rights relating to the contractual products (e.g. use of product’s products subject to the vertical agreement; entry barriers; maturity trademarks and brands for advertising purposes), the agreement will of the market; level of trade; nature of the product; and other factors. still be assessed within the same analytical framework (cf. Art. 2(3) Accordingly, the parties may use all of these aspects in order to VBER). refute allegations of anti-competitive effects caused by a vertical agreement. If intellectual property rights form the primary object of the agreement, the general prohibition on restrictive agreements as well as on the abuse of a dominant position remain applicable (Arts. 101, 102 TFEU, 2.15 Have the enforcement authorities issued any formal Secs. 1, 18 et seq. ARC). However, as far as vertical aspects of the guidelines regarding vertical agreements? agreement are concerned, the VBER may not be applied for obtaining a block exemption. Instead, the European block exemption regulation The FCO has not issued formal general guidelines regarding vertical concerning the transfer of technology rights might be applicable agreements. This is due to the fact that the relevant provisions of (Commission Regulation (EU) No 316/2014 of 21 March 2014 on German law are modelled on Art. 101 TFEU and the FCO is obliged the application of Art. 101(3) of the Treaty on the Functioning of the to apply European law in parallel to German law. Consequently, European Union to categories of technology transfer agreements – both the FCO as well as German courts use the guidelines issued by “TTBER”). The TTBER covers vertical agreements concerning the the European Commission, in particular its Guidelines on Vertical licensing of technology rights, the latter term encompassing patent Restraints. rights, utility models, design rights, software copyrights, etc. The However, the FCO in July 2017 published its Guidance Note. The TTBER generally has the same structure as the VBER, i.e. it provides Guidance Note is intended to serve as a guideline to companies for certain “hard core” restrictions which exclude the applicability of in the food retail sector and to inform them by means of practical the block exemption for the entire agreement, and further provides examples about the background, purpose and scope of the for “grey clauses” which are individually qualified as inadmissible, prohibition of vertical price fixing in the food retail sector. It is also while not affecting the remainder of the agreement. The TTBER will explicitly directed at companies which have so far not been advised be applicable if and to the extent the combined market share of the specifically on antitrust matters on an ongoing basis, especially small parties does not exceed 20%, where the parties are competitors, and in and medium-sized companies. The publication of the Guidance case the contracting parties are not competitors, their respective share Note is the result of the developments over the past few years, which on the relevant market does not exceed 30%. Similarly to the VBER, started in January 2010 with dawn raids at various leading retailers the TTBER provides that restrictions of a party’s ability to determine and brand manufacturers due to suspected illegal price agreements its prices when selling products, restrictions of the territory into and of (known as the “vertical case”). The FCO closed its investigations customer groups to which a party may sell products, and restrictions on the vertical case only at the end of 2016, imposing fines against of active and/or passive sales qualify as “hard core” restrictions. retailers and manufacturers in the food retail sector totalling 260.5 Again, counter-exemptions that are similar to the provisions of the million Euro for vertical price fixing agreements. VBER also apply. The FCO already made a first attempt to provide assistance in the (provisional) assessment of vertical practices in the food retail 2.12 Does the enforcer have to demonstrate sector with a note in April 2010 (the so-called “Handreichung”). In anticompetitive effects? practice, however, this note further contributed to the uncertainty as regards the scope of the prohibition of vertical price fixing. With the In the case of a vertical restraint that has as its object the restriction completion of most proceedings regarding the vertical case and the of competition, the FCO does not need to demonstrate actual anti- publication of the more extensive Guidance Note, this note will now

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become obsolete anyway. The FCO obtained additional findings in thresholds are exceeded by either party, the tying arrangement/ its food retail Sector Inquiry in Germany which ran from 2011 until supplementary obligation may qualify for individual exemption if 2014. The Guidance Note now published combines the sum of these the requirements of Art. 101(3) TFEU, Sec. 2 ARC are met. findings and is intended to serve as a guideline and guide to industry retailers and manufacturers. 2.19 How do enforcers and courts examine price discrimination claims? 2.16 How is resale price maintenance treated under the law? Price discrimination claims are generally not evaluated in case of vertical agreements unless the supplier is a market-dominant Resale price maintenance is considered being a “hard core” vertical undertaking or an undertaking with relative market power and thus Germany restraint, i.e. as an agreement that has as its object the restriction making the abuse of dominance test applicable. of competition. As a consequence and in line with precedents of the European Court of Justice, the FCO and courts do not need 2.20 How do enforcers and courts examine loyalty to demonstrate that resale price maintenance actually has an anti- discount claims? competitive effect, but the restraint is considered being illegal per se (Art. 101(1) TFEU, Sec. 1 ARC). A contractual clause providing Loyalty discount claims are also predominantly reviewed under the for or enabling resale price maintenance excludes the possibility dominance abuse test. Loyalty discounts granted by the dominant that the respective contract may profit from the block exemption supplier may pull customers towards him and thus reduce the under the VBER. Thus, the relevant contract, including the clause potential demand volume that might be satisfied by competitors of on resale price maintenance, may survive only if the conditions for the dominant supplier. Loyalty discounts can serve as an incentive an individual exemption pursuant to Art. 101(3) TFEU, Sec. 2 ARC for the customers to purchase goods or services simply in order are met. As a general rule, however, “hard core” restrictions are to benefit from the loyalty discounts although there is no actual usually seen as the most serious forms of restraints. Therefore, the need for those products or services and competing suppliers, under parties would have to prove that resale price maintenance will lead normal market conditions, would have had the chance to compete to considerable efficiencies and in particular that there are no viable in price and quality. Pricing below costs by the dominant suppliers alternatives in order to attain the objectives of the restraint, while may drive out smaller competitors. simultaneously leaving the parties sufficient possibilities to compete on the basis of other factors (e.g. quality of service, etc.). Although there have been cases where the imposition of minimum or fixed 2.21 How do enforcers and courts examine multi-product resale prices has been deemed as admissible, this almost always or “bundled” discount claims? resulted from a lack of an appreciable effect on competition, but not from fulfilling the requirements for an individual exemption (see Multi-product or “bundled” discounts are examined similarly to also the response to questions 1.15 and 2.15 above). loyalty discounts, i.e. the question of their admissibility basically arises only if the supplier has a dominant market position. The main aspect of the review is to determine whether the discounted 2.17 How do enforcers and courts examine exclusive “bundle” price is still sufficiently high to cover the aggregate cost dealing claims? of the bundled products. If this test is not met, the discount would regularly be qualified as inadmissible due to its pull effect. Although exclusivity agreements bear the risk of reducing intra- brand competition, fostering market partitioning and facilitating price discrimination, as well as collusion both at the suppliers’ 2.22 What other types of vertical restraints are prohibited and distributors’ level, such an agreement may qualify for a block by the applicable laws? exemption under the VBER provided that the supplier’s and the purchaser’s market share does not exceed 30% each. Exclusive European and German law do not provide for an exhaustive list of dealing arrangements may also be combined with further vertical prohibited vertical restraints. Even restraints that qualify as “hard restraints such as non-compete obligations, exclusive purchasing core” restrictions pursuant to Art. 4 VBER may still qualify for an obligations and minimum purchase or supply volumes. If either individual exemption from the prohibition of restrictive agreements, party’s market share exceeds 30%, the exclusive dealing arrangement albeit only under exceptional circumstances. may qualify for an individual exemption if the requirements of Art. 101(3) TFEU, Sec. 2 ARC are met. 2.23 How are MFNs treated under the law?

2.18 How do enforcers and courts examine tying/ MFN (or “most favoured customer”) clauses have traditionally been supplementary obligation claims? used to contractually guarantee that an undertaking gets the best price and/or condition available on the market, either in form of a Tying refers to situations where customers that purchase one product direct (narrow) MFN or an indirect (wide) MFN. (the tying product) are required also to purchase another distinct Direct MFN clauses guarantee that only the contracting party gets product (the tied product) from the same supplier or someone the best price, but additionally prohibits the offer of the same price designated by the latter. Tying is exempted under the VBER when or trading condition to a third party. Indirect MFN clauses ensure the market share of the supplier, on both the market of the tied that the price or trading condition agreed on with the contracting product and the market of the tying product, and the market share party is always and automatically equal to the best price offered to of the buyer, on the relevant upstream markets, do not exceed 30%. any third party. Indirect MFN clauses are generally deemed less Tying and supplementary obligations may also be combined harmful than direct MFN clauses. However, indirect MFN clauses with further vertical restraints. In the event that the market share might be seen as undermining incentives for the reduction of prices or the improvement of trading conditions.

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Both direct and indirect MFN clauses – in the form of “best price” clauses as used in the hotel reservation sector – have been subject 3.4 What is the market share threshold for enforcers or a to review by the FCO as well as German courts and declared as court to consider a firm as dominant or a monopolist? inadmissible. First it has to be noted that MFN clauses were not qualified as having the object of restricting competition and thus, Pursuant to Section 18(4) ARC, there is a (rebuttable) presumption the FCO, as well as the courts, analysed potential anti-competitive that an undertaking is dominant if it has a market share of at effects arising out of the use of MFN clauses. It was found that MFN least 40%. A comparable presumption exists also for collective clauses have the effect of restricting competition in the market for dominance (see the response to question 3.10 below). hotel reservation platforms as well as on the end consumer market for hotel rooms, since hotel operators are prevented from applying 3.5 In general, what are the consequences of being differing prices in different distribution channels and, in the case adjudged “dominant” or a “monopolist”? Is Germany of direct MFN clauses, also vis-à-vis competing hotel reservation dominance or monopoly illegal per se (or subject to platforms. Further, both the FCO and the courts held that in the regulation), or are there specific types of conduct that specific cases at hand the MFN clauses could not profit from a block are prohibited? exemption under the VBER since the market share of the affected operators of hotel reservation platforms exceeded 30% in each case. Being adjudged “dominant” or a “monopolist” does not have any This consequently means that undertakings with a market share of legal consequences in the first place, since having a dominant less than 30% may be admitted to use MFN clauses. Lastly, the market position and a monopoly, respectively, is not considered courts reviewed whether the disputed MFN clauses might qualify illegal per se, but only the abuse of this position is prohibited (Sec. for an individual exemption, but have denied this possibility in the 19(1) ARC). respective cases. In particular, the courts questioned that MFN Market conduct is considered as abusive if a dominant undertaking, clauses would cause sufficient efficiencies that might offset any acting as a supplier or purchaser of a certain type of goods or potential harm. commercial services: ■ directly or indirectly impedes another undertaking in an unfair manner or directly or indirectly treats another undertaking 3 Dominant Firms differently from other undertakings without any objective justification; 3.1 At a high level, what is the level of concern over, and ■ demands payment or other business terms which differ scrutiny given to, unilateral conduct (e.g., abuse of from those which would very likely arise under effective dominance)? competition; in this context, particularly the conduct of undertakings in comparable markets where effective competition exists shall be taken into account; In recent years, the FCO has continuously reviewed market conduct of dominant undertakings with a particular focus on the energy ■ demands less favourable payment or other business terms sector. A further focus has been on negotiations between producers than the dominant undertaking itself demands from similar purchasers in comparable markets, unless there is an objective and retailers in the food retail sector. Due to the fact that certain justification for such differentiation; types of abusive behaviour, in particular excessive pricing, require considerable resources for the review, and the legal and economic ■ refuses to allow another undertaking access to its own networks or other infrastructure facilities against adequate analysis of market data, the number of investigations and decisions consideration, provided that without such joint use the other tend to be lower than cartel investigations or the review of vertical undertaking is unable for legal or factual reasons to operate restraints. as a competitor of the dominant undertaking on the upstream or downstream market; this shall not apply if the dominant undertaking demonstrates that for operational or other 3.2 What are the laws governing dominant firms? reasons such joint use is impossible or cannot reasonably be expected; or Unilateral conduct by market-dominant undertakings is governed ■ uses its market position to invite or cause other undertakings by Sec. 18 et seq. ARC. These provisions prohibit (i) a dominant to grant it advantages without any objective justification (cf. undertaking abusing its market position, (ii) specific types of Sec. 19(2) ARC). abusive conduct by undertakings that have “relative market power” The prohibition of abusive conduct in the form of unfairly impeding in relation to small or medium-sized enterprises, and (iii) specific and, respectively, discriminating other undertakings without types of abusive behaviour by undertakings with superior market objective justification further applies to undertakings which do power in relation to small and medium-sized competitors. German not qualify as market-dominant in the meaning of Sec. 18(1), (4) law thus contains partly stricter rules than those laid down in Art. ARC, but where small or medium-sized enterprises as suppliers or 102 TFEU. purchasers of certain goods or services depend on them in such a Additional provisions exist for specific industry sectors (e.g. way that sufficient and reasonable possibilities of switching to other electricity and water supply; see the response to question 1.10). undertakings do not exist (so-called “relative market power”). Insofar as that the unilateral conduct may affect cross-border trade, Undertakings with superior market power in relation to small and the FCO is obliged to apply European law in parallel (Art. 102 medium-sized competitors may not abuse their market position to TFEU). impede such competitors directly or indirectly in an unfair manner. An unfair impediment exists in particular if an undertaking: 3.3 What is the analytical framework for defining a market ■ offers foodstuffs below cost price; in dominant firm cases? ■ offers other goods or services not just occasionally below cost price; or The analysis is substantively the same as for defining markets in ■ demands from small or medium-sized undertakings, which vertical agreement cases (see the response to question 2.6 above). are competitors on downstream markets in the distribution

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of goods or services, a price for the supply of such products which is higher than the price it itself offers on this market. 3.10 Do the governing laws apply to “collective” The aforementioned conduct may be justified for objective dominance? reasons such as impending deterioration of foodstuffs in the case of their sale below cost price. The governing laws also apply to “collective” dominance. Pursuant to Sec. 18(5) ARC, two or more undertakings are considered having 3.6 What is the role of economic analysis in assessing a collective dominant position if no substantial competition exists market dominance? between them with respect to certain kinds of goods or commercial services, and they are not exposed to significant competition by, Following the more economic approach of the European Commission, or have a superior market position as compared to, third-party

Germany the role of economic analysis in assessing market dominance has competitors. also increased on national level. The economic analysis plays an In addition, there is a market share-based (rebuttable) presumption important role in determining whether an undertaking possesses for collective dominance according to which: a dominant market position, in assessing potential effects of a ■ three or fewer companies are presumed to be collectively dominant undertaking’s conduct, and most importantly in analysing dominant if they enjoy a combined market share of at least and comparing a dominant undertaking’s prices with price levels in 50%; or markets with effective competition. ■ five or fewer companies are presumed to be collectively dominant if their combined market share exceeds 66.6%. 3.7 What is the role of market share in assessing market If collective dominance is established, all companies qualified as dominance? collectively dominant are subject to the same standard as a single dominant firm (see the response to question 3.5 above). In assessing the market position of an undertaking in relation to its competitors, the market share of an undertaking plays an 3.11 How do the laws in your jurisdiction apply to important role and may lead to the presumption of dominance (see dominant purchasers? responses to questions 3.4 and 3.10). However, the assessment of market dominance shall also take into account an undertaking’s The rules outlined in the response to question 3.5 equally apply to financial strength, access to supply or sales markets, links with other both suppliers and purchasers that have a dominant market position. undertakings, legal or factual barriers for market entry by other undertakings, actual or potential competition from undertakings in Germany or abroad, the undertaking’s ability to shift its supply or 3.12 What counts as abuse of dominance or exclusionary demand to other goods or commercial services, and the ability of the or anticompetitive conduct? opposite market side to resort to other undertakings. Please see the response to question 3.5 above. Further, the 9th Amendment Package has clarified that in case of multi-sided markets and networks the following further aspects shall be taken into account: direct and indirect network effects, 3.13 What is the role of intellectual property in analysing parallel use of competing services and switching costs for users, dominant firm behaviour? economies of scale arising in connection with network effects, access to competitively relevant data, and competitive pressure that Intellectual property rights regularly grant the rights holder a is driven by innovation. monopoly and thus he will have to abide by the higher standards for market-dominant undertakings. As intellectual property rights are key for innovation, competition concerns may arise if the rights 3.8 What defences are available to allegations that a firm holder’s market conduct might effect a foreclosure on the technology is abusing its dominance or market power? market. Against this background, intellectual property rights might be considered “essential facilities” which may have to be made Generally speaking, every apparently abusive market conduct available to other market participants against fair, reasonable might be justified for objective reasons or for an overriding interest and non-discriminatory (FRAND) conditions, depending on the which outweighs the interest of companies affected by the conduct. circumstances of the individual case. In principle, the same applies to undertakings with relative and superior market power, respectively. 3.14 Do enforcers and/or legal tribunals consider “direct effects” evidence of market power? 3.9 What is the role of efficiencies in analysing dominant firm behaviour? In particular in the context of merger control proceedings, “direct effects” may complement the market share analysis and may also In contrast to the European antitrust regime, the efficiency defence be considered as (additional) evidence of market power. The FCO is not explicitly recognised in German law. In essence, it is argued now also recognises indirect effects in the form of (bilateral and that potential efficiencies which arise out of prima facie abusive unilateral) network effects which link user groups of a specific conduct and may benefit consumers (e.g., predatory pricing, loyalty platform. Indirect network effects exist where the value of the rebates, etc.) are unlikely to last for a longer period of time. Thus, platform service (e.g., a dating platform) for one user group depends such beneficial effects may not outweigh the negative effects on on the size and composition of the other user group. These effects competition and the market position and chances of the remaining can be either positive (value of the platform for one user increases competitors. However, efficiencies may at least indirectly influence with the number of potentially interested parties on the other side) the balance test and the legal assessment of whether a dominant or negative (value of the platform for one user group decreases if the behaviour is objectively justified or qualifies as unfair. other user group grows).

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3.15 How is “platform dominance” assessed in your 4 Miscellaneous jurisdiction?

4.1 Please describe and comment on anything unique to Market-dominant platforms are subject to the same standard as any your jurisdiction (or not covered above) with regards other dominant undertaking. The decisive criterion is whether or to vertical agreements and dominant firms. not the dominant undertaking’s scope of action is still sufficiently controlled by (remaining) competition. However, an assessment The provisions of German antitrust law on abusive conduct provide of a platform’s market power does not necessarily have to focus for the concept of an “undertaking with relative market power” that predominantly on price competition as many digital business is subject to the same rules as market-dominant undertakings despite models are challenged by strong innovation dynamics and not lacking a dominant market position. An undertaking qualifies if Germany the price. High levels of concentration are also typical for digital small or medium-sized enterprises as suppliers or purchasers of business models, meaning that the absolute market share should not certain goods or services depend on that undertaking to an extent be treated as the most relevant factor in the course of the assessment. that the SMEs do not have sufficient and reasonable possibilities Moreover, digital markets require a case-by-case assessment which of switching to another undertaking (as customer or supplier). The also take into account other, more specific factors, such as: (i) concept of “relative market” power is regularly applied in disputes network effects; (ii) economies of scale; (iii) single-homing (use between (wholesale or retail) distributors and suppliers of branded of single platforms), multi-homing (use of several platforms) and products. If products of a certain brand are considered a “must the degree of differentiation (i.e. to what degree the platforms in have” for specialist retailers in the respective product market, the a market differ from one another); (iv) access to data; and (v) the manufacturer’s refusal to supply may negatively affect the retailer’s innovation potential of digital markets. recognition by consumers as a specialist. Unless the retailer may retain his recognition as a specialist with other branded products, 3.16 Under what circumstances are refusals to deal the manufacturer of the “must have” brand products may be obliged considered anticompetitive? to supply the retailer and, respectively, not to terminate the supply relationship without an objective justification. Refusals to deal may constitute an abuse of a dominant market It has to be stressed that the definition of the term “undertaking with position unless it is justified for objective reasons. In the event that relative market power” does not test for market shares. Thus, an a market-dominant supplier services several comparable customers, undertaking may qualify even if, for example, its market share is but refuses to deal with another potential purchaser, the latter may less than 5% and, under the standard dominance concept, would – absent any objective justification – sue the dominant undertaking therefore not be considered as having market power. and force him to enter into a contractual relationship. The same applies to suppliers with relative market power who refuse to deal with small or medium-sized undertakings (Sec. 20(1) ARC).

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Peter Stauber Robert Pahlen Noerr LLP Noerr LLP Charlottenstrasse 57 Charlottenstrasse 57 10117 Berlin 10117 Berlin Germany Germany

Tel: +49 30 2094 2175 Tel: +49 30 2094 2316 Email: [email protected] Email: [email protected] URL: www.noerr.com URL: www.noerr.com

Germany For more than 10 years, Peter has practised European, German and Robert is a senior associate with Noerr. He advises domestic and Hungarian antitrust law. His practice encompasses the handling international clients on all matters of European and German antitrust of merger control proceedings with the European Commission law. Robert represents companies in cartel, abuse and merger control and national competition authorities as well as the coordination of proceedings before the Federal Cartel Office (Bundeskartellamt) and parallel merger reviews worldwide. Peter regularly represents and the European Commission, as well as in court (with a focus on antitrust defends companies in cartel investigations as well as dominance damages). He also has extensive experience with regard to internal cases. Further, he advises companies on compliance matters, such investigations and antitrust compliance programmes. as the establishment of compliance systems, conducting internal investigations and executing follow-up measures such as the filing of leniency applications and advice on antitrust proceedings. Peter also represents companies in antitrust damage claims, both on the plaintiff’s as well as the defendant’s side.

Noerr stands for excellence and entrepreneurial thinking. With well-versed teams of strong characters, Noerr devises and implements solutions for the most complex and sophisticated legal matters. United by a set of shared values, the firm’s 500+ professionals are driven by one goal: the client’s success. Listed groups and multinational companies, large and medium-sized family businesses as well as financial institutions and international investors all rely on the firm. As one of the top European law firms, Noerr is well established internationally. With offices in 11 countries and a global network of top-ranked “best friends” law firms, Noerr is able to offer its clients truly cross-border advice. In addition, Noerr is the exclusive member firm in Germany for Lex Mundi, the world’s leading network of independent law firms with in-depth experience in 100+ countries worldwide.

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India

KK Sharma Law Offices KK Sharma

3. The Commission thereafter forwards a copy of the report, 1 General submitted by DG on directions of the CCI under Section 26(1) of the Act, to the parties concerned. If the report of the DG recommends that there is no contravention of the 1.1 What authorities or agencies investigate and enforce provisions of the Act, the Commission shall invite objections the laws governing vertical agreements and dominant and suggestions, from the Central Government, the State firm conduct? Government, the statutory authority or the parties concerned, as the case may be, on the DG’s report. The laws governing vertical agreements and the conduct of a 4. If, after the consideration of the above objections and dominant enterprise are contained within the provisions of the suggestions on the report of the DG, the Commission agrees Competition Act, 2002 (“Act”). The Competition Commission of with the recommendations of the DG, it shall close the matter India (“CCI” or “Commission”) is the exclusive authority entrusted forthwith and pass such orders as it deems fit. Such orders with the task of investigating and enforcing the laws governing will then be communicated to the Central Government, the vertical agreements and the conduct of a dominant enterprise. State Government or the statutory authority or the parties concerned, as the case may be. 5. If, after consideration of the objections or suggestions on 1.2 What investigative powers do the responsible competition authorities have? the report of the DG, the Commission is of the opinion that further investigation is called for, it may direct further investigation into the matter by the DG or request that the The CCI, under Section 19(1) of the Act, has the power to inquire DG conducts further inquiry into the matter, or itself proceed into any alleged anticompetitive agreements, including vertical with further inquiry into the matter in accordance with the agreements, under Section 3, and abuse of dominant position, provisions of the Act. under Section 4 of the Act. Both the Commission and the Director 6. If the report of the DG recommends that there is a General (“DG”), who assist the CCI in investigations, have the contravention of any provisions of the Act and the same investigative powers as are vested in a civil court, such as Commission is of the opinion that further inquiry is called summoning and enforcing attendance, discovery and production of for, it shall inquire into such contraventions in accordance documents, receiving evidence on affidavit, issuing commissions with the provisions of the Act. for examination of witnesses or calling upon experts to assist. 7. If, after inquiry, the Commission finds that any agreement referred to in Section 3 or conduct of a dominant enterprise under Section 4 of the Act is in contravention of the said 1.3 Describe the steps in the process from the opening of provisions, the CCI may impose appropriate penalties under an investigation to its resolution. Section 27 of the Act.

1. The Commission, on receipt of a reference from the Central or State Government or Statutory Authority or on its own 1.4 What remedies (e.g., fines, damages, injunctions, etc.) knowledge or information from any person, consumer or are available to enforcers? their association or trade association under Section 19(1) of the Act, has to form an opinion as to whether there exists a The enforcing agency, the Commission, has remedies available to it prima facie case or not under Section 26(1) of the Act. both prior to or after completion of the investigation. 2. On forming an opinion that there does exist a prima facie case, Remedies prior to completion of investigation: the CCI shall direct the Director General, under Section 26(1) of the Act, to conduct an investigation and submit a report. During an enquiry, where the Commission is satisfied that an act The DG, after receiving such a direction, shall submit a report in contravention of Section 3 or Section 4 of the Act, relating to of his findings within such period as may be specified by agreements and the abuse of dominant position, respectively, has the Commission. Alternatively, on forming an opinion that been committed and continues to be committed, or such act is there does not exist a prima facie case, the Commission shall about to be committed, the Commission may, by order, temporarily close the matter forthwith and pass such orders as it deems restrain any party from carrying on such act until the conclusion of fit and send a copy of its order to the Central Government or such inquiry or until further orders, without giving notice to such the State Government, or the statutory authority or the parties party. This is more in the form of an injunction. concerned, as the case may be.

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Remedies on completion of investigation: declarations for non-indulgence in anticompetitive conduct in the If, after the inquiry, as enumerated in question 1.3 above, the future. Similarly, there have been instances where the Commission Commission finds that there is an appreciable adverse effect on has imposed a penalty on some enterprises in the past and, later, for competition (“AAEC”), in terms of the factors listed in Section subsequent violations, held them guilty but desisted from imposing 19(3) of the Act, it may pass the following orders: a penalty afresh for similar conduct. (a) Direct any enterprise or person, or association of enterprises As in the well-known case of DLF, although a penalty was imposed or persons, involved in any anticompetitive agreement or any on information filed by the housing society Belaire, for subsequent abuse of a dominant position to discontinue and not to re- violations and though holding DLF guilty, the Commission enter such agreements or discontinue such abuse of dominant considered it appropriate not to impose a fresh penalty for similar India position, as the case may be. conduct. A similar pattern can be found in the cases of Coal India (b) Impose such penalties as it may deem fit. Limited, a Public-Sector Undertaking (“PSU”), Cartelisation in (c) Give direction for modification of agreements to the extent Tender of Pune Municipal Corporation for Solid Waste Processing and in the manner as may be specified by the Commission and Belgaum District Chemists and Druggists Association. through an order.

(d) Direct the concerned enterprises to abide by such orders as 1.7 Does the enforcer have to defend its claims in front the Commission may pass and comply with the directions, of a legal tribunal or in other judicial proceedings? If including payment of costs, if any. so, what is the legal standard that applies to justify an (e) Pass such other orders or issue such directions as it may deem enforcement action? fit. Further, if the Commission comes to a finding that an enterprise, The appeals against the orders of the Commission lie with the indulging in anticompetitive agreement or abuse of its dominant National Company Law Appellate Tribunal (“NCLAT”). Earlier, the position, is a member of a “group”, as defined under the Act, and appeals used to lie before the Competition Law Appellate Tribunal other members of such a group are also responsible for, or have (“COMPAT”), the jurisdiction of which, now, stands taken over by contributed to, such a conduct or abuse, then it may pass orders the NCLAT. In important cases, the Commission has considered it against such members of the group. necessary to be present before the NCLAT, or earlier the COMPAT, and put forward its views. In which cases there should be an active defence and in which cases where only presence is enough is decided 1.5 How are those remedies determined and/or by the Commission, on a case-by-case basis, at its discretion based calculated? on the importance of the matter. In most of the important matters, the enforcer, i.e. the Commission, decides to defend its claim in front of The basis of determining a penalty, as mentioned in question 1.4, is NCLAT. Similarly, when the matters go to the higher appellate forum, that it shall not be more than 10% of the average turnover for the i.e. the highest court of the land, the Supreme Court of India, the last three financial years upon each person or the enterprises that Commission sends its own team and counsel for defending its orders. are parties to such agreement or abuse. The exception provided to As regards the legal standard, in addition to its statutory obligation this calculation of quantum is when a penalty is being imposed on of adherence to the principles of natural justice, the Commission has a cartel for an agreement referred to in Section 3(3) of the Act. In to justify its enforcement action on the same footing as other private those cases, the Commission may impose upon each participant of players without being subject to any preferential treatment. such a cartel a penalty of up to three times its profits for each year of continuance of such agreements, or 10% of its turnover for each year of continuance of such agreements, whichever is higher. 1.8 What is the appeals process? As in other jurisdictions of the world, the reference to “turnover” in the legislation was taken as the “total turnover” of the enterprise in Any direction issued, decision made or order passed by the all the decisions of the competition agency until the Supreme Court Commission under the provisions of the Act, can be appealed confirmed the decision of the Appellate Tribunal that this should be before the NCLAT. Appeals of the Commission’s order were, until taken as “relevant turnover” or turnover in the product or services recently, heard by the COMPAT. However, after the abolition of the subject to the finding of cartelisation. Thus, after the Supreme COMPAT, all the appeals arising from the Commission’s order are Court ruling on 8 May 2017, confirming the concept of “relevant heard by the NCLAT. On receiving an appeal, the NCLAT, after turnover”, in the Excel Crop Care Ltd. case, the penalties are being giving the concerned parties the opportunity to be heard, may pass calculated only up to 10% of the turnover subject to a contravention fresh directions, modifying or setting aside the order/direction of the and not the “total turnover”. Commission. Further appeal from the order of the NCLAT lies with the Supreme Court of India. An appeal lies with the NCLAT within 60 days from the date on which a copy of the direction or decision or 1.6 Describe the process of negotiating commitments or order made by the Commission is received, under Section 53B of the other forms of voluntary resolution. Act, or to the Supreme Act, within 60 days from the date of having the order received from the NCLAT. The Indian competition law, as contained in the Act, does not have an inbuilt mechanism for negotiating commitment or other form of upfront voluntary resolution. However, efforts have been made 1.9 Are private rights of action available and, if so, how in regulations to introduce some flexibility in this direction. Thus, do they differ from government enforcement actions? though not provided under the statute, the combination regulations provide a window for the parties to the combination to come up with No different identifiable right of action is available to private commitments upfront for getting the clearance of any combination citizens, except for the fact that private citizens can file information faster. of anticompetitive conduct which can trigger the examination of a particular complaint. However, there have been instances where, after finding parties guilty, the Commission has accepted undertakings’ affidavits or

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agreements, contracts including rivals rights/obligations on its 1.10 Describe any immunities, exemptions, or safe harbors own. It further opined that these matters are better dealt with by the that apply. authorities under the statute of sector regulator.

There are indeed certain safeguards. Section 3(3) of the Act, relating to anticompetitive agreements, contains a proviso which states that 1.13 Describe how your jurisdiction’s political environment may or may not affect antitrust enforcement. nothing contained in that sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution or trading of goods or The law has been drafted in such a way that, if so desired by the persons manning the agency, it is almost insulated from the political

provision of services. India environment and the functioning of the competition agency is, In addition to this, Section 3(5) of the Act clearly specifies that almost, totally independent from the political climate/disturbances. nothing contained in the provisions of Sections 3(3) and 3(4), relating to anticompetitive agreements, horizontal agreements and vertical agreements, respectively, shall restrict: 1.14 What are the current enforcement trends and priorities in your jurisdiction? “(i) the right of any person to restrain any infringement of, or to impose reasonable conditions as may be necessary for protecting any of, his rights which have been or may be Effective from 26 May 2017, COMPAT stands abolished and conferred upon him under: its jurisdiction taken over by NCLAT. The composition of the ■ the Copyright Act 1957; Commission has also changed from one Chairperson and six ■ the Patents Act 1970; Members to one Chairperson and three Members making it a trimmer body. The concept of “relevant turnover”, in contrast to ■ the Trade and Merchandise Marks Act 1958; “total turnover”, in imposition of penalty on errant enterprises, has ■ the Geographic Indications of Goods (Registration and also reached finality, as of now, after the decision of the Supreme Protection) Act 1999; Court in the Excel Crop Care Ltd. case. ■ the Designs Act 2000; and ■ the Semi-Conductor Integrated Circuits Layout-Design 1.15 Describe any notable case law developments in the Act 2000. past year. (ii) the right of any person to export goods from India to the extent to which the agreements relate exclusively to the production, Making an immediate and huge impact on all the pending cases in supply, distribution or control of goods or provision of services for such export.” appeal as well as future cases to be decided by the Commission, was the landmark judgment of Excel Corp Case Ltd v. CCI (2017) by the In addition to this, the Government retains the right to exempt any Supreme Court recognising the concept of “relevant turnover” in class of enterprises under Section 54 of the Act. Some exemptions imposition of a penalty under Section 27 of the Act. which have been given, as of now, relate to shipping. This sector has been given exemption. If not renewed, as on the day of writing, Further, the CCI passed its first substantive order, on RPM and tying this exception is valid until June 2018. However, in the past, it has in, imposing a penalty of INR 870 million on Hyundai Motor India been renewed quite close to its previous validities. Limited for contravening the provisions of Section 3 of the Act. Focus on technological markets and platform dominance was reflected by the order passed by the Commission in the matter of Matrimony. 1.11 Does enforcement vary between industries or com Limited v. Google LLC & Ors., imposing a penalty on Google for businesses? abusing its dominant position for manipulating its search results to the advantage of its vertical partners, thereby, showcasing the seriousness No, enforcement is equal to all and does not vary between industries with which the Commission deals with such matters. or businesses. In the case of M/s Fastway Transmission Pvt. Ltd, the Supreme Court upheld CCI’s wide interpretation of Section 4(2)(c) of the Act 1.12 How do enforcers and courts take into consideration and thereby adopting the recognised approach of choosing substance an industry’s regulatory context when assessing over form in the interpretation of the provisions of the Act. competition concerns? The Apex Court also made an interesting observation in the case The enforcer, i.e. the Commission, accords special weightage to of M/s. B. Himmatlal Agrawal v. CCI (2018), where in it held that the sector regulators while dealing with sectors in which sector the NCLAT has no jurisdiction to dismiss the main appeal itself, for regulators are present. The Act also provides very harmonious non-compliance of the direction to deposit the amount as a condition interplay between the sector regulators and the overarching for stay. competition regulator, in terms of mechanisms contained in Sections 21 and 21A of the Act, by way of mutual consultation in 2 Vertical Agreements which respective strengths of each regulator have been taken into account. Broadly speaking, there is an appreciation that regulatory framework relating to setting up and regulating tariffs is the domain 2.1 At a high level, what is the level of concern over, and of the sector regulator, whereas violations of the Act are within the scrutiny given to, vertical agreements? domain of the overarching competition regulator. The law having come into force only on 20 May 2009, it is early Vertical agreements are a part of Section 3 relating to the prohibition days yet to make any definite comment on emerging trends as it is of anticompetitive agreements. If we look at the total number of cases still evolving in its infancy. For example, in its recent Vodafone decided by the Commission so far, the number of cases on vertical India Ltd. judgment, Bombay High Court held that the competition agreements is relatively small but it does not mean that the Commission agency has no jurisdiction to decide and deal with various statutory has not given adequate attention to these issues of anticompetitive

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restraints in vertical agreements. There have been instances of vertical (d) “refusal to deal” includes any agreement which restricts, or agreements of automobile manufacturers “tying in” the customer after is likely to restrict, by any method the persons or classes of the sale with service, sale of spare parts or sale of some consumables persons to whom goods are sold or from whom goods are such as lubricant oil, etc. These have been dealt with firmly by the bought; Commission. Thus, the concern over vertical agreements is no less (e) “resale price maintenance” includes any agreement to sell than the concern over horizontal agreements, except for the fact that goods on condition that the prices to be charged on the resale to prove an AAEC in the case of vertical agreements is a little more by the purchaser shall be the prices stipulated by the seller difficult as the onus to, first, prove AAEC is on the Commission, unlike unless it is clearly stated that prices lower than those prices may be charged.” in the case of horizontal agreements, where there is a presumption

India of AAEC. This is the reason why the number of cases on vertical From the above, it can be seen that the definition of vertical agreements is less, in comparison. agreements is not an exhaustive one, but an inclusive one. Therefore, there is scope for this definition to grow with time as jurisprudence develops, in this area, in the country. 2.2 What is the analysis to determine (a) whether there is an agreement, and (b) whether that agreement is vertical? 2.4 Are there any type of vertical agreements or restraints The term “agreement” has been defined under Section 2(b) of the that are absolutely (“per se”) protected? Act to include any arrangement, understanding or action in concert: (i) whether or not such arrangement, understanding or action is No. In Indian competition law, as contained in the provisions of the formal or in writing; or Act, no vertical agreements or restraints are per se illegal. Every case on vertical agreements is to be decided on the substantive test (ii) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings. of appreciable adverse effect on competition, the onus for proving which lies with the Commission. Vertical agreements, defined under Section 3(4) of the Act, are between enterprises or persons at different stages of the production chain in different markets, in respect of production, supply, 2.5 What is the analytical framework for assessing distribution, storage, sale or price of or trade in goods, or the vertical agreements? provision of services, including: (a) tie-in arrangements; As vertical agreements are subject to the rule of reason, the restraining effect of agreements has to be seen in terms of the same (b) exclusive supply agreements; factors which guide the Commission to examine the anticompetitive (c) exclusive distribution agreements; effects of horizontal agreements. Under Section 19(3) of the Act, the (d) refusal to deal; and six factors that the Commission keeps in mind, while determining (e) resale price maintenance. whether there is AAEC or not, are: (a) creation of barriers to new entrants in the market; 2.3 What are the laws governing vertical agreements? (b) driving existing competitors out of the market; (c) foreclosure of competition by hindering entry into the market; The law governing vertical agreements is contained in Section 3(4) (d) accrual of benefits to consumers; of the Act. This is given hereunder for ready reference: (e) improvements in production or distribution of goods or “Any agreement amongst enterprises or persons at different stages provision of services; and or levels of the production chain in different markets, in respect of (f) promotion of technical, scientific and economic development production, supply, distribution, storage, sale or price of, or trade by means of production or distribution of goods or provision in goods or provision of services, including --- of services. (a) tie-in arrangement; (b) exclusive supply agreement; 2.6 What is the analytical framework for defining a market (c) exclusive distribution agreement; in vertical agreement cases? (d) refusal to deal; In terms of the provisions of the Act for anticompetitive agreements, (e) resale price maintenance, including vertical agreements, the substantive test for the shall be an agreement in contravention of sub-section (1) if such Commission is to see whether an agreement is causing or is likely agreement causes or is likely to cause an appreciable adverse effect to cause an AAEC within India. Thus, the analytical framework on competition in India. for vertical agreements does not require delineation of the relevant Explanation.--For the purposes of this sub-section- market. (a) “tie-in arrangement” includes any agreement requiring a purchaser of goods, as a condition of such purchase, to 2.7 How are vertical agreements analysed when one of purchase some other goods; the parties is vertically integrated into the same level (b) “exclusive supply agreement” includes any agreement as the other party (so called “dual distribution”)? Are restricting in any manner the purchaser in the course of his these treated as vertical or horizontal agreements? trade from acquiring or otherwise dealing in any goods other than those of the seller or any other person; There have not been many cases where vertical agreements have (c) “exclusive distribution agreement” includes any agreement been dealt with by the Commission in the last nine years of its to limit, restrict or withhold the output or supply of any goods journey of enforcement of competition law in India. No doubt, or allocate any area or market for the disposal or sale of the when we look at the business landscape, there are many potential goods; situations of dual distribution and, some time in the future, some of

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them may end up before the Commission. However, as of now, the determination of Section 19(3) of the Act do have a combination jurisprudence is yet to develop in a sufficient way. of both positive and negative factors and that indicates the intention of the Act.

2.8 What is the role of market share in reviewing a vertical agreement? 2.14 What other defences are available to allegations that a vertical agreement is anticompetitive? As stated in question 2.6 above, defining the relevant market or dealing with market share of vertical agreements is not a necessary The defences available to the allegations that a vertical agreement prerequisite. However, the Commission can decide, on a case- is anticompetitive can be efficiency, ‘pass on’ to the consumer and by-case basis, if it wants to define the relevant market for better the reduction of duplication of costs (which may be linked with India understanding of the issue. efficiency only).

2.9 What is the role of economic analysis in assessing 2.15 Have the enforcement authorities issued any formal vertical agreements? guidelines regarding vertical agreements?

Economic analysis plays an extremely important role in vertical Since the competition authority is relatively new, being in existence agreements. In India where, unlike some other countries, there is for about nine years, no such formal guidelines have yet been issued. not a single vertical agreement including resale price maintenance which is per se illegal, it is extremely important to prove the AAEC 2.16 How is resale price maintenance treated under the by proper economic analysis in vertical agreements to show that an law? anticompetitive effect is being caused. However, being a new agency, these concepts are still gaining strength and it will take some time before Resale price maintenance (“RPM”) is one of the vertical agreements more and more economic analysis and models are put to use in practice. which, like other vertical agreements, is also subject to rule of reason and frowned upon by the agency only when the anticompetitive 2.10 What is the role of efficiencies in analysing vertical effects outweigh the pro-competitive effects on the evaluation of the agreements? six factors provided in Section 19(3) of the Act. The definition of RPM treats it as anticompetitive unless it is clearly stated that prices Efficiencies are a very important consideration in analysing vertical lower than the one stipulated can also be charged. agreements. Actually, efficiency as a defence has been built into Recently the Commission, in the matter of Hyundai Motor India the Act and it is the duty of the Commission to keep efficiency in Limited (HMIL) (2017), decided its first substantive order regarding mind while deciding a case relating to vertical agreements. This is RPM, wherein the CCI held that fixing of a maximum permissible very obvious by looking at factors in Section 19(3) of the Act for discount on the declared retail price, to be given by the dealers, determining whether there is an AAEC or not. effectively, amounts to setting a minimum resale price, thereby resulting in RPM and contravention of Section 3(4) (e) of the Act. 2.11 Are there any special rules for vertical agreements relating to intellectual property and, if so, how does 2.17 How do enforcers and courts examine exclusive the analysis of such rules differ? dealing claims?

There are no special rules for vertical agreements relating to Exclusive dealing claims can be of two types: exclusive supply intellectual property, but the Commission, in terms of the factors of agreements; and exclusive distribution agreements. Both of these determination under Section 19(3) of the Act, is free to evolve its own vertical agreements are also treated as a part of vertical agreements, rules to factor in for innovation in terms of promotion of technical, in terms of Section 3(4) of the Act, and these are generally frowned scientific and economic development by means of production, upon unless there are adequate reasons for justifying them. distribution of goods or provision of services. However, currently However, this has to be seen in the context that the exclusive dealing this is an area which, hopefully, should develop in the future. is causing an AAEC. Only if it causes an AAEC can it be called anticompetitive. Without having any justification, the exclusivity 2.12 Does the enforcer have to demonstrate claims can be treated as not being in conformity with the law. anticompetitive effects? In a recent order of Vishal Pande v. Honda Motorcycle and Scooter India Private Ltd (2017), the Commission held that the requirement Yes, the enforcer has the large responsibility of demonstrating for dealers of availing advertising services only from a designated anticompetitive effects in the case of vertical agreements. Unlike agency, is in the nature of exclusive supply arrangement, thereby, horizontal agreements where, in certain situations, anticompetitive contravening Section 3(4) of the Act. effects are presumed, the enforcer has to demonstrate the anticompetitive effect very clearly before reaching a conclusion of an AAEC within India. 2.18 How do enforcers and courts examine tying/ supplementary obligation claims?

2.13 Will enforcers or legal tribunals weigh the harm Tie-in arrangements, which include agreements requiring a against potential benefits or efficiencies? purchaser of goods, as a condition of such purchase, to purchase some other goods is one of the illustrative vertical agreements Yes, the enforcer and legal tribunal will both actually weigh the which are prohibited if they cause or are likely to cause an AAEC harm against the potential benefits or efficiency. The factors of within India. This applies to all enterprises irrespective of the size

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of the enterprise. The Commission has dealt with a number of cases regarding tie-in arrangements. In the aforementioned case 3 Dominant Firms of Hyundai Motor India Limited (HMIL) (2017), the Commission imposed a penalty of INR 870 million on HMIL treating designated 3.1 At a high level, what is the level of concern over, and sources of supply for lubricants for dealers as a “tie-in” arrangement. scrutiny given to, unilateral conduct (e.g., abuse of In contrast, supplementary obligations are contained in Section 4(2) dominance)? (e) and “making conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or In terms of the law, there is a high level of concern for unilateral according to commercial usage, have no connection with the subject conduct, i.e. abuse of dominant position. The abuses, in terms of

India Section 4(2) of the Act, are defined and, if indulged in by a dominant of such contracts” is treated as abuse if indulged in by a dominant enterprise, are treated very seriously and not otherwise. enterprise. Thus, supplementary claims are considered as an abuse if indulged in by a dominant enterprise only and not otherwise. 3.2 What are the laws governing dominant firms?

2.19 How do enforcers and courts examine price The law governing abuse of dominant position is enshrined in discrimination claims? Section 4 of the Act. See below an extract for ready reference. “Abuse of dominant position.— Price discrimination, if indulged in by a dominant enterprise, is treated as an abuse. However, price discrimination by an enterprise 1) No enterprise shall abuse its dominant position. which is not in a dominant position is not treated as an abuse. 2) There shall be an abuse of dominant position under sub- section (1), if an enterprise,— (a) directly or indirectly, imposes unfair or discriminatory— 2.20 How do enforcers and courts examine loyalty discount claims? (i) condition in purchase or sale of goods or services; or price in purchase or sale (including predatory price) of goods or service. There are not many cases where loyalty claims have been submitted Explanation.—For the purposes of this clause, the unfair or for examination before the Commission. However, the law is not discriminatory condition in purchase or sale of goods or services yet developed to the extent it is developed in other jurisdictions referred to in sub-clause (i) and unfair or discriminatory price in wherein cases like Intel or Michelin had an in-depth examination purchase or sale of goods (including predatory price) or service of loyalty discount claims. This is likely to evolve in the future and referred to in sub-clause (ii) shall not include such discriminatory there is substantial room for that. It is quite likely that these may conditions or prices which may be adopted to meet the competition; or be examined under ‘unfair and discriminatory’ pricing claims under (b) limits or restricts— abuse of dominant position. (i) production of goods or provision of services or market therefor; or 2.21 How do enforcers and courts examine multi-product (ii) technical or scientific development relating to goods or “bundled” discount claims? or services to the prejudice of consumers; or (c) indulges in practice or practices resulting in denial of Bundled discount claims are a part of “tie-in arrangements” and market access; or are treated as one of the defined vertical agreements and have to (d) makes conclusion of contracts subject to acceptance by be examined on the touchstone of whether it is causing or likely to other parties of supplementary obligations which, by cause an AAEC in India. If it indeed causes or is likely to cause an their nature or according to commercial usage, have no connection with the subject of such contracts; or AAEC, it shall be treated as an anticompetitive agreement. (e) uses its dominant position in one relevant market to enter into, or protect, other relevant market. 2.22 What other types of vertical restraints are prohibited Explanation.—For the purposes of this section, the expression— by the applicable laws? (a) “dominant position” means a position of strength, enjoyed by an enterprise, in the relevant market, in India, As the definition of vertical agreements is only an inclusive one, which enables it to— there is a possibility of some more agreements being included in this (i) operate independently of competitive forces prevailing list as the jurisprudence grows. However, as of now, the illustrative in the relevant market; or list only has come to be dealt with from time to time. It may be quite (ii) affect its competitors or consumers or the relevant some more time into the future when such an eventuality happens. market in its favour; (b) “predatory price” means the sale of goods or provision 2.23 How are MFNs treated under the law? of services, at a price which is below the cost, as may be determined by regulations, of production of the goods or provision of services, with a view to reduce competition or As mentioned above, there have only been nine years of competition eliminate the competitors.” law jurisprudence in India. Thus, not many instances of MFN clauses have arisen. However, in the case of big platforms such as Apple and Google, some instances have been seen but the 3.3 What is the analytical framework for defining a market jurisprudence is yet to develop in a significant manner. Recently, in dominant firm cases? many technology platforms like Paytm, Ola, etc. have appeared and they have links with many other products and services. The future In terms of an analytical framework, first there is a requirement of will tell how these are treated by the competition agency. defining a relevant market which is used to look at dominance after assessing a host of factors contained in Section 19(4) of the Act.

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Only if a firm is dominant can the Commission go to the next step, i.e. looking at the abuses. If abuses are being indulged in by 3.9 What is the role of efficiencies in analysing dominant a firm not in a dominant position, the Commission will nottake firm behaviour? action; however, if it is a dominant firm indulging in the abuses, the Commission will take penal action. Efficiencies are not directly recognised in analysing the behaviour of a dominant enterprise, but if we look at the factors of Section 19(4) of the Act, we find that efficiencies are, indirectly, factored 3.4 What is the market share threshold for enforcers or a in. For a ready reference, factors which indicate representation of court to consider a firm as dominant or a monopolist? efficiency, of whichever kind, are given below:

“(k) social obligations and social costs; India There is no market share threshold for the enforcer or court to consider when deciding whether a firm is dominant. Earlier, prior to the (l) relative advantage, by way of the contribution to the economic development, by the enterprise enjoying a dominant position enactment of the Competition Act 2002, under the earlier Monopolies having or likely to have an appreciable adverse effect on and Restrictive Trade Practices Act, 1969, there was a presumptive competition; threshold of dominance at 25% of market share. Nowadays, there is (m) any other factor which the Commission may consider relevant not any exclusive influence of market share on determining dominance. for the inquiry.” Actually, there are in total 13 factors which the Commission is expected to look into before determining the dominant position. So, market share has lost its prime position in the determination of 3.10 Do the governing laws apply to “collective” dominant position. However, being easy to figure out, it has assumed dominance? more importance in comparison to other factors in actual practice. No, collective dominance as a concept is not a part of Indian competition law. This was sought to be introduced through the 3.5 In general, what are the consequences of being Competition Amendment Bill 2012, which lapsed and could not be adjudged “dominant” or a “monopolist”? Is dominance or monopoly illegal per se (or subject to regulation), or incorporated in law, and any other changes are yet to come. are there specific types of conduct that are prohibited? 3.11 How do the laws in your jurisdiction apply to The dominant position or monopoly is not illegal per se. The dominant purchasers? dominant position or monopoly will only be frowned upon if the conduct of the dominant firm is abusive in terms of definition of The Act does not distinguish between dominant purchasers and “abuses” given under Section 4 of the Act. suppliers and both are covered under the ambit of Section 4 of the Act. Actually, purchase and sale are used almost interchangeably to 3.6 What is the role of economic analysis in assessing imply that both are at par. market dominance? 3.12 What counts as abuse of dominance or exclusionary Economic analysis is extremely important when arriving at an or anticompetitive conduct? appropriate definition of the relevant market. If the relevant market is defined a little differently, it can drastically change the determination The abuses or unilateral anticompetitive conduct by a dominant of dominance. Thus, economic analysis is extremely significant except enterprise are clearly defined in Section 4 of the Act and areas for the fact that it is yet to evolve in this jurisdiction in a big way. follows: “(a) directly or indirectly, imposing unfair or discriminatory— 3.7 What is the role of market share in assessing market (i) condition in purchase or sale of goods or service; or dominance? (ii) price in purchase or sale (including predatory price) of goods or service. Market share is one of the 13 factors which the Commission is Explanation.— For the purposes of this clause, the unfair or supposed to have due regard to while determining whether or discriminatory condition in purchase or sale of goods or service not an enterprise is dominant. However, other factors are also of referred to in sub-clause (i) and unfair or discriminatory price in equal importance. Nonetheless being easy to figure out, practically purchase or sale of goods (including predatory price) or service speaking, market share has been playing a more than equal role in referred to in sub-clause (ii) shall not include such discriminatory determining dominance in cases decided so far. The situation may condition or price which may be adopted to meet the competition; or gradually evolve to a point where this may not be the case. (b) limits or restricts— (i) production of goods or provision of services or market 3.8 What defences are available to allegations that a firm there for or is abusing its dominance or market power? (ii) technical or scientific development relating to goods or services to the prejudice of consumers; or The first direct defence given in the explanation to Section 4(2) (a) of (c) indulges in practice or practices resulting in denial of market the Act, relating to the abuse of “unfair and discriminatory conditions access in any manner; or in purchase or sale of goods or services” is that the discriminatory (d) makes conclusion of contracts subject to acceptance by conditions or prices shall not include such discriminatory conditions otherparties of supplementary obligations which, by their on prices which may be adopted to “meet the competition”. This is natureor according to commercial usage, have no connection the only defence available in the Act. The defending party may also withthe subject of such contracts; or challenge the determination of the relevant market and, thereafter (e) uses its dominant position in one relevant market to enter “determination of dominant position”. into, or protect, other relevant market.”

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3.13 What is the role of intellectual property in analysing 4 Miscellaneous dominant firm behaviour?

4.1 Please describe and comment on anything unique to In anticompetitive agreements, Section 3(5) of the Act gives the right your jurisdiction (or not covered above) with regards to any intellectual property right (IPR) holder to impose reasonable to vertical agreements and dominant firms. conditions for the protection of IPRs. If these restrictions, imposed by a dominant enterprise, are called into question by any person, the India may be a unique country in that for determining dominance of Commission will have to examine whether, in terms of Section 4 an enterprise, the agency has to keep in mind social factors which

India of the Act, these conditions are unfair or discriminatory. Thus, the are factored into determining dominance. The social factors, given enforcement agency, at an appropriate time, may have to examine below, are included in the factors of determination enumerated in these aspects. In these situations, the IPRs will have a role in the answer to question 3.9 above: analysing the behaviour of a dominant enterprise. Some similar “(k) social obligations and social costs; cases have already come before the Commission. (l) relative advantage, by way of the contribution to the economic development, by the enterprise enjoying a dominant position 3.14 Do enforcers and/or legal tribunals consider “direct having or likely to have an appreciable adverse effect on effects” evidence of market power? competition; (m) any other factor which the Commission may consider relevant Going by the cases decided so far, both direct and indirect effects are for the inquiry.” used for determining market power.

KK Sharma 3.15 How is “platform dominance” assessed in your KK Sharma Law Offices jurisdiction? 4th Floor, Sishan House 119, Shahpur Jat New Delhi-110049 There have been some matters of WhatsApp and Google platform India dominance in the recent couple of years, the Commission having the manadate to deal with such issues. However, being a new jurisidiction, Tel: +91 11 410 81137 it will take some time before capacities in the country develop for Email: [email protected] [email protected] taking the analysis to a higher level. In a recent order, in the case of URL: www.kkslawoffices.com Bharat Matrimony v. Google LLC (2018), the CCI imposed a penalty One of the world’s eminent experts in competition law, Mr. KK Sharma of INR 1.36 billion on Google LLC for abusing its dominant position is a celebrated author, speaker and consultant. He was the very first by favouring its search results in favour of its vertical partners. Director General of the functional Competition Commission of India (CCI) and a Commissioner of Income Tax. Mr. Sharma founded KK Sharma Law Offices, covered in the world edition of GCR, in October 2012. He 3.16 Under what circumstances are refusals to deal is a Ph.D. fellow in competition law from Bangor University, UK and an considered anticompetitive? alumnus of King’s College, London and the Indian Institute of Technology, a qualified lawyer and holds a Master’s degree in economics. Mr. Sharma was the first Head of the Merger Control and Antitrust Divisions of CCI and There have been a good number of cases of “refusal of deal” under one of the few individual members of the RPP Platform of UNCTAD; he Section 3(4)(d) of the Act. These are the instances where the party was also on the Global Antitrust Advisory Board of Bloomberg. He travels with whom somebody was having a vertical relationship is restrained across the globe to speak at various national and international conferences from dealing with third parties. Like other vertical agreements and has written two books on competition law – one by LexisNexis and the in Indian competition law, the “refusal to deal” is considered other by Thomson Reuters. He was recently appointed Senior Counsel by the President of India to deal with complex matters of Govt. of India. anticompetitive only if it is causing or is likely to cause an AAEC.

KK Sharma Law Offices (‘Firm’), dealing in Competition law, Tax, Enforcement & Investigation, Governance, Regulation & Risk, Public Affairs & Policy, with footprints across continents, has a track record of a high standard litigation support and legal consultancy. In a short period, its client list has spread across the Atlantic, as well as India. The Firm is frequently requested to contribute India-specific scholarly competition law articles/ features by publications such as GCR and others. Many landmark cases involving huge penalties were successfully handled by the Firm – the latest being the successful dropping of a penalty of USD 115 million (INR 6710 million) on PSU clients. The Firm has successfully dealt with a spectrum of sectors such as oil and gas, manufacturing, software, shipping, ports, real estate, retail, liquor trade, automobiles, banking and insurance to name a few. The Chairman of the Firm, KK Sharma, is one of the handful of individual members of the RPP Platform of UNCTAD, and was on the Global Antitrust Advisory Board (GAAB) of Bloomberg. Frequently, the Firm is sought for expert opinion on issues being dealt with routinely by others.

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Indonesia Chandrawati Dewi

Ali Budiardjo, Nugroho, Reksodiputro Gustaaf Reerink

investigation, the KPPU should decide within 30 days whether there 1 General is a violation of the ICL and if so, what administrative remedies are imposed. This decision should be announced in a public hearing 1.1 What authorities or agencies investigate and enforce and be conveyed to the relevant business actor. A business actor the laws governing vertical agreements and dominant who has been imposed with a sanction may submit an objection firm conduct? against the decision of the KPPU to the District Court within 14 days after receiving notification of the decision. If no objection The Indonesian Business Competition Supervision Commission is submitted within 14 days, the business actor is required to (KPPU) has the authority to investigate and enforce the provisions implement the decision of the KPPU and submit a report of such governing vertical agreements and dominant firm conduct under Law implementation to the KPPU within 30 days after having received No 5/1999 concerning the Prohibition of Monopolistic Practices and notification of the decision. Upon failure to do so, the KPPU shall Unfair Business Competition (the Indonesian Competition Law or send a copy of the decision to the Police, which can then initiate ICL). However, the KPPU’s authority is limited to administrative a criminal investigation, potentially leading to criminal remedies. investigation and enforcement. In case of criminal investigation and enforcement, the Police and Public Prosecutor’s Office and Courts 1.4 What remedies (e.g., fines, damages, injunctions, etc.) are the competent authorities. are available to enforcers?

1.2 What investigative powers do the responsible The KPPU can impose administrative remedies in the form of, competition authorities have? in case of vertical restraints or abuse of dominance, orders (a) annulling certain prohibited agreements, such as closed agreements, The ICL gives the KPPU a range of investigative powers, including (b) to cease prohibited types of vertical integration, (c) to cease the power to require business actors to provide evidence and for activities proven to have involved monopolistic practices or resulted witnesses to be examined. However, if they refuse, the KPPU in unfair business competition in the relevant market or other public should ask for assistance from the Police to present reported parties harm, (d) to cease abuse of dominance, (e) to pay damages, and (f) or witnesses, or if they refuse to provide information, refer the case to pay fines between IDR 1 billion and 25 billion. The KPPU cannot to the Police to initiate an investigation. Furthermore, the KPPU impose injunctions. has not been given the authority to conduct search, interception, In addition, the District Court can impose criminal remedies. arrest or seizure. The KPPU has entered into a Memorandum of According to the ICL, a business actor can be fined between IDR Understanding with the Police to enhance collaboration between the 1 billion and IDR 100 billion, depending on the type of violation two authorities and create a standard operating procedure for the committed, and its director or directors may be imprisoned for up to handling of competition cases. six months in case the business actor fails to pay the fine. Additional criminal remedies may be imposed in the form of a 1.3 Describe the steps in the process from the opening of revocation of the business actor’s business licence, a prohibition on an investigation to its resolution. the business actor, or its director or directors, to be a director or commissioner for a period between two and five years, and an order An investigation is opened following receipt of a report from a third requiring the cessation of certain activities by the business actor that party of a violation under the ICL or at the KPPU’s own initiative. causes loss to another. If the report is deemed complete, it can be filed and presented to the Plenary Meeting of Commissioners, which will decide whether the 1.5 How are those remedies determined and/or case should progress. If so, a Counsel of Commissioners will be calculated? established to conduct a preliminary investigation, which should be completed within 30 days. The Counsel of Commissioners should Administrative remedies are determined/calculated on the basis then decide whether to conduct a further investigation, which of KPPU Regulation No. 4/2009 on Guidelines to Administrative should be completed within 60 days. If needed, this period may Sanctions under Article 47 of the ICL (the Administrative be extended by another 30 days. Upon completion of the further Remedies Guidelines).

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market, (h) small business actors, and (i) business activities of 1.6 Describe the process of negotiating commitments or cooperatives which are aimed at benefitting their members. other forms of voluntary resolution.

Pursuant to the Administrative Remedies Guidelines, after the 1.11 Does enforcement vary between industries or businesses? alleged violation of the ICL has been proven, the relevant business actor may try to convince the KPPU that it will change its behaviour. If no other business actor has suffered losses, the KPPU may decide In recent years, the KPPU’s enforcement priorities have been on the that the case is completed without the imposition of fines or an order food commodities industry and other industries that are important to for compensation. fulfil the Indonesian people’s basic needs. Indonesia 1.7 Does the enforcer have to defend its claims in front 1.12 How do enforcers and courts take into consideration of a legal tribunal or in other judicial proceedings? If an industry’s regulatory context when assessing so, what is the legal standard that applies to justify an competition concerns? enforcement action? An industry’s regulatory context is taken into consideration in The KPPU does not have to defend its claims in front of a legal several ways when assessing competition concerns, for instance tribunal or in other judicial proceedings. when determining market shares and analysing the effects of certain agreements and/or behaviour. Industry specific regulations do not exempt business actors from the prohibitions under the ICL, unless 1.8 What is the appeals process? actions and/or agreements aim to implement prevailing laws and regulations (see question 1.10). As mentioned before, a business actor who has been imposed with a sanction may submit an objection against the decision of the KPPU to the District Court within 14 days after receiving notification of the 1.13 Describe how your jurisdiction’s political environment may or may not affect antitrust enforcement. decision. The District Court is required to issue a decision within 30 days of the commencement of the examination of the objection. The KPPU is an independent body, belonging neither to the In case the business actor does not agree with the decision of the executive, legislative or judicial branch of government. However, District Court, it may submit a cassation appeal to the Supreme we can see the KPPU sometimes responds to political calls to give Court within 14 days. The Supreme Court is required to issue a scrutiny to certain industries, such as recently the food commodities decision within 30 days of the receipt of the cassation appeal. industry.

1.9 Are private rights of action available and, if so, how 1.14 What are the current enforcement trends and do they differ from government enforcement actions? priorities in your jurisdiction?

The ICL does not create a legal basis for private rights of action. Two months ago, new Commissioners were appointed to the KPPU. However, a party that believes to have suffered loss as a result of The new Commissioners have just announced their enforcement a violation of the ICL may submit a report to the KPPU, setting priorities, i.e. food commodities, education, healthcare, energy, out the alleged violation and loss. Based on this report, the KPPU telecommunication, logistics, banking & finance, and industries/ may initiate an investigation, which may result in an administrative businesses that are controlled by State Owned Enterprises. remedy in the form of an order to pay compensation. As far as we are aware, the KPPU has never imposed such an order. Furthermore, a party that believes to have suffered loss has a private right of action 1.15 Describe any notable case law developments in the to submit a tort claim (Article 1365 of the Indonesian Civil Code). past year. However, we are not aware of any Indonesian court ever awarding a tort claim for violation of the ICL. In December 2017, the KPPU imposed fines amounting to IDR 20 billion on a producer of mineral water Aqua and its distributor, which were proven to have violated closed agreements and market control 1.10 Describe any immunities, exemptions, or safe harbors prohibitions under the ICL. The distributor tried to restrict retailers that apply. to sell the mineral water Le Minerale, produced by a competing business actor. The fined business actors have filed an appeal. Article 50 of the ICL lists a variety of actions and/or agreements and actors that are exempted from the prohibitions under the ICL, i.e. (a) actions and/or agreements which aim to implement prevailing 2 Vertical Agreements laws and regulations, (b) agreements relating to intellectual property rights, (c) agreements stipulating technical standards of products and/or services which do not restrict and/or obstruct competition, 2.1 At a high level, what is the level of concern over, and (d) agency agreements which do not contain provisions relating to scrutiny given to, vertical agreements? resupply of products and/or services at a lower price than the agreed price, (e) research cooperation agreements aimed at enhancing or There is some concern over and scrutiny given to vertical agreements improving the living standards of the public at large, (f) international in the form of price discrimination (Article 6 ICL), RPM (Article agreements which have been ratified by the Government of the 8 ICL), territorial division (Article 9 ICL, which can apply to Republic of Indonesia, (g) agreements and/or actions relating to horizontal and vertical agreements), vertical integration (Article 14 export which do not harm demand and/or supply on the domestic ICL), closed agreements, i.e. exclusive dealing, tying agreements

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and special discounts (Article 15 ICL), and market control, i.e. substitution, which can be measured through consumer preference impede other business actors from conducting the same business analysis by using the parameters of price, character and use (function) activities, hinder customers of business competitors from engaging of a product as proxies. In determining the geographical market, the in a business relationship with such business competitors, limitation KPPU considers factors that determine the availability of a product, of distribution, limit the distribution or sale of products and services, including company policy, transportation cost, travel time, tariffs, and discrimination (Article 19 ICL). The KPPU has decided to and regulations that may restrict trade between certain regions. In impose sanctions in several cases, of which decisions were often practice, the KPPU concludes in most cases that the geographical upheld by the courts. However, the KPPU is generally more focused market is on the national level. The geographical market for online on other violations of the ICL, such as bid rigging and price fixing. business is always considered national.

2.2 What is the analysis to determine (a) whether there 2.7 How are vertical agreements analysed when one of Indonesia is an agreement, and (b) whether that agreement is the parties is vertically integrated into the same level vertical? as the other party (so called “dual distribution”)? Are these treated as vertical or horizontal agreements? The ICL defines “agreement” as an action of one or more business actor(s) to commit itself/themselves to one or more other business The ICL does not address the issue of dual distribution and whether actor(s) in any name, both in writing and not in writing. The ICL agreements are treated as vertical or horizontal agreements is creates no framework to determine whether an agreement is vertical. determined on a case by case basis. However, if an agreement However, KPPU Regulation No. 8/2011 concerning Guidelines in clearly relates to a production or distribution chain, it should be relation to Article 8 (RPM) refers to “an agreement [of a business assumed to be a vertical agreement, even though the contracting actor] with another business actors” as an agreement of one business parties are partially active on the same business level. actor with another business actor that have a vertical relationship and are in a chain of production or distribution. 2.8 What is the role of market share in reviewing a vertical agreement? 2.3 What are the laws governing vertical agreements? Market share is relevant to establish whether a vertical agreement The ICL is the law governing vertical agreements. The KPPU results in unhealthy business competition, in practice even in case has also issued guidelines on several types of prohibited vertical of an agreement that is absolutely prohibited. restraints, including KPPU Regulation No. 5/2010 concerning Guidelines in relation to Article 14 (Vertical Integration), KPPU 2.9 What is the role of economic analysis in assessing Regulation No. 3/2011 concerning Guidelines in relation to Article vertical agreements? 19 D (Discriminative Practice), KPPU Regulation No. 5/2011 concerning Guidelines in relation to Article 15 (Closed Agreements), Economic analysis is relevant to establish whether a vertical and KPPU Regulation No. 8/2011 concerning Guidelines in relation agreement results in unhealthy business competition, in practice to Article 8 (RPM). even in case of an agreement that is absolutely prohibited.

2.4 Are there any type of vertical agreements or restraints 2.10 What is the role of efficiencies in analysing vertical that are absolutely (“per se”) protected? agreements?

Price discrimination and closed agreements are absolutely In its analysis of vertical agreements, the KPPU weighs the prohibited. However, in practice the KPPU will also apply a “rule benefits of such agreements for consumers, which may result in the of reason” approach and assess whether price discrimination and conclusion that the agreements are not prohibited. closed agreements result in unhealthy business competition.

2.11 Are there any special rules for vertical agreements 2.5 What is the analytical framework for assessing relating to intellectual property and, if so, how does vertical agreements? the analysis of such rules differ?

In case of price discrimination and closed agreements, the KPPU As mentioned before, intellectual property agreements are in will only need to establish that the agreement with prohibited principle exempted from the prohibitions under the ICL, provided provisions exists. However, as mentioned before, in practice the that certain contains are met. For further details, please refer to KPPU will take a “rule of reason” approach and assess the effects KPPU Regulation No. 2/2009 concerning Guidelines for the on business competition. In case of other types of prohibited Exemption of the Application of the ICL to Agreements relating to vertical restraints, the KPPU will not only need to prove that the Intellectual Property Rights. agreement with prohibited provisions exist or prohibited behaviour was conducted, but also assess the effects on business competition. 2.12 Does the enforcer have to demonstrate anticompetitive effects? 2.6 What is the analytical framework for defining a market in vertical agreement cases? The KPPU has to demonstrate anticompetitive effects, except in case of price discrimination and closed agreements. However, as The KPPU defines a market in vertical agreement cases by mentioned before, in practice the KPPU will take a “rule of reason” distinguishing product and geographical markets. The product market approach and assess, in case of price discrimination and closed is defined by looking at demand side substitution and supply side agreements, the effects on business competition.

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2.13 Will enforcers or legal tribunals weigh the harm 2.20 How do enforcers and courts examine loyalty against potential benefits or efficiencies? discount claims?

As mentioned before, in its analysis of vertical agreements, the Loyalty discount would be prohibited if it constitutes price KPPU and the courts weigh the benefits of such agreements for discrimination. As mentioned before, price discrimination is consumers, which may result in the conclusion that the agreements absolutely prohibited, but in practice the KPPU and courts apply a are not prohibited. “rule of reason” approach and examine whether price discrimination results in unhealthy business competition.

2.14 What other defences are available to allegations that a

Indonesia vertical agreement is anticompetitive? 2.21 How do enforcers and courts examine multi-product or “bundled” discount claims? We believe no other defences are available. The ICL prohibits multi-product or “bundled” discount if it ties a business actor to purchase other products and/or services from the 2.15 Have the enforcement authorities issued any formal guidelines regarding vertical agreements? supplying business actor. The KPPU and the courts must apply a “rule of reason” approach and examine if multi-product or “bundled” discount results in unhealthy business competition. Yes, see question 2.3.

2.22 What other types of vertical restraints are prohibited 2.16 How is resale price maintenance treated under the by the applicable laws? law?

Other types of vertical restraints that are prohibited under the ICL A business actor is prohibited from entering into an agreement with are territorial division, vertical integration, and market control another business actor which contains a condition that the recipient (other than discrimination), i.e. that impede other business actors of products and/or services will not resell or re-supply the goods from conducting the same business activities, hinder customers and/or service received, at a price lower than the price which has of business competitors from engaging in a business relationship been agreed so that it can cause the occurrence of unfair business with such business competitors, limit distribution, and limit the competition. Setting a maximum resale price or suggested resale distribution or sale of products and services. price is in principle allowed under the ICL, although setting a specified resale price or minimum resale price is not. 2.23 How are MFNs treated under the law? 2.17 How do enforcers and courts examine exclusive dealing claims? The ICL does not explicitly deal with MFNs.

A closed agreement, including exclusive dealing, is prohibited if 3 Dominant Firms (a) it substantially or potentially reduces the volume of trade, and (b) the closed agreement has been entered into by business actors that have market power (>10% market share) and the market power 3.1 At a high level, what is the level of concern over, and can increase due to the closed agreement. However, as mentioned scrutiny given to, unilateral conduct (e.g., abuse of before, in practice the KPPU and the courts will apply a “rule of dominance)? reason” approach and examine whether closed agreements result in unhealthy business competition. There is some concern over and scrutiny given to abuse of dominance (Article 25 ICL). The KPPU has decided to impose sanctions in several cases, of which decisions were often upheld by the courts. 2.18 How do enforcers and courts examine tying/ However, the KPPU is generally more focused on other violations supplementary obligation claims? of the ICL, such as bid rigging and price fixing. A closed agreement, including tying/supplementary obligations, is prohibited if, in addition to the conditions as referred to in the answer 3.2 What are the laws governing dominant firms? to question 2.17 being met, (a) the tying products are different from the main product, and (b) the tying business actor has significant The ICL is the law governing dominant firms. The KPPU has market power to force customers to purchase the tying products. also issued guidelines relating to abuse of dominance, i.e. KPPU Regulation No. 6/2010 concerning Abuse of Dominant Position (Article 25 ICL). 2.19 How do enforcers and courts examine price discrimination claims? 3.3 What is the analytical framework for defining a market Price discrimination is absolutely prohibited under the ICL, but as in dominant firm cases? mentioned before, in practice the KPPU and the courts will apply a “rule of reason” approach and examine whether price discrimination See question 2.6. results in unhealthy business competition.

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3.4 What is the market share threshold for enforcers or a 3.12 What counts as abuse of dominance or exclusionary court to consider a firm as dominant or a monopolist? or anticompetitive conduct?

A business actor is dominant if it has no substantial competitor in A business actor abuses its dominant position if such position is the relevant market or is in the strongest position of its competitors directly or indirectly used to: (a) determine trade conditions with the in the relevant market, as judged by its financial capacity, access to objective to prevent and to obstruct the consumers from obtaining sales, and ability to adjust the supply or demand levels for a certain competitive products and/or services, both from the aspect of price goods or service. In addition, it should control 50% or more of the and quality; (b) restrict market and technological development; or market share of a certain type of products or services or two or three (c) obstruct other business actors who have the potential to become business actors control or a group of business actors controls 75% a competitor and enter the market concerned. Indonesia or more of the market share of a certain type of product or service.

3.13 What is the role of intellectual property in analysing 3.5 In general, what are the consequences of being dominant firm behaviour? adjudged “dominant” or a “monopolist”? Is dominance or monopoly illegal per se (or subject to Ownership of certain intellectual property can create a dominant regulation), or are there specific types of conduct that position. The KPPU may assess whether such ownership and its use are prohibited? constitutes abuse of dominant position as prohibited under the ICL.

Dominance or monopoly is not illegal per se or subject to regulation. 3.14 Do enforcers and/or legal tribunals consider “direct effects” evidence of market power? 3.6 What is the role of economic analysis in assessing market dominance? “Direct effects” evidence of market power has been considered by the KPPU and the courts in several cases. Economic analysis should play no role in reviewing abuse of dominant position. However, in practice the KPPU will take a “rule of reason” approach and assess in case of abuse of dominant 3.15 How is “platform dominance” assessed in your position the effects on business competition. jurisdiction?

“Platform dominance” has so far not been assessed in Indonesia. 3.7 What is the role of market share in assessing market dominance? 3.16 Under what circumstances are refusals to deal See question 3.4. considered anticompetitive?

Refusals to deal are considered anticompetitive if they harm or can 3.8 What defences are available to allegations that a firm be surmised will harm another business actor or restrict the other is abusing its dominance or market power? business actor in selling or purchasing any products and/or services from the market concerned. We believe no defences are available to allegations that a firm is abusing its dominance or market power, other than contesting the evidence produced by the KPPU. 4 Miscellaneous

3.9 What is the role of efficiencies in analysing dominant 4.1 Please describe and comment on anything unique to firm behaviour? your jurisdiction (or not covered above) with regards to vertical agreements and dominant firms. There is no case of abuse of dominant position if this creates efficiencies, such as innovation, economies of scale, and economies Indonesia takes a unique approach to competition law generally, of scope. and vertical agreements and dominant firms in particular. The KPPU’s limited authority in investigations is one example. The 3.10 Do the governing laws apply to “collective” ICL creates “per se” prohibitions such as price discrimination and dominance? closed agreements, which in most other jurisdictions would be “rule of reason” prohibitions. It is likely that a “rule of reason” As mentioned before, business actors can be dominant if two or approach will apply to these prohibitions under the new Indonesian three or a group of them controls 75% or more of the market share Competition Law, which is expected to be enacted later this year. of a certain type of products or services. The administrative fines are proposed to be increased, to bea percentage of the sales value generated. There are also discussions on the introduction of a leniency programme. Certain exemptions, 3.11 How do the laws in your jurisdiction apply to such as the exemption for intellectual property agreements, will dominant purchasers? likely no longer apply. The KPPU’s authority in investigations is expected to remain limited though. The ICL applies to dominant purchasers just as to other dominant business actors.

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Chandrawati Dewi Gustaaf Reerink Ali Budiardjo, Nugroho, Reksodiputro Ali Budiardjo, Nugroho, Reksodiputro Graha CIMB Niaga, 24th Floor Graha CIMB Niaga, 24th Floor Jl. Jenderal Sudirman Kav. 58 Jl. Jenderal Sudirman Kav. 58 Jakarta 12190 Jakarta 12190 Indonesia Indonesia

Tel: +62 21 250 5125 Tel: +62 21 250 5125 Email: [email protected] Email: [email protected] URL: www.abnrlaw.com URL: www.abnrlaw.com

Indonesia Chandrawati Dewi is a partner in ABNR Counsellors at Law in Jakarta. Gustaaf Reerink is foreign counsel in ABNR Counsellors at Law in Her practice focuses on foreign investment, capital markets, M&A, and Jakarta. His practice focuses on foreign direct investment, corporate/ antitrust. M&A and antitrust. Prior to joining ABNR, she worked for the Economic Law and Improved Prior to joining ABNR, Gustaaf worked as an associate in the Procurement Systems Project (ELIPS Project), a USAID-funded Amsterdam and Brussels offices of De Brauw Blackstone Westbroek. project focusing primarily on the development of economic law in Gustaaf graduated from Leiden University, where he earned an LL.M. Indonesia. From 2000 to 2004 she was assigned to the Singapore degree in private law, an M.A. degree in Indonesian studies, and a Office of ABNR. Ph.D. degree in law, governance and development. In addition, Dewi graduated from the Faculty of Law, Parahyangan Catholic he read law at King’s College London and the School of Oriental University, majoring in Economic and Business Law. She is a and African Studies in London. He is admitted to the Amsterdam, member of the Indonesian Advocates Association (PERADI) and the Netherlands Bar, and is a registered foreign lawyer in Indonesia, and a Association of Indonesian Legal Consultants (AKHI). Member of the Chartered Institute of Arbitrators (CIArb).

Ali Budiardjo, Nugroho, Reksodiputro (ABNR), established in Jakarta in 1967, is one of the largest independent full-service law firms in Indonesia. ABNR’s reputation has been recognised globally by independent industry surveys and law firm guides. ABNR was selected, based on its integrity and professionalism, as the sole Indonesian member of the world’s largest law firm association Lex Mundi and the prestigious Pacific Rim Advisory Council (PRAC). ABNR serves multinational clients and assists global and regional law firms with strategic advice on transactions, and on compliance and litigation matters, including matters relating to competition law. ABNR is active across the entire spectrum of competition law, including cartel, dominant position, and merger control matters.

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Italy

DDPV Studio Legale Luciano Vasques

At the end of the investigation phase (normally 12–16 months 1 General from the opening of the investigation), the IAA issues statements of objections (namely contestazione delle risultanze istruttorie 1.1 What authorities or agencies investigate and enforce “SO”), and the Parties may reply to the SOs with a final defensive the laws governing vertical agreements and dominant memorandum within a time limit set by the IAA. firm conduct? After the SOs have been notified, the IAA allows the Parties to have access to documents of the file of the proceedings classified The Authority in charge is the Italian Antitrust Authority (“IAA”) as confidential, which the IAA considers useful for the proof of the (namely Autorità Garante della Concorrenza e del Mercato). antitrust infringements. Address: Piazza Verdi 6a, 00198 Rome, Italy. Website: www.agcm.it. After the Parties have filed the final memos, the Parties may request Tel: +39 06 85 82 11. Fax: +39 06 85 82 12 56. to be heard by the IAA in a final hearing. After the final hearing, the IAA issues the final decision, taking into account the defences of the investigated Parties and the evaluation of non-investigated 1.2 What investigative powers do the responsible Parties which have been allowed to participate in the proceedings competition authorities have? (for example, complainants). The IAA may conduct dawn raids at the headquarters of the investigated company or even at the domicile of the company’s 1.4 What remedies (e.g., fines, damages, injunctions, etc.) directors (with the permission of a court). The IAA is also entitled are available to enforcers? to request information from the investigated companies and entities, which could be useful for the IAA’s investigation. In the event that the IAA ascertains an infringement of the antitrust During the dawn raids, the IAA can make copies of all the documents law (cartels, concerted practices, abuses of dominance), it may that are useful for the investigation, including emails and personal impose a fine of up to 10% of the total turnover generated in the documents that are in the place where the dawn raid is conducted. preceding business year of the undertaking considered liable for the antitrust law infringement. The Italian Antitrust Law (Law No. 287/90 “IAL”) provides a fine for an undertaking (and physical person) which: i) refuses to provide If the IAA ascertains an antitrust infringement, the IAA orders the information required by the IAA; or ii) provides false or misleading Parties to bring the anti-competitive conduct to an end. In its final information to the IAA. decision, the IAA could also order the Parties to adopt measures aimed at restoring conditions of effective competition in the affected market(s) within a specific period, as well as to report on their 1.3 Describe the steps in the process from the opening of progress in this respect. an investigation to its resolution. In urgent cases, where there is a risk of serious and irreparable harm to competition and a cursory examination reveals the probable The IAA normally, but not each time, initiates an in-depth existence of an infringement, the IAA could order interim measures investigation at the same time as the dawn raid. The decision to before the issuance of the final decision. initiate an investigation is made public by the IAA via the IAA’s Bulletin (the “Bulletin”) and the IAA’s website after a few days. In the event that antitrust infringement results in a violation of Within 30 days from the knowledge of the decision to open an criminal law (e.g. bid rigging), the IAA is obliged to report the facts investigation, non-investigated entities may request to participate in to the prosecution office Procura( della Repubblica). the IAA proceedings if they are interested in the investigation. After the IAA’s decision to open an investigation, the parties to the 1.5 How are those remedies determined and/or proceedings (the “Parties”) have the right to access non-confidential calculated? documents contained in the file of the proceedings. They also have the right to be heard by the IAA. The IAA recently adopted new guidelines on the calculation of antitrust During the investigation, the Parties are entitled to submit fines (IAA decision of 22 October 2014, n. 25152 – the“Notice”). memoranda. The Notice is quite similar to the EU Commission Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation (EC) No. 1/2003 (OJ, C, 210 of September 2016).

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On the basis of the Notice provisions, the fine is calculated taking proceedings. However, in the case of hard-core restrictions, the fine into consideration the value of the undertaking’s sales in the calculation mechanisms of the Notice could de facto impede a real affected market during the last full year of its participation in the fine reduction. infringement. A percentage of up to 30% of this value is considered, depending on the gravity of the infringement (in the case of cartels, 1.7 Does the enforcer have to defend its claims in front the percentage cannot be lower than 15%). The amount resulting of a legal tribunal or in other judicial proceedings? If from applying this percentage to the value of sales is multiplied so, what is the legal standard that applies to justify an by the number of years of participation in the infringement. The enforcement action? IAA can also decide to include in this basic amount an additional Italy sum of between 15% and 25% of the value of sales in the case that The IAA decisions can be appealed before the Administrative there have been particularly serious restrictions of competition (a Tribunal (Tribunale amministrativo regionale del Lazio “TAR”). so-called “entry fee”). The Guidelines provide for the adjustment TAR judicial reviews concern the coherency and the logicality of the of the basic amount in consideration of certain aggravating or reasoning of the IAA’s decision, the adoption of sufficient probative mitigating circumstances. The fine could be decreased by up to standards to prove the antitrust infringement and the balance in the 50% if the undertaking provides decisive information concerning imposition of the fines. The TAR does not have a competence of a distinct infringement of competition rules. The final amount of merit, but it could heavily review the IAA decisions. The TAR may the fine cannot exceed 10% of the total turnover achieved inthe recall the sanctions imposed by the IAA and may annul the decision last financial year preceding the adoption of the final IAA decision. of the IAA if it is illogical (“eccesso di potere”) or violates the laws. Several concerns emerged after the implementation of the Notice. In The parties can also request interim measures to the TAR. The particular, it gives rise to a serious discrimination in the calculation of interim measures requests are usually decided by the TAR in one to fines between single-product and multi-product companies. Several three months from the submission of the request. The TAR’s interim commentators have also highlighted that the Notice in fact does not measures can be appealed before the second instance administrative encourage the Parties to submit commitments and/or compliance court (Consiglio di Stato “CdS”). programmes during the investigation, given that the calculation criterions of the Notice do not allow an effective fine reduction. 1.8 What is the appeals process?

1.6 Describe the process of negotiating commitments or Undertakings may appeal the decisions of the IAA before the other forms of voluntary resolution. TAR within 60 days from notification of the final decision. The IAA decisions could be also appealed before the President of the In the context of the Italian antitrust procedure (as well as in the Republic (Ricorso Straordinario al Presidente della Repubblica European one), both structural and behavioural commitments are “PR”) within 120 days from notification of the final decision. It allowed. The submission of commitments could lead to the closure is also possible to appeal IAA decisions that do not ascertain any of the investigation without the imposition of any fine. breach of the antitrust law (in the latter case, the complainants or The Parties can submit commitments to the IAA within three months entities that suffered damages from an alleged antitrust violation from the decision to open the investigation. that the IAA has not ascertained may appeal the IAA decision). Commitments that are not manifestly inadequate are published on The TAR and PR decisions can be appealed before the CdS. the IAA website and on the Bulletin. Third parties are entitled to Judgments issued by the CdS can be appealed in a few rare submit comments. circumstances before the Supreme Court ((Corte di Cassazione) The IAA could also conduct a market test (for example, the IAA could article 110 Codice Processo Amministrativo (“CPA”) – and to the issue a request for information to third parties). At the completion of CdS – article 106 CPA – 396 of the Italian Civil Code of Procedure the market test, the Parties could amend the commitments proposed – revocazione). taking into consideration the market test results. After assessing the suitability of the commitments, the IAA can 1.9 Are private rights of action available and, if so, how make them binding on the undertakings concerned and close the do they differ from government enforcement actions? investigation without ascertaining any infringement and without imposing any fine. The commitment decisions are published on the While the IAA (public enforcement) ascertains antitrust IAA’s website and on the Bulletin. infringements and imposes fines (to be paid to the State), the civil In the past, the IAA has closed investigations with commitments, courts (private enforcement) primarily seek to ascertain antitrust also in cases of serious antitrust infringements. However, in recent infringements for the purpose of restoring the damage allegedly years, the IAA has changed its approach, considering that an suffered by the plaintiff. It should be noted that civil proceedings excessive use of commitment tools for serious antitrust infringements do not provide for punitive damages. The civil court does not have may undermine the antitrust law enforcement (and also discourage any power to impose fines for antitrust infringement. leniency). Since then, the IAA has ruled that commitments cannot lead to the closure of the investigation without any fine in the case 1.10 Describe any immunities, exemptions, or safe harbors of hard-core infringements. that apply. However, with regard to vertical agreements, the IAA has recently accepted commitments (we refer to question 2.4) and has not fined The IAA has adopted soft law, which provides a leniency programme an undertaking involved in a complex case of vertical agreements consistent with Community Law and principles. With regards to affecting prices and other hard-core restriction clauses. exceptions to the principles of free competition, the Community For a reduction of a fine, the IAA could also consider commitments principles relating to de minimis as well as exemption provided (for example, a compliance programme) filed during the for at Community level are applied in Italy. Hard-core restrictions normally cannot benefit from any exemption.

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1.11 Does enforcement vary between industries or 2.2 What is the analysis to determine (a) whether there businesses? is an agreement, and (b) whether that agreement is vertical? No, it is possible that a particular feature of the market may affect the IAA market analysis, but there are no rules that regulate separately A vertical agreement concerns companies operating at different the power of the IAA to enforce antitrust law across particular stages of the production and distribution phases. It does not exclude industries or businesses. that competing undertakings may also be considered, in particular if the agreement covers different stages of production (a producer

and a distributor, a producer of an end product and a company Italy 1.12 How do enforcers and courts take into consideration which produces raw material, etc.) if one of the two undertakings is an industry’s regulatory context when assessing competition concerns? vertically integrated. The IAA’s vertical agreement investigations were related to It is common that regulation, especially in sectors such as post, distribution agreements and contractual restrictions. Several energy and telecommunications, has a direct impact on the structure decisions of the IAA (and of the Italian courts) stated that it is not of the market, thus the IAA is required to carry out a careful analysis necessary to have a formal agreement for an infringement of article of the regulation to ascertain any violation of antitrust law. The 2 IAL or article 101 TFEU; however, all the IAA vertical restraint sector regulation cannot, however, prevent or otherwise limit public cases are related to agreements between companies which operate at antitrust enforcement even in highly regulated industries. different stages of the production and distribution phases.

1.13 Describe how your jurisdiction’s political environment 2.3 What are the laws governing vertical agreements? may or may not affect antitrust enforcement. Law No. 287 of 10 October 1990 (“IAL”) provides the main Italian The IAA is an authority independent from political power and from antitrust rules. Article 2 of IAL prohibits any form of collusion the government; any interference that the government should exert (that is, agreements between undertakings, concerted practices or on the IAA would be unlawful. decisions by association of undertakings) that has as its object or effect the prevention, restriction or distortion of competition within the national market, or a substantial part of it, including conduct such 1.14 What are the current enforcement trends and as price fixing, output limitation, market sharing and discrimination priorities in your jurisdiction? among trading partners. The IAA has prioritised its interventions in the health sector and in Article 1.4 of the IAL provides that IAL substantive provisions particular in industries related to products or services purchased by must be interpreted in accordance with well-established EU antitrust the State, in order to avoid abusive or collusive behaviours that in principles. The IAA applies the Commission Regulation 330/2010 fact cause an increase in public expenditure. The IAA is focusing its (the “Vertical Regulation”) and the Commission notice – Guidelines attention on pharmaceutical businesses, as well as on new network on Vertical Restraints OJ, C, 130, of 9 May 2010 (“EU Notice”). technology businesses. The IAA could directly apply the EU provision (article 101 TFEU) to horizontal and vertical agreements and practices, which may affect not only the Italian territory but also trade between countries 1.15 Describe any notable case law developments in the past year. of the European Union (“EU”). The procedural rules concerning the IAA investigation are regulated We refer to the cases quoted in the next paragraphs. by D.p.r. 217/1998 and by Law No. 241/1990 (general regulation of administrative proceedings and access to the file of the proceedings). The Notice regulates fine calculation; it must be applied in 2 Vertical Agreements compliance with the principles set by Law No. 689/1981 (principle of legality and personality of responsibility). 2.1 At a high level, what is the level of concern over, and Italian law does not provide for criminal sanctions for antitrust scrutiny given to, vertical agreements? infringements.

The approach of the IAA with regard to vertical agreements has 2.4 Are there any type of vertical agreements or restraints been quite conservative over the past years. Pursuant to article 101 that are absolutely (“per se”) protected? TFEU and article 2 IAL, investigation statistics show that only in a few cases did the IAA open an investigation on vertical agreements. For vertical restraints, the IAA applies the Regulation and the EU This IAA approach is based on the view that vertical agreements are Notice, thus per se illegal resale price maintenance (“RPM”). less harmful to competition than horizontal ones, especially if the Suppliers (producers, manufacturers) are not allowed to fix the vertically integrated undertaking does not have market power and/ (minimum) price at which distributors can resell their products. or a dominant position, or when similar vertical agreements are not They cannot impose restrictions to passive sales. Exclusivity being used by a number of competing companies, with the exclusion clauses and selective distribution restrictions are allowed within the of possible concerns of horizontal collusion. The IAA is also aware limits provided by the Vertical Regulation. of issues of protection of distribution systems from free riding.

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The IAA has intervened in cases of contractual clauses only falling within the black list clauses; in such cases, the IAA adopted a rule 2.7 How are vertical agreements analysed when one of of reason approach, investigating the possible restrictions of the the parties is vertically integrated into the same level as the other party (so called “dual distribution”)? Are agreement with regard to competition concerns (both intra-brand these treated as vertical or horizontal agreements? and inter-brand competition).

In the Power-One Italy case (I/718/2014 – Renewable Energy), These cases are normally analysed by the IAA, as a first step, the IAA clarified that RPM is a hard-core restriction; thus, RPM taking into consideration the horizontal aspect of the agreements could not be exempted under any de minimis rule, according to or concerted practice (collusion on price or other contractual the principles set forth in the Commission de minimis Notice conditions). In such circumstances, the IAA also considers the Italy (Commission Notice de minimis, OJ, C, 368 of 22 December 2001), possible vertical effect, if these could give rise to discrimination or the IAA said. foreclosure effects against competitors (with harm to competition). However, the IAA also has not excluded that RPM may benefit from The foreclosure or discriminatory effects related to agreements an individual exemption (Power-One Italy case (I/774/2013)), if which have both a horizontal and vertical structure are used in certain conditions are met (see question 3.6). order to demonstrate the anticompetitive effect of the agreements In the Enervit case (I/718/2014), the IAA ascertained that Enervit (or concerted practice under investigation) in horizontal collusion imposed: i) a minimum selling price (RPM) in the form of a investigations. maximum percentage of consumer discount; ii) a ban on the sale of products manufactured in Italy outside the national borders; iii) a 2.8 What is the role of market share in reviewing a vertical ban on passive sales outside the territory/customer group assigned agreement? exclusively; and iv) non-competition for an indefinite period clause. The IAA closed the investigation after commitments proposed by The IAA applies the rules of the Vertical Regulation and of the Enervit, despite the fact that it had adopted hard-core infringement EU Notice; thus, market share lower that 30% in the upstream provisions in its distribution agreements. Also in the Power- and downstream markets is taken into consideration. The market One Italy case (I/718/2014 – Renewable Energy), hard-core share safe harbour (lower than 30%) is not applicable for hard-core violations did not impede the IAA to close the investigation with restrictions. Please refer to the hard-core cases in question 2.6. commitments. The IAA in the decision of 18 April 2018, case I/813, Cadel S.r.l. 2.9 What is the role of economic analysis in assessing stated that a vertical agreement among a stove producer and its vertical agreements? retailers which fixes a minimum resell price, imposes absolute territorial restrictions and forbids the sale of the products on In Italian national cases, the economic analysis of vertical restraints the internet, could infringe article 101 TFEU. The investigated has always played a key role in assessing the unlawfulness of the company submitted commitments. In particular they agreed to conducts. Normally, the IAA has antitrust concerns if a vertical eliminate all the clauses that gave rise to antitrust concerns. Thus restraint involves undertakings in a dominant position or which the IAA accepted these commitments and closed the investigation owns an essential facility, or if the affected market is characterised without imposing any fine on the investigated companies. Also in by a barrier to enter and the vertical restraint could increase the this case, the IAA accepted commitments in an investigation when a barrier to enter the market. hard-core infringement (price fixing) was ascertained. Thus, the IAA conducts a deep market analysis which requires an accurate definition of the product and geographic market involved, 2.5 What is the analytical framework for assessing as well as the barrier to enter the market. vertical agreements? With regard to the effect, the IAA will ascertain whether vertical restraint could give rise to foreclosure or discriminatory effects and See the answer to question 2.6. the existence of similar vertical agreements which, in fact, could give rise to foreclosure effects (also, if the single vertical agreement 2.6 What is the analytical framework for defining a market involves undertakings with a market share lower than 30% in the in vertical agreement cases? upstream and/or downstream markets).

Normally, the IAA adopts the rule of reason approach in analysing 2.10 What is the role of efficiencies in analysing vertical the effect of any vertical agreement. In case of hard-core restrictions, agreements? the IAA has a formalistic approach (per se rule); however, the IAA does not open an investigation if the undertakings involved have a The role of efficiency is essential, especially for analysing vertical low market share. In such circumstances, the IAA, using a moral restraints without hard-core provisions. In certain exceptional suasion, suggests that the undertakings involved amend the hard- circumstances, the RPM could be considered in compliance with core clauses (for example, RPM). law if all the provisions pursuant to article 101.3 TFEU and article We have a number of cases where the IAA investigated several 4 IAL are fulfilled (article 4 IAL is substantially similar to the vertical restraint hard-core cases concerning small undertakings provisions in article 101.3 TFEU). (with low market shares). In such cases, the IAA, instead of opening an investigation, contacted the undertakings underlining the breaches of compliance of the agreements with the antitrust law. 2.11 Are there any special rules for vertical agreements relating to intellectual property and, if so, how does The contacted undertakings complied with the IAA requests and the analysis of such rules differ? amended the hard-core clause. Thus, the IAA has never opened an in-depth investigation for hard- There are no specific rules governing vertical agreements in the core restrictions against small undertakings with low market shares. context of intellectual property rights. The Italian law provides

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a specific law, which regulates franchising agreements (Law No. I/718/2014). The IAA allows territorial restrictions (in compliance 129/2004). This law allows certain contractual restrictions aimed at with the Vertical Regulation and the EU Notice provisions) defending the franchisor’s know-how and trademarks. The Italian when there is indeed a legitimate reason for the restrictions, e.g., Franchising Law must be interpreted in compliance with the Vertical defending the distribution system from free riding, and supporting Regulation and the EU Notice. the pre-sales and post-sales services granted by the sellers to final customers on the basis of the agreements with the manufacturer.

2.12 Does the enforcer have to demonstrate anticompetitive effects? 2.18 How do enforcers and courts examine tying/ supplementary obligation claims? Italy The IAA is not required to test the effects of hard-core vertical restraint violations. Tying/supplementary obligations are not relevant in the context of vertical restraints with two exceptions:

2.13 Will enforcers or legal tribunals weigh the harm a) When the tying/supplementary obligation is proposed by against potential benefits or efficiencies? an undertaking (upstream or downstream markets) in a dominant position (i.e., a producer in a dominant position who unjustifiably imposes tying/supplementary obligations Yes, but within the rigid system of exemptions under article 101.3 on its distributors, which do not have any legitimate business TFEU or article 4 IAL. The IAL is reluctant to use efficiency justification). arguments to justify hard-core provisions in vertical restraint cases. b) When the tying/supplementary obligations are applied by several competing undertakings (upstream or downstream 2.14 What other defences are available to allegations that a markets) and such provision could collectively restrict vertical agreement is anticompetitive? competition. With regard to the exclusivity clause adopted by the dominant firm, In case of hard-core infringement, the fulfilment of all of the the Unilever impulse ice cream case is of relevance (A484 – dec. 31 conditions set forth in article 101.3 TFEU or article 4 IAL is the October 2017). The IAA fined Unilever over 60 million euros for an only possible defence. infringement of article 102 TFEU, where Unilever put in place an abuse of an exclusionary nature to hinder the growth of competitors in the market of individually-wrapped impulse-buy ice cream, in which 2.15 Have the enforcement authorities issued any formal Unilever holds a dominant position, mainly through the products guidelines regarding vertical agreements? with the brand Algida. The IAA ascertained that Unilever’s adopted exclusive product clauses and a series of further loyalty conditions, No, they have not. commercial policy instruments and overall conduct were aimed at imposing the exclusivity of Algida products to end consumer retailers. 2.16 How is resale price maintenance treated under the law? 2.19 How do enforcers and courts examine price discrimination claims? In principle, although the IAA has not excluded an individual exemption for RPM, the IAA is, in fact, very restrictive and forbids With regard to price discrimination in vertical relations, both any form of price fixing in the context of vertical agreements. the IAA and the civil courts (private enforcement) consider In the Enervit case (I/718/2014), the IAA stated that there is a relative price discrimination unlawful only if a dominant undertaking presumption regarding the restriction of RPMs. This means that in discriminates or if horizontal profiles exist, such as, for example, the case of an investigation on RPM, the investigated undertaking vertical agreements with restrictions that are uniformly adopted by must demonstrate that the RPM satisfies all the conditions laid down more competing manufacturers in agreements with their distributors in article 101.3 TFEU (or article 4 IAL). This is in fact a “probatio or retailers. diabolica”, which makes de facto RPM per se illegal. In the Akron case (A/444/2015 – Akron waste disposal recycling The IAA allows a producer to suggest a minimum price to its paper), the IAA assessed that Hera abused its dominant position by, distributors-resellers, but the undertakings in the downstream inter alia, offering a special price to its subsidiary Akron which was market must be free to decide its price policy. lower than the one available in a competitive market. Also, the IAA evaluates with great suspicion a suggested price which in fact could produce the effects of making the prices uniform. The 2.20 How do enforcers and courts examine loyalty IAA allows the maximum resale prices. discount claims? With regard to the RPM issues, we also refer to the IAA’s decision of 18 April 2018, I/813, Cadel S.r.l. as described in question 2.4. The issues of loyalty discount are taken into account primarily in the context of an abuse of a dominant position. In the context of vertical 2.17 How do enforcers and courts examine exclusive agreements, loyalty discount issues may be relevant, for example, dealing claims? when a dominant producer establishes, through its own distributors or retailers, loyalty discount policies that may harm the entry of With regard to exclusive dealing and territorial restrictions, the other competing producers into the market. In such context, clauses IAA applies the EU principles within the limits set by the Vertical concerning loyalty discount which are provided for in agreements Regulation and by the EU Notice. The IAA is very strict in not between the producer and the distributors may be null and void and, allowing any kind of restriction to passive sales (see Enervit case as a consequence, not enforceable.

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Notice on the definition of relevant market for the purposes of 2.21 How do enforcers and courts examine multi-product Community Competition Law (97/C 372/03)). or “bundled” discount claims? Proper definition of the relevant market (from the product/service and geographic point of view) is essential to define dominance. Also, multi-product or “bundled” discount claims are taken into Indeed, all assessments of the dominant position (market shares held account primarily in the context of an abuse of a dominant position by competitors, level of market concentration, barriers to entry) are (in the upstream and/or downstream markets). related to a specific market duly defined from an economic point of view. 2.22 What other types of vertical restraints are prohibited Italy by the applicable laws? 3.4 What is the market share threshold for enforcers or a court to consider a firm as dominant or a monopolist? Italian laws do not prohibit any other types of vertical restraints. The IAL does not provide for market-share thresholds with respect 2.23 How are MFNs treated under the law? to the definition of dominance and of collective dominance. Market shares are generally used by the IAA as a first indication of Under certain conditions, the MFN could infringe article 2 IAL and/or dominance; however, many other factors are to be taken into account. article 101 TFEU. The IAA, in the recent Booking and Expedia case Specifically, an undertaking could be considered as dominant even (I/779/2015, Hotel e-booking business), stated that the MFN clause with a market share of less than 40%, owing to its strength in the that obliged hotels in their network not to offer better prices, terms relevant market, its vertical integration, the high concentration of and conditions through other competitor online travel agencies and, the relevant market, the modest competitors’ market share, etc. in general, through any other channel infringed the antitrust law. The IAA proceeding was closed on 21 April 2015 with the commitments 3.5 In general, what are the consequences of being made by Booking to narrow the operating area of the MFN clause. adjudged “dominant” or a “monopolist”? Is dominance Indeed, all offline reservation channels have been excluded from or monopoly illegal per se (or subject to regulation), or applying the tariff parity clause – provided prices charged in these are there specific types of conduct that are prohibited? channels are not published online – and have further expanded the ability of hotels to offer discounted rates directly to its customers. In According to EU laws and principles, the simple dominant position effect, the parity clause of tariffs, terms and conditions would only on a relevant market does not constitute an abuse in Italy, but the apply to online sales made directly by the hotel. dominant firm holds a ‘special responsibility’ not to allow distorting This case is relevant as the IAA accepted commitments in an RPM effects on the competitive structure of the market. hard-core infringement. Article 3 IAL does not define the concept of abuse of dominance, but lists the following examples of abusive behaviour that relate to both exploitative and exclusionary practices: 3 Dominant Firms i. to directly or indirectly impose unfair purchase or selling prices or other unfair contractual conditions; 3.1 At a high level, what is the level of concern over, and ii. to limit or restrict production, market outlets or market scrutiny given to, unilateral conduct (e.g., abuse of access, investment, technical development or technological dominance)? progress; iii. to apply to other trading partners objectively dissimilar Almost all of the IAA interventions for abuse of dominant position conditions for equivalent transactions, thereby placing them concern unilateral conducts; the level of attention is extremely high, at an unjustifiable competitive disadvantage; and especially in telecoms, pharmaceuticals, postal services and energy iv. to agree contracts subject to acceptance by the other parties of businesses. supplementary obligations that, by their nature or according to commercial usage, have no connection with the subject of such contracts. 3.2 What are the laws governing dominant firms? Abuse of dominance occurs when an undertaking in a dominant position engages in practices that influence the structure of a The abuse of dominance is regulated by article 3 IAL. It is basically relevant market by reducing, hampering or eliminating competition. consistent with article 102 TFEU. The IAA is entitled to apply article 102 TFEU in the case of an abuse of dominance related to Abuse of dominance is defined more in terms of the effects ofa the Italian territory, which could also affect trades within the EU. conduct on the market rather than in relation to the form or type of conduct. The IAA, in compliance with the EU Commission law and Article 2597 of the Italian Civil Code applies to legal monopolies practice, defines abuse as conduct that has the ability, by its nature, to and imposes an obligation to conclude contracts with third parties foreclose actual or potential competitors from the market, and thus upon their request under non-discriminatory conditions. Specific has the likely effect that ultimately prices will increase or remain definitions of dominance are provided in regulated industries such at a supra-competitive level. If a conduct has exclusionary effects as the telecom and media industries (Law No. 249/1997). and it does not create any efficiency, such conduct is presumed to be abusive (see case A/431/2012 Pfizer). 3.3 What is the analytical framework for defining a market In several 2018 cases, the IAA has investigated several incumbent in dominant firm cases? (former legal monopolists) for actions aimed at leveraging the dominant position in other markets. With regard to market definition in dominant cases, the IAA operates The IAA (case A493 – POSTE ITALIANE/PREZZI RECAPITO dec. in accordance with the European Law (we refer to the Commission 13 December 2017) fined Poste Italiane (PI) over 20 million euros

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for an abuse of dominant position in the market of the delivery of multiple ordinary mail services for business customers. In 3.9 What is the role of efficiencies in analysing dominant particular, the exclusionary strategy, implemented since 2014 by PI firm behaviour? to the detriment of competitors that entered this market following the liberalisation of postal services, consisted of offering to its end Efficiency is an assessment that is the basis for evaluating the effects customers economic and technical conditions not replicable by of abusive behaviours. As a rule, the IAA does not evaluate the similarly efficient competitors. PI has implemented selective and efficiency as an element that justifies abusive behaviours if it does loyalty rebates and other contractual conditions aimed at inducing not, however, result in a tangible benefit for consumer welfare. customers to predominantly use the PI services, the IAA said. The IAA on 18 April 2018 opened an in-depth investigation (case 3.10 Do the governing laws apply to “collective” Italy A508 – SIAE/Management of Copyrights) aimed at ascertaining dominance? whether SIAE (the State entity that managed certain copyright rights in Italy on a basis of legal monopoly provisions) is trying to In merger control cases, the IAA has mainly used the notion of keep its dominant position concerning the management of certain IP collective dominance doctrine. The IAA has rarely used the concept rights in areas of business totally liberalised. of collective dominance in cases of abuse; however, in an old The IAA in the investigation started on 3 March 2018 is evaluating precedent (case A/3S7/2005 – Tele2/Tim-Vodafone-Wind wholesale whether the acquisition of an SGEI – services of general economic market, access to mobile network), the IAA investigated mobile interest (local railway services) – without any public tender telecoms operators for an alleged collective abuse of a dominant procedures by the former Italian incumbent in the Italian railway position. In its final decision, the IAA closed the proceedings services (Ferrovie dell Stato – Trenitalia) could give rise to an abuse without being able to prove that a collective dominance existed. It of dominant position. should be noted that in some cases it is difficult to distinguish the abuse of collective dominance from a concerted practice. The IAA is evaluating whether certain information achieved by a legal monopolist used for competing in other downstream markets could give rise to antitrust concerns. In particular, the IAA (cases 3.11 How do the laws in your jurisdiction apply to A513 A512 – A511 A2A-ENEL – ACEA/Unlawful conducts in the dominant purchasers? electricity market) on 24 April 2018 opened in-depth investigations aimed at ascertaining whether three incumbents in several local The IAA has rarely considered the possibility of a dominant distributors of electricity markets (natural monopoly), used the position on the demand side. There is a precedent concerning rail commercial data achieved for the providing of the distribution equipment businesses (case A80/1993, Consorzio Trevi e Capri), as services for marketing purposes in the downstream market of well as a precedent concerning the grocery retail market, where the electricity sales. IAA considered the buying power (case I/184/1997, GS/Standa – Supercentrale).

3.6 What is the role of economic analysis in assessing market dominance? 3.12 What counts as abuse of dominance or exclusionary or anticompetitive conduct? Economic analysis is crucial for market definition and for analysing the restrictive effects of abusive behaviours. The IAA must prove Both exploitative and exclusionary practices could constitute an that the behaviours of the dominant firm give rise to a reduction in abuse of a dominant position pursuant to article 3 IAL. Almost all the level of competition and cause poorer conditions for consumers. of the IAA’s precedents over the last decade concern this kind of However, as in some previous cases, the IAA tends to presume the abuse. abuse in the presence of a dominant position and of an abusive The IAA, at the completion of an investigation against Vodafone conduct listed in article 3 IAL. Italia (VI) and Telecom Italia (TI) in the bulk SMS market (case A/500A/2016 – Vodafone-Srns, A/500b/2016 – Telecom Italia-Srns 3.7 What is the role of market share in assessing market dec. 13 December 2017), stated that VI and TI abused their dominant dominance? position by implementing internal/external discriminatory conducts, both technical and economic, resulting in a margin squeeze to the Market share is only one of the elements considered by the IAA detriment of competitors in the downstream market. VI and TI when analysing dominance; other relevant factors are taken into applied tariffs on both the upstream and downstream market of mass consideration, such as market access, sunk costs, barriers to enter SMS services, which make the potential margin for competitors in the market, maturity of the market, level of innovation, potential the retail market insufficient to cover specific costs for providing competition, specific regulation of the market, etc. services to end customers, the IAA said. The IAA ascertained that two dominant firms (Compagnia Italiana di Navigazione and Moby) adopted commercial strategies aimed 3.8 What defences are available to allegations that a firm is abusing its dominance or market power? at boycotting and discriminating clients that used competitors’ services (imposing higher prices and worse contractual conditions – case A/487 – shipping freight transport from and to Sardinia, dec. Defences typically focus on market definition (the IAA tends to restrict 28 February 2018). markets to more easily determine dominance), as well as the absence of the restrictive effects caused by the behaviour of the investigated With regard to exclusionary practices the opening of an investigation undertakings. Sometimes the defence could also be focused on the concerning the market of maintenance of diagnostic images devices correct reconstruction of the facts concerning the investigation. is of relevance (DID) (case A/517). The IAA on 31 January 2018

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opened an in-depth investigation aimed at ascertaining whether e-booking business), the IAA preferred the adoption of commitments certain DID manufacturers impeded the purchase of DID spare parts that were appropriate in striking a balance between preventing and access to the source code essential for the full maintenance of potential restrictions to competition while preserving the operators’ the DID, to independent repairers. The IAA has to ascertain if the ability to offer and develop innovative services that are valuable to DID’s manufacturers intended to impede the access to the secondary consumers. For issues related to “platform” dominance, the IAA market of DID maintenance and repairs to independent operators. tends to coordinate its investigative power with other authorities of With regard to price discrimination and competitor margin the European Competition Network, considering that such platforms squeeze, on 9 May 2018 the IAA opened an in-depth investigation operate at a multinational level. (case A/505 – MONTE TITOLI/SERVIZI DI POST – TRADING) Italy concerning an alleged abuse of dominant position carried out by 3.16 Under what circumstances are refusals to deal Monte Titoli (MT – belonging to London Stock Exchange Group) in considered anticompetitive? the market of post-trading services, with specific regard to financial settlement and custody services. The IAA has to verify whether the On the basis of the IAA precedent, the refusal to deal could give rise price policy applied by MT to settlement services could be designed to an antitrust infringement only if a dominant undertaking (or an with the aim of favouring its financial custody services against the undertaking which holds an essential facility) refuses to deal in the services offered by competitor banks. absence of a legitimate business reason (see question 5.1 – abuse of economic dependency). 3.13 What is the role of intellectual property in analysing In the Acido colico case (1/473/2015 – Fornitura acido colico), dominant firm behaviour? the IAA investigated whether an undertaking abused its dominant position in the market of production and sale of cholic acid (used to The availability of intellectual property rights could give rise to a produce a drug for liver disease) by refusing to supply the input (the dominant position. For example, in the pharmaceutical industry, cholic acid) for the production of an active ingredient based on such the IAA considers each active principle as an autonomous acid, to competitors. The proceeding was closed with the acceptance product market; thus, the owner of the patented ATC class has a of the commitments proposed by the investigated parties. dominant position (see Aspen case I/480/2016). In Roche-Novartis The IAA investigated a possible abuse consisting of a refusal to grant (I/760/2014 – farmaci Avastin e Lucentis), the IAA stated that two access to an airport facility in the Bergamo airport (airport handling) drugs (owned by Avastin and Lucentis) in different ATC classes are to a competitor (case A/507 – Jet fuel refuelling Bergamo Airport, part of the same market; the IAA based the said definition on the dec. 14 March 2018). The IAA accepted commitments proposed medical practice to use the oncologic drug (Avastin) as off-label for by the investigated company (to grant access to competitors to the treatment in the ophthalmic field. facility on a non-discriminatory basis) and closed the investigation The principle that intellectual property rights cannot be exercised without imposing any fine. in such a way as to reduce competition is now consolidated in the IAA precedents. The IAA has fined a pharmaceutical patent holder for excessive pricing (Aspen case – 1/480/2016), pursuant to article 4 Miscellaneous 102 TFEU, when it increased the price of irreplaceable drugs for haematological or oncological patients by up to 1,500%. 4.1 Please describe and comment on anything unique to With regard to the scope and limits in the use of the patent system your jurisdiction (or not covered above) with regards by pharmaceutical companies, the IAA, in the Pfizer case (case to vertical agreements and dominant firms. A/431/2012 Pfizer, confirmed by the CdS – dec. 116/2014), stated that certain behaviours of pharmaceutical companies which own an Article 9 of Law No. 192/1998 states that the IAA could fine expired patent (or a patent that is going to expire) which delays the undertakings which abuse the economic dependency of other entrance of generic producers into the market (using the ATC of the undertakings. Economic dependence exists when an undertaking expired patent) are abusing their dominant position. finds itself in a position to bring about excessive imbalances in the rights and obligations pertaining to its commercial relations with another undertaking. The assessment of economic dependence also 3.14 Do enforcers and/or legal tribunals consider “direct effects” evidence of market power? accounts for any real possibility for the dependant undertaking to find satisfactory alternatives elsewhere in the market. An abuse may consist of the refusal to sell or refusal to buy, the imposition The IAA considers “direct effects” evidence of market power (see of unjustifiably burdensome or discriminatory contract conditions Aspen case I/480/2016). or the arbitrary interruption of established commercial relations (the IAA has recently applied this law in one case – RP1/2016 Hera). It 3.15 How is “platform dominance” assessed in your is often discussed whether these provisions are aimed at protecting jurisdiction? competition or small companies only.

The IAA has adopted a careful approach in analysing a “platform dominance”; for example, in the e-booking case (I/779/2015 Hotel

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Luciano Vasques DDPV Studio Legale Piazzale delle Belle arti 2 00196 Rome Italy

Tel: +39 36 00 1188 Email: [email protected] URL: www.ddpvlex.com Italy

Luciano Vasques concentrates on antitrust, consumer protection, energy and other regulatory matters in Italy and in the European Union, and on corporate law (bankruptcy proceedings). As an officer of and counsel to the Italian Antitrust Authority, Mr. Vasques was involved in proceedings in the Italian manufacturing, oil, energy, gas, water distribution, waste disposal (domestic and industrial waste) and public utilities sectors. He advises clients on Italian and EU antitrust matters, such as investigations of the Italian antitrust authority and of the EU Commission concerning alleged agreements against competition, concerted practices, abuse of dominant position, antitrust litigation cases (antitrust private enforcement), as well as complex antitrust issues arising from merger and acquisition transactions (Italian EU and multijurisdictional filings). Mr. Vasques also assists his clients on consumer protection, unfair competition, multilevel marketing business, State aid issues, telecommunications, electricity and gas regulations and has also a consolidated expertise on transactions concerning the creation and sale of renewable power plants. Mr. Vasques has written widely on antitrust, unfair competition and corporate law for leading Italian and international periodicals and is the author of a book on the application of antitrust principles relating to Italian public utilities.

DDPV is a boutique law firm (with offices in Rome and Milan) which assists its clients in connecting with antitrust investigations of the EC commission and the Italian Antitrust Authority (IAA) for alleged violations of articles 101 and/or 102 TFEU (i.e. agreements against competition, abuse of dominant position) or articles 2 and 3 of Italian Antitrust law. DDPV Antitrust department also assists clients in appeal proceedings against the EC Commission and IAA antitrust decisions before the lower and higher domestic and European courts (TAR, Consiglio di Stato, EU General Court and Court of Justice), as well as in antitrust private enforcement litigations and litigations concerning the abuse of economic dependence. DDPV also has vast experience in the drafting and submission of merger filings before the national antitrust authorities (also multijurisdictional filings) and the European Commission (CO and RS forms), as well as in antitrust audit-compliance programmes (antitrust compliance and audit) and state aid issues.

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Japan Kaoru Hattori

Nagashima Ohno & Tsunematsu Yusuke Kaeriyama

at the opinion hearing process when it proceeds to issue a formal 1 General order, such as a surcharge payment order and cease and desist order.

1.1 What authorities or agencies investigate and enforce 1.4 What remedies (e.g., fines, damages, injunctions, etc.) the laws governing vertical agreements and dominant are available to enforcers? firm conduct? The JFTC may issue a cease and desist order to the companies, The Japan Fair Trade Commission (the “JFTC”) enforces the which will require, among other activities, that the companies cease Antimonopoly Act (the “Act”), which governs vertical agreements to engage in private monopolisation or unfair trade practices. On and dominant firm conduct. rare occasions where there is an urgent necessity, the JFTC may file a motion to the court to order the companies to temporarily cease to 1.2 What investigative powers do the responsible engage in the conducts at issue. competition authorities have? In addition, the JFTC is required to issue a surcharge as an administrative penalty to companies that engaged in the following The JFTC may (i) order persons concerned with a case or a witness to conducts on condition that such companies concerned repeat the appear at a designated time and place to be interrogated or to produce same type of violation within 10 years: (i) concerted refusal to deal; documentary evidence or reports, (ii) order expert witnesses to appear (ii) discriminatory pricing; (iii) predatory pricing; and (iv) resale to give expert opinions, (iii) order persons to produce accounting price restriction. The JFTC is also required to order the companies books or any other documents, and (iv) enter any business premises or to pay administrative surcharges if they engaged in private any other places that the JFTC deems it necessary to enter with a view monopolisation or abuses of a superior bargaining position. to investigating the conditions of the business operation, accounting Furthermore, in theory, an individual who committed, or attempted books and any other material that the JFTC finds on the premises. to commit, private monopolisation may be subject to imprisonment It should be noted that there is no attorney-client privilege in Japan, for not more than five years or a criminal fine of not more than JPY so the JFTC has authority to seize, or order persons to produce, any 5 million. As a matter of practice, however, criminal accusations documents that might be privileged in another jurisdiction. have only been filed against horizontal agreements, such as cartels and bid riggings, and it is unlikely that those who committed private 1.3 Describe the steps in the process from the opening of monopolisation will be criminally charged. an investigation to its resolution. 1.5 How are those remedies determined and/or When the JFTC is aware of potential violation of the Act with calculated? regard to vertical agreements or dominant firm conduct, and decides to open an investigation, it may start the investigation by taking The JFTC has broad authority to order companies that have engaged the measures mentioned in question 1.2 above or by asking the in unfair trade practices or private monopolisation to cease and undertaking to voluntarily cooperate with the JFTC’s investigation. desist the prohibited acts or to take any other measures necessary to It is not unusual for the JFTC to open an investigation by conducting restore competition in the relevant market. a dawn raid (the measure described at (iv) in question 1.2 above), On the other hand, the JFTC does not have discretion regarding the even in the cases of vertical agreements and dominant firm conduct. amount of any surcharge payment order; such surcharge amount When the JFTC has gathered sufficient evidence to find a violation is calculated in accordance with the formula provided in the Act. of the Act, before issuing a formal order, the JFTC needs to issue Namely, the amount of surcharge is determined by multiplying a notice to the undertaking regarding the commencement of its the turnover from the relevant goods or services derived during opinion hearing process; allow the undertaking to review evidence the period of the prohibited acts (up to three years) by the relevant that the JFTC has gathered to establish a violation of the Act; and surcharge rates provided in the Act. The relevant rates basically hold an opinion hearing process, where the JFTC will hear the range from 1% to 10%, differing based on the type of business (e.g., opinion of the undertaking. The opinion hearing process is not open manufacturer, wholesaler, retailer, etc.) and the type of prohibited to the public. The JFTC will take account of the opinions presented act at issue.

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1.6 Describe the process of negotiating commitments or 1.10 Describe any immunities, exemptions, or safe harbors other forms of voluntary resolution. that apply.

Under the current law, there are no available forms of voluntary The Act shall be applied to the enterprise and the trade association. resolution such as negotiating commitments. The Act was Under the Act, the enterprise is defined as “a person who operates a recently amended to introduce a form of voluntary resolution, and commercial, industrial, financial or other business”. The meaning such amendment will be effective when the Comprehensive and of “other business” has been widely interpreted and it can be Progressive Agreement for Trans-Pacific Partnership (TPP-11) satisfied if a person repeatedly receives certain economic interests becomes effective in relation to Japan. Once such amendment as consideration in exchange for supplying certain economic Japan becomes effective, if the JFTC holds a preliminary view that a firm interests (economic activities). Therefore, not only the conducts of engaged in illegal conduct and if the JFTC finds it necessary for a private company but also those of any public entities, such as the the promotion of fair and free competition, the JFTC can send a government body and states, can be subject to the Act as long as notice to the firm, informing them that it will be allowed to submit such public entities engage in any economic activities. proposed commitments. Such notice will also include an outline of The Act provides a few exemptions. Especially, the provisions of concerned conduct and relevant statutory provisions. The notified the Act do not apply to acts found to constitute an exercise of rights firm may submit proposed commitments within 60 days after receipt under the Copyright Act, Patent Act, Utility Model Act, Design Act of such notice. If the JFTC finds that (i) the proposed commitments or Trademark Act. However, the meaning of “exercise of rights” are sufficient for eliminating the concerned conduct, and (ii) they has been strictly interpreted and very few kinds of conduct can be are expected to be implemented, the JFTC shall issue a commitment exempted because of the exercise of IP rights. decision. In addition, in relation to unfair trade practice, Guidelines concerning Distribution Systems and Business Practice provide 1.7 Does the enforcer have to defend its claims in front that the provisions of unfair trade practice under the Act may not of a legal tribunal or in other judicial proceedings? If be applied to a certain transaction between a parent company and so, what is the legal standard that applies to justify an its subsidiary. enforcement action?

The JFTC’s formal orders will be subject to review by courts. There 1.11 Does enforcement vary between industries or used to be a “substantial evidence rule”, which means that the court businesses? is bound by the JFTC’s findings of facts as long as they are supported by substantial evidence. Under the current law, however, there is no There is no substantial difference in the enforcement of the Act such rule. Accordingly, the JFTC’s formal orders will be quashed between industries or businesses. if the court finds that such orders do not meet the requirements of the Act. 1.12 How do enforcers and courts take into consideration an industry’s regulatory context when assessing competition concerns? 1.8 What is the appeals process?

The Act shall be applied to the regulated industries as well, unless When the JFTC’s formal orders (i.e., cease and desist orders and/or any specific exemptions are set forth in such laws that regulate surcharge orders) are issued, the addressees of such orders can file the said industries. If there seem to be any conflicts between the the action for judicial review against the JFTC to the Tokyo District industrial regulations and the Act, to what extent the Act should be Court. Such actions shall be brought within six months from the applied is examined in each case. On the other hand, in some cases, date when the addressees come to know such orders or within one the interests protected by the industrial regulations and by the Act year from the date when such orders are issued, whichever comes are common and under such circumstance both laws are applied. first. Such actions are subject to the exclusive jurisdiction of the To make clear the applications of laws, it is not unusual that the Tokyo District Court. Guidelines, which show the kind of conduct which may be allowed If either of the addressees or the JFTC has any objection to the and which is prohibited, are jointly prepared by the JFTC and the decision rendered by the Tokyo District Court, such parties can other regulatory agency. appeal to the Tokyo High Court.

1.13 Describe how your jurisdiction’s political environment 1.9 Are private rights of action available and, if so, how may or may not affect antitrust enforcement. do they differ from government enforcement actions? In Japan, the political environment may not affect antitrust Private rights of action are available to persons who allegedly enforcement. suffered because of any violation of the Act. The persons may seek to quash all or part of a contract which arguably violates the Act to compensate its damages caused by the violation of the Act, and/or to 1.14 What are the current enforcement trends and priorities in your jurisdiction? suspend or prevent the conduct in violation of the Act (injunction). Or the persons who allegedly suffered by such conduct may simply seek the compensation for damages suffered under article 25 of the Currently, the JFTC shows its strong interests in any possible Act if there is a final and binding cease and desist order or surcharge foreclosure effects or unfair trade conducts by using its dominant or order or/and under article 709 of the Civil Code (Torts). For the superior power in the area of IT/digital-related fields and has been purpose of clarification, the injunction can only be available against monitoring the area. In addition, the JFTC would actively deal with unfair trade practices. any anticompetitive unilateral conducts to introduce and ensure the effective market mechanism in the regulated industries.

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monopolisation is defined as business activities by which any 1.15 Describe any notable case law developments in the entrepreneur, individually or in combination or conspiracy with past year. other entrepreneurs, or by any other manner, excludes or controls the business activities of other entrepreneurs, thereby causing, contrary In JASRAC, the JFTC issued the cease and desist order against to the public interest, a substantial restraint of competition in the JASRAC, finding that JASRAC, a dominant copyright management relevant market. Generally speaking, this prohibition only applies organisation, excluded other copyright management entities to business entities with dominant market power in the market. from the market by entering into comprehensive contracts with On the other hand, “unfair trade practices” regulate concerted broadcasting companies in February 2009. JASRAC requested the boycotts, discriminatory pricing, predatory pricing, resale price commencement of tribunal procedures to challenge the cease and Japan restriction, abuse of superior bargaining position and other business desist order rendered by the JFTC, and the JFTC commenced the activities that are designated by the JFTC, which includes various procedures in May 2009. The JFTC tribunal rescinded the original types of vertical agreements such as tying, exclusive dealing, and cease and desist order in June 2012, because there was no evidence trading on restrictive terms. The types of vertical agreements that that JASRAC’s royalty collection method had the effect of damaging are regulated by private monopolisation and unfair trade practices the business activities of other copyright management organisations. substantially overlap. However, the JFTC has preferred to bring However, another copyright management organisation made a filing formal proceedings under the unfair trade practices regulations, to object such JFTC’s tribunal decision to the Tokyo High Court, which require a lower standard of anticompetitive effect than the requesting an order to rescind the JFTC’s tribunal decision in July one required under private monopolisation. 2012. In November 2013, the Tokyo High Court granted that appeal and in April 2015 the Supreme Court confirmed the Tokyo High Court decision. 2.4 Are there any type of vertical agreements or restraints that are absolutely (“per se”) protected? According to the decision rendered by the Supreme Court, the JFTC resumed the tribunal procedures to review the original No vertical agreements or restraints are protected per se. However, cease and desist order rendered by the JFTC in June 2015. The according to the Guidelines concerning Distribution Systems and tribunal procedures ended with the withdrawal of the request for the Business Practice, with the exception of a few conducts such as commencement of a tribunal procedure by JASRAC in September territorial allocation, vertical agreements or restraints are generally 2016. allowed under the Act, if it is done by an undertaking with a market share of 20% or less. 2 Vertical Agreements 2.5 What is the analytical framework for assessing vertical agreements? 2.1 At a high level, what is the level of concern over, and scrutiny given to, vertical agreements? The analytical framework for assessing vertical agreements varies depending on the types of conducts at issue. Under the Act, there The JFTC’s enforcement activities in the area of vertical agreements are no vertical agreements that are illegal per se and, accordingly, have been modest. According to the JFTC’s annual report for the the assessment of both the conduct itself and its competitive effect fiscal year 2016 (i.e., from April 2016 to March 2017), the JFTC is generally required. issued 10 formal orders in unfair trade practice cases during the past five years. Of these 10 cases, two cases concerned resale price restriction, two cases concerned interference with a competitor’s 2.6 What is the analytical framework for defining a market transaction, two cases concerned trading on restrictive terms such as in vertical agreement cases? exclusive dealing and the remaining four cases concerned abuses of a superior bargaining position. However, since the latter half of 2017, According to the JFTC’s Exclusionary Private Monopolization the tendency can be seen that the JFTC’s enforcement activities in Guidelines, its basic approach is to identify the relevant exclusionary the area of vertical agreement are becoming more active. practice at issue and define the product/geographic range affected by such practice as a relevant market. According to the guidelines, the JFTC also adopts, as necessary, an approach that is more widely 2.2 What is the analysis to determine (a) whether there used in other jurisdictions. Namely, the JFTC also considers a is an agreement, and (b) whether that agreement is vertical? demand-side substitutability and supply-side substitutability.

An agreement is not a requirement in order to find a violation 2.7 How are vertical agreements analysed when one of of the Act. For example, in cases of resale price restriction, if the the parties is vertically integrated into the same level undertaking restricts the other party’s ability to determine its resale as the other party (so called “dual distribution”)? Are price, it would be sufficient to find a violation of the Act. In other these treated as vertical or horizontal agreements? words, the JFTC does not need to find an agreement to establish a violation of the Act. Therefore, there is no use discussing the analysis When one of the parties to a vertical agreement is vertically to determine whether there is an agreement. Likewise, there is no use integrated at the same level as the other party, such agreement can discussing the analysis to determine whether the agreement is vertical. be analysed as both a vertical and a horizontal agreement. Generally speaking, the JFTC’s enforcement activities are more active in the area of a horizontal agreement and, if the JFTC finds that the 2.3 What are the laws governing vertical agreements? agreement could relate to the overlapping markets, the JFTC tends to first try to scrutinise such an agreement as a horizontal one. Vertical agreements are regulated by the prohibition of “private monopolisation” and prohibition of “unfair trade practices”. Private

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2.8 What is the role of market share in reviewing a vertical 2.13 Will enforcers or legal tribunals weigh the harm agreement? against potential benefits or efficiencies?

The market share is an element that the JFTC will consider when The JFTC and courts will consider potential benefits or efficiencies analysing the anticompetitive effect. A high market share is not in analysing vertical agreements. For example, when a vertical a prerequisite to find a vertical agreement to be in violation of agreement promotes an inter-brand competition by solving a free- the Act. That being said, according to the Exclusionary Private rider problem, that could be considered in analysing the vertical Monopolization Guidelines, the JFTC’s enforcement priority agreement. is on cases where the market share of the undertaking exceeds Japan approximately 50% after the commencement of the conduct at issue 2.14 What other defences are available to allegations that a and where the conduct is deemed to have a serious impact on the vertical agreement is anticompetitive? lives of citizens in Japan. It is generally understood that a vertical agreement may be justified 2.9 What is the role of economic analysis in assessing if (i) it has a legitimate purpose, (ii) it is necessary to achieve vertical agreements? such purpose, and (iii) there is no less anticompetitive alternative to achieve such purpose. Examples of such legitimate purposes The JFTC may use some economic analysis to support its findings. include product safety and promotion of public welfare. However, it appears that economic analysis has not played a key role in assessing vertical agreements so far. 2.15 Have the enforcement authorities issued any formal guidelines regarding vertical agreements? 2.10 What is the role of efficiencies in analysing vertical agreements? The JFTC issued the following Guidelines: (i) the Exclusionary Private Monopolisation Guidelines; and (ii) the Guidelines The JFTC considers efficiencies in analysing vertical agreements. Concerning Distribution Systems and Business Practices under According to the Exclusionary Private Monopolization Guidelines, the Antimonopoly Act. In addition, there are other Guidelines that the JFTC will consider efficiencies in analysing the anticompetitive refer to vertical agreements, such as the Guidelines for the Use of effects only where (i) the efficiencies are specific to the conduct at Intellectual Property under the Antimonopoly Act and Guidelines issue and cannot be achieved by less anticompetitive means, and (ii) Concerning Abuse of Superior Bargaining Position under the the efficiency gains will be passed on to consumers and enhance the Antimonopoly Act. consumer welfare in the form of price reduction, improvement of product quality, introduction of innovative products, etc. 2.16 How is resale price maintenance treated under the law? 2.11 Are there any special rules for vertical agreements relating to intellectual property and, if so, how does Resale price maintenance is generally presumed to be illegal. In the analysis of such rules differ? theory, an undertaking can rebut the presumption by demonstrating a justifiable reason such as the fact that the resale price maintenance is Article 21 of the Act provides that any conducts that are recognised procompetitive by promoting inter-brand competition. In practice, as exercise of intellectual property rights are exempted from the however, an undertaking is hardly able to convince the JFTC or Act. However, “exercise of intellectual property rights” has been courts that the resale price maintenance is procompetitive. interpreted quite narrowly, and thus this provision does not appear to give a great safe harbour in practice. Actually, an abuse of 2.17 How do enforcers and courts examine exclusive intellectual property rights in an anticompetitive way continues to dealing claims? be subject to scrutiny under the Act and does not qualify as exercise of intellectual property rights that are exempted from the Act. The Exclusive dealing may fall foul of the Act when it has a strong JFTC has issued Guidelines for the Use of Intellectual Property foreclosure effect, i.e. when it makes it difficult for new entrants under the Antimonopoly Act. or competitors to find alternative sources of supply or distribution channels. The relevant Guidelines state that if the market share of the 2.12 Does the enforcer have to demonstrate undertaking engaging in an exclusive dealing does not exceed 20%, anticompetitive effects? there would not be such foreclosure effect. Key factors to analyse the foreclosure effect include the duration of the exclusive dealing Yes. Substantial restraint of competition is a prerequisite for a and the percentage of the market that is foreclosed. However, no finding of private monopolisation. In light of the court precedents, clear safe-harbour has been set with regard to the duration of the it is generally understood that substantial restraint of competition exclusive dealing. In light of the precedents, a sufficient foreclosure means establishing, maintaining or strengthening the state in effect is likely to be found when more than 50% of the market is which a certain undertaking or a certain group of undertakings can foreclosed by exclusive dealings. control the market at will by being able to influence price, quality, quantity and other conditions to some extent due to the lessening 2.18 How do enforcers and courts examine tying/ of competition. On the other hand, likeliness of impeding fair supplementary obligation claims? competition is a prerequisite for a finding of unfair trade practices. It is generally understood that establishing likeliness of impeding When analysing the tying claims, the JFTC and courts will first fair competition is easier than establishing substantial restraint of analyse if there are two distinct products/services. If two distinct competition. products/services are tied, it may fall foul of the Act when an

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anticompetitive effect is found in the tied product/service market. and compete with the undertaking in the market of bundled products, In some precedents, the JFTC or courts have easily found an the JFTC will analyse the bundled discount in a similar way that it anticompetitive effect, stating that the tying deprived the buyer of would analyse predatory pricing. the freedom to choose a supplier and therefore harms competition on the merit in the tied product/service market without analysing in 2.22 What other types of vertical restraints are prohibited detail the effect perceived in such market. by the applicable laws?

2.19 How do enforcers and courts examine price Given that the list of vertical restraints that are prohibited by the Act discrimination claims? is not exhaustive, the Act can be read to cover any type of vertical Japan restraint that has an anticompetitive effect. In fact, the list of unfair Price discrimination will not have an anticompetitive effect trade practices includes “trading on restrictive terms” and “interference if the price difference results from a fair difference in cost (e.g. with a competitor’s transaction”, and they can serve as a catch-all the cost saving effect due to production in large quantities) or provision to make illegal an anticompetitive vertical agreement. reflects the supply-demand balance in the market. However, price discrimination may fall foul of the Act if it has an anticompetitive 2.23 How are MFNs treated under the law? effect in the market where the undertaking is active or in the downstream market. When the JFTC or courts scrutinise an There are no court precedents that have analysed MFN clauses under anticompetitive effect in the market where the undertaking is active, the Act, nor are there any enforcement decisions or guidelines of a key factor is whether the price is below a certain measure of cost, the JFTC that analyse MFN clauses. Accordingly, it is unclear how which makes it impossible for an equally efficient competitor to MFNs are treated under the Act by the JFTC or courts. The JFTC survive the market. On the other hand, when the JFTC or courts was investigating Amazon Japan in relation to its MFN clauses or scrutinise an anticompetitive effect in the downstream market, price parity clauses etc. in the contracts with the sellers on Amazon they will analyse, among others, whether the products at issue are Marketplace. However, the JFTC announced that it closed its indispensable for the business activities in the downstream market investigation following Amazon Japan’s proposed commitments not to and whether such price discrimination has an exclusionary effect exercise its rights in relation to such parity clauses, etc. The JFTC did in the downstream market. In addition, if an undertaking engages not elaborate on how it will analyse MFN clauses in the press release. in price discrimination in order to achieve an otherwise illegal purpose, it would also fall foul of the Act. 3 Dominant Firms 2.20 How do enforcers and courts examine loyalty discount claims? 3.1 At a high level, what is the level of concern over, and scrutiny given to, unilateral conduct (e.g., abuse of The JFTC and courts may regard loyalty discount as having the dominance)? exclusionary effect similar to exclusive dealings under certain circumstances. In analysing the exclusionary effect, the JFTC The level of enforcement activities conducted by the JFTC in relation and courts will take account of, among others, the level of rebate to private monopolisation is not particularly high. However, the JFTC percentage, including whether it is progressively set in accordance has great continuous interests in prohibiting any foreclosure conducts with the volume of trade, the thresholds for granting rebates, and and controlling conducts by using the dominant or superior position in whether the rebates are granted on all purchases in a particular a certain field. Therefore such conducts have been regulated by various period once a certain threshold is exceeded (or granted only on the types of unfair trade practices. As explained in question 3.2 below, the incremental purchases above the threshold). conducts made by any entrepreneur with a dominant or superior power In 2005, the JFTC found that the rebate system of Intel Japan can be regulated by private monopolisation and unfair trade practices. constituted a private monopolisation. According to the findings of However, the JFTC is inclined to apply the provisions of unfair trade the JFTC, Intel Japan granted rebates to its customers, which were practices to such conducts rather than private monopolisation. Japanese manufacturers of personal computers, on condition that (i) the customers purchase CPUs only from Intel Japan, (ii) 90% of 3.2 What are the laws governing dominant firms? the CPUs that the customers use are purchased from Intel Japan, or (iii) the customers do not use Intel Japan’s competitors’ CPUs for major personal computer brands. The level of rebate percentage The Act prohibits private monopolisation, which is defined as was not made public by the JFTC. The customers to which Intel business activities “by which any entrepreneur, individually or Japan granted rebates represented approximately 77% of the total in combination or conspiracy with other entrepreneurs, or by any procurement volume of CPUs in Japan. other manner, excludes or controls the business activities of other entrepreneurs, thereby causing, contrary to the public interest, a substantial restraint of competition in the relevant market”. 2.21 How do enforcers and courts examine multi-product Generally, this prohibition only applies to business entities with or “bundled” discount claims? dominant market power in the relevant market. In addition, the Act prohibits unfair trade practices such as The JFTC’s Guidelines state that if sufficient customers will choose exclusionary conducts, bundling, and abuse of superior bargaining bundled products as a result of the bundled discount, the JFTC power. In the case where dominant firms engage in such conducts, will analyse the bundled discount in a similar way that the JFTC such conducts are likely to be found to be made “without justifiable analyses a tying. The JFTC’s guidelines also mention that if the grounds” and thus to be unfair trade practices. undertaking’s competitors can readily offer the bundled products

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3.3 What is the analytical framework for defining a market 3.8 What defences are available to allegations that a firm in dominant firm cases? is abusing its dominance or market power?

The relevant market shall be defined based on the various factors, For private monopolisation, if the conduct substantially restrains the including but not limited to the relevant product, area, and manner, competition in the relevant market, such conduct shall be deemed etc. of the specific conducts. Generally, by examining the conducts illegal. Therefore, the entrepreneur allegedly engaging in private and the effects of such, the JFTC will define the relevant market monopolisation may defend the case by showing that such conduct where the competition shall be substantially restrained. To define the will not substantially restrain the competition in the relevant market. relevant market, the substitutability of products on the demand side Japan has a great influence on the analysis, but the substitutability on the 3.9 What is the role of efficiencies in analysing dominant supply side is also considered. Please also refer to question 2.6 above. firm behaviour?

3.4 What is the market share threshold for enforcers or a Efficiencies are one of several factors to be considered when court to consider a firm as dominant or a monopolist? assessing whether there is any substantial restraint of competition. However, as a practical matter, in cases where the exclusionary There is no clear threshold of the market share to consider a firm as conduct leads to a dominant or strong market power, it is unlikely to dominant or a monopolist. However, a market share over 50% is prove that there is no substantial restraint of the competition by only generally considered as a certain benchmark by the JFTC in setting showing the efficiencies. its enforcement priorities. The Exclusionary Private Monopolisation Guidelines (as of 28 October 2009) provides that: “the JFTC, when 3.10 Do the governing laws apply to “collective” deciding whether to investigate a case as Exclusionary Private dominance? Monopolization, will prioritize the case where the share of the product that the said undertaking supplies exceeds approximately Yes. As set forth in the Act, exclusionary conduct can be made 50% after the commencement of such conduct and where the conduct individually or in combination with other entrepreneurs. is deemed to have a serious impact on the lives of the citizenry”.

3.11 How do the laws in your jurisdiction apply to 3.5 In general, what are the consequences of being dominant purchasers? adjudged “dominant” or a “monopolist”? Is dominance or monopoly illegal per se (or subject to regulation), or are there specific types of conduct that are prohibited? There are no substantial differences between the purchase and the sale, and thus the same as described above will be applied to Under the Act, dominance or monopoly itself is not per se illegal. dominant purchasers. Any conduct excluding the business activities of other entrepreneurs (hereinafter referred to as exclusionary conduct) can be considered 3.12 What counts as abuse of dominance or exclusionary illegal as private monopolisation to the extent that, contrary to public or anticompetitive conduct? interest, such exclusionary conduct causes a substantial restraint of competition in any particular field of trade. For example, below- A type of conduct similar to the unfair trade practices listed in Article cost pricing, exclusive dealing, tying and refusal to supply, and 2 (9) of the Act can be found as exclusionary conduct. Therefore, discriminatory treatment thereby causing a substantial restraint of a part of unfair trade practices may also fall under exclusionary competition in any particular field of trade are the typical examples conduct. On the other hand, exclusionary conduct has not for private monopolisation. necessarily been limited to those similar to unfair trade practices, and a lot of types of conduct other than these have been also regarded 3.6 What is the role of economic analysis in assessing as exclusionary conduct. There is a wide variety of conduct deemed market dominance? as exclusionary conduct, and thus it is difficult to characterise all of it. The Exclusionary Private Monopolisation Guidelines (as In general, economic analysis has not played a great role. Although of 28 October 2009), however, provide for five typical types of the number of cases where the JFTC found the violation of private exclusionary conduct: below-cost pricing; exclusive dealing; tying monopolisation is very few, so far, it is much harder to identify and refusal to supply; and discriminatory treatment. a specific case where economic analysis was considered for its finding. However, for the purpose of the merger review, the number 3.13 What is the role of intellectual property in analysing of cases where economic analysis has been considered seems to dominant firm behaviour? have increased recently, and there is a possibility that economic analysis will play a certain role in assessing market dominance The scope and effect by intellectual property may be considered to in the future. However, economic analysis may be considered as assess dominance or market power. supportive only when such analysis coincides with presumed facts based on qualitative evidence. 3.14 Do enforcers and/or legal tribunals consider “direct effects” evidence of market power? 3.7 What is the role of market share in assessing market dominance? The exclusionary effect is not necessarily recognised as direct on the market where the alleged violator is active. However, if any indirect Please refer to question 3.4 above.

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effects on the different markets can be found, it could be sufficient to establish the illegal exclusionary conduct with the effect of the 4 Miscellaneous restraint of the competition. 4.1 Please describe and comment on anything unique to your jurisdiction (or not covered above) with regards 3.15 How is “platform dominance” assessed in your to vertical agreements and dominant firms. jurisdiction?

The effect on a certain market by big data or platform dominance The conduct that falls under private monopolisation can also be is one of the hot topics which the JFTC has recently been actively subject to unfair trade practices, and the JFTC is inclined to deal Japan studying. It has been said that the legacy analysis methods may not with such conduct by the regulation of unfair trade practices. be appropriate for the competitive analysis in such cases, but the Under the current Act, the types of conduct which are listed in the discussion on how to analyse it is currently in progress. Exclusionary Private Monopolisation Guidelines (as of 28 October 2009) as typical exclusionary conduct may be subject to not only the cease and desist order but also the surcharge order, even if they are 3.16 Under what circumstances are refusals to deal found to violate unfair trade practices and the JFTC may achieve a considered anticompetitive? similar result within the framework of unfair trade practices. Under the Act, the JFTC may, in order to ensure the proper If it is highly likely for a supplier in the upstream market to cause operation of the Act, make any necessary matters public except for difficulties in continuing the business activities in that market, the secrets of enterprises. Recently, the JFTC seems to utilise this or in commencing the business activities in that market as a new power to disclose the warning against the types of conduct which market entrant due to the refusals to deal, such refusals could be do not violate the Act but could lead to the violation of the Act by exclusionary conduct. To assess whether it is highly likely that the requesting cessation of such conduct and taking any measures to supplier’s refusal may cause difficulties in continuing the business prevent any recurrence. As the warning is not a formal disposition, activities or commencing the business activities, the degree of the addressee of such warning has no right to object to any factual concentration, the nature of products, the degree of the economies findings by the JFTC while the fact that the addressee engaged of scale, and distribution systems in the upstream market and the in the suspected conduct which could lead to the violation of the downstream market shall be considered. To constitute exclusionary Act is disclosed to the public. The substance of the warning or its conduct, it is not necessary to result in the actual elimination of substantial effect is very similar to the cease and desist order. business activities of other entrepreneurs from the market, or to completely block business activities to enter into the new market due to such exclusionary conduct.

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Kaoru Hattori Yusuke Kaeriyama Nagashima Ohno & Tsunematsu Nagashima Ohno & Tsunematsu JP Tower, 2-7-2 Marunouchi JP Tower, 2-7-2 Marunouchi Chiyoda-ku Chiyoda-ku Tokyo 100-7036 Tokyo 100-7036 Japan Japan

Tel: +81 3 6889 7192 Tel: +81 3 6889 7332 Email: [email protected] Email: [email protected] URL: www.noandt.com/en URL: www.noandt.com/en Japan

Kaoru Hattori is a partner at Nagashima Ohno & Tsunematsu. She Yusuke Kaeriyama is a partner at Nagashima Ohno & Tsunematsu. started her practice in 1997 after the completion of a two-year legal He is a competition law specialist and represents clients before the traineeship, and has since focused on competition issues. She is a Japan Fair Trade Commission and competition authorities in various specialist on competition law and covers every area within that field. jurisdictions. He has been involved in a large number of high-profile merger cases. He has also advised on cartel cases and other She has wide-ranging experience in high-profile mergers and behavioural cases in various industries. He holds an LL.B. from the acquisitions that require multiple filings and are subject to substantial University of Tokyo (2003) and an LL.M. with merit in competition law investigations, as well as international cartels investigated by multiple from King’s College London (2009). He previously spent time working jurisdictions. in the competition group of Slaughter and May in London (2009–2010) She holds an LL.B. from the University of Tokyo (1995) and an LL.M. as a visiting attorney and for the Japan Fair Trade Commission, from the University of San Diego School of Law (2002). where he was a chief investigator handling cartel cases and other behavioural cases.

Nagashima Ohno & Tsunematsu, with offices in Tokyo, New York, Singapore, Bangkok, Ho Chi Minh City, Hanoi and Shanghai, is widely known as a leading law firm and one of the foremost providers of international and commercial legal services in Japan. The firm represents domestic and foreign companies and organisations involved in every major industry sector and in every legal service area in Japan. The firm has structured and negotiated many of Japan’s largest and most significant corporate and finance transactions, and has extensive litigation strength spanning key commercial areas, including intellectual property and taxation. The firm comprises of around 440 lawyers (including around 25 foreign attorneys) capable of providing its clients with practical solutions to meet their business needs. With one of the largest legal teams in the country, the firm brings a wealth of practical knowledge focused on the singular purpose of providing high quality legal expertise for developing optimum solutions for any business problem or goal that its clients may have. The firm, with its knowledge and experience across a full range of practice areas, is always prepared to meet the legal needs of its clients in any industry.

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Korea Gwang Hyeon Baek

Barun Law LLC Ye Eun Choi

the report is introduced to the commission, the investigator and the 1 General parties may go through a hearing process before the review date. On the day of the review, the parties and the investigator present oral 1.1 What authorities or agencies investigate and enforce arguments. After the review, the commissioners discuss and decide the laws governing vertical agreements and dominant on illegality and corrective measures. firm conduct?

1.4 What remedies (e.g., fines, damages, injunctions, etc.) The Korea Fair Trade Commission (hereinafter referred to as the are available to enforcers? “KFTC”) investigates anti-competitive activities and enforces the Monopoly Regulation and Fair Trade Act (hereinafter referred to as For business entities that violated the Act, the KFTC can order the “Act”), which governs vertical agreements and dominant firm corrective measures which include a cease and desist order not only conduct. on previous unlawful activities but also on the same type of activities that may be repeated in the near future. Under the Act, the KFTC 1.2 What investigative powers do the responsible can also impose an administrative fine for violations of procedural competition authorities have? regulations as well as penalties for violating the law. The latter has characteristics of both the recovery of unjust enrichment and the The KFTC may 1) order an interview and production of administrative sanctions. In addition, the KFTC can take criminal documentary evidence, 2) conduct an on-site investigation, and actions by reporting the violations to the prosecutor’s office. 3) require submission of financial transaction data. Under Article 50 Section 1 of the Act, the KFTC may, if deemed necessary for 1.5 How are those remedies determined and/or the enforcement of the Act, summon relevant parties or witnesses calculated? to seek their opinions, designate an expert witness to seek expert opinions, and issue an order requiring a business entity or business The KFTC has enacted and implemented the “Guidelines for the entity’s organisation or its executives or employees to report on the KFTC Corrective Measures”, and has broad discretions on the cost and its business administration or to submit other necessary contents of such corrective measures. Under Article 55 Section 3 materials or articles or keep the submitted materials or articles in Clause 1, the type, degree, duration, and numbers of violations as custody. Also, under Article 50 Section 2 of the Act, the KFTC, if well as the profit gained are taken into account when assessing the deemed necessary to enforce this Act, may require public officials penalty, which is calculated pursuant to the “Public Notice of Detailed under its control to enter the office or place of business of a business Guidelines for Imposing Administrative Monetary Penalties”. The entity or business entities’ organisation to examine its business and KFTC has the duty to report to the Prosecutor General violations that management, account books, documents, electronic data, voice- are objectively clear and serious to the extent that they are deemed to recording materials, video materials, and other materials, and to take significantly impede competition. The KFTC decides to report such statements from the parties, interested parties, or witnesses at any violations based on the “Guidelines for Reporting Violations of the designated place. Monopoly Regulation and Fair Trade Act”.

1.3 Describe the steps in the process from the opening of 1.6 Describe the process of negotiating commitments or an investigation to its resolution. other forms of voluntary resolution.

An investigation opens when the KFTC acts upon its authority Under the Korean laws, there is no official negotiation process or receives a report. A KFTC investigator first reports the for the KFTC’s administrative sanctions, corrective measures commencement of an investigation and then conducts the and penalties. However, under Article 51 Section 2, there can investigation and examination. If the investigator believes there be an “agreement resolution”, in which violators are exempted is an unlawful practice, a report is produced and introduced to the from administrative sanctions if they take corrective actions and commission. Depending on the importance of the case, a small consumers are compensated. Unfair collaborative acts as well as meeting may be held or all members may participate in a meeting. clear and serious violations are excluded from this process. The investigator sends the report to the parties being investigated, who may then submit their opinion about the report in writing. Once

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focusing on relevant special laws. For example, pursuant to the 1.7 Does the enforcer have to defend its claims in front special laws for the energy industry such as electricity, gas, etc., of a legal tribunal or in other judicial proceedings? If the government controls the decision-making of market entry and so, what is the legal standard that applies to justify an business terms and conditions including the price, which might be enforcement action? interpreted as restricting the free and fair competition in the market. When special laws directly allow the government’s anti-competitive A party may file a civil action requesting the cancellation of behaviour, the courts deem it as “legally fair trade practice”. KFTC measures, over which the Seoul High Court has exclusive jurisdiction. In such cases, the KFTC must argue and prove that its measures are proper, and the court decides based on the relevant 1.13 Describe how your jurisdiction’s political environment KFTC rules as well as precedents. may or may not affect antitrust enforcement. Korea

There are no laws or provisions that specifically allow the political 1.8 What is the appeals process? environment to directly affect the execution of anti-competition laws. However, as Korea is a country where the President has a high degree A party may make an objection to the KFTC or file a lawsuit to of authority and discretion, and the KFTC’s enforcement tendency revoke a KFTC decision with the Seoul High Court within 30 days often changes according to the President’s policies as the KFTC is from the receipt of the KFTC notice. The action to revoke is a two- under the Executive Branch. Thus, it could be said that the political step process with the lawsuit of first instance before the Seoul High environment has indirectly affected the KFTC’s execution of the Act. Court and the appeal to the Supreme Court of Korea, respectively.

1.14 What are the current enforcement trends and 1.9 Are private rights of action available and, if so, how priorities in your jurisdiction? do they differ from government enforcement actions? Currently, the KFTC shows its strong interests in regulating the unfair Under Article 56 Section 1 of the Act, a person who sustains trade practices of dominating enterprises, as well as in reforming damage from a violation caused by a business entity or business the practice of large conglomerates. Also, there is a tendency of entity’s organisation can file a claim for damages. This differs from strengthened enforcement of prosecution and criminal sanction. government enforcement action in that its purpose is to compensate those who suffered, and those who filed claims must argue and present a prima facie case. 1.15 Describe any notable case law developments in the past year.

1.10 Describe any immunities, exemptions, or safe harbors Regarding the elements to constitute “Prohibition on Provision, etc. that apply. of Undue Benefits to Related Parties” of the Article 23 Section 2 of the Act, in 2017, Seoul High Court ruled that “unfair benefit” per se The KFTC may exempt or reduce penalties for a person who is an element to constitute illegality. In addition, the court concluded voluntarily reported unfair collaborative acts. Penalties may also that unfairness should be determined based on the probability of be reduced for cooperating with KFTC investigations or for other concentration of economic power instead of probability of anti- reasons listed in the “Public Notice of Detailed Guidelines for competitiveness. Currently, a Supreme Court of Korea appeal is Imposing Administrative Monetary Penalties”. The KFTC also sets pending for this case. The ruling of the Supreme Court of Korea draws a “Safety Zone” in which despite an outwardly unfair trade practice, a lot of attention, because it will be the first case establishing the legal it may choose not to commence an investigation if the impact on fair principle of the elements of Article 23 Section 2 of the Act. trade is deemed insignificant based on the business’ market share and other factors. Furthermore, a case of illegal assistance is not established when the difference between the interest rate applied to 2 Vertical Agreements the assistance and the market rate is less than 7% and the assisted amount is less than KRW 100,000,000. 2.1 At a high level, what is the level of concern over, and scrutiny given to, vertical agreements? 1.11 Does enforcement vary between industries or businesses? The Act does not specifically stipulate vertical agreements as unfair trade practices. Instead, it regulates the trade practices that may be There are certain industries whose anti-competitive action is allowed treated as vertical agreement such as the resale price maintenance wholly or partially based on the special laws due to the distinct under Article 29 or the abuse of market dominance. The regulations characteristics of those industries. In such case, the KFTC deems on vertical agreements are not too strict. According to the KFTC’s an anti-competitive action as a lawful practice according to the annual report for the fiscal year 2017, only 1.9% of the unfair trade special laws. Such special laws include the Fair Transactions in practice cases were about the resale price maintenance. There were Subcontracting Act, the Large Franchise and Retail Business Act, the only 14 cases in the past three years, with six cases in 2015, three Fair Business Act, the Electronic Commerce Act, the Agency Act, etc. cases in 2016, and five cases in 2017.

1.12 How do enforcers and courts take into consideration 2.2 What is the analysis to determine (a) whether there an industry’s regulatory context when assessing is an agreement, and (b) whether that agreement is competition concerns? vertical?

When courts and the KFTC determines the possibility of anti- Korean laws and precedents do not provide the exact requirements competition, they consider all circumstances comprehensively for determining whether an agreement is vertical. Instead, the trade

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practices based on vertical agreements are regulated as unfair trade practices. In such cases, the primary determination is whether the 2.8 What is the role of market share in reviewing a vertical terms and conditions of business, such as prices, etc., have been agreement? decided within the vertical relationship and have been forced to be followed. Unlike for horizontal agreements, there are no legal When reviewing the resale price maintenance, the most typical type standards to determine whether there is a vertical agreement. of practice that is considered as a vertical agreement, the KFTC considers the influential position of a business entity in the market as one of the important standards. The market share of a firm is not 2.3 What are the laws governing vertical agreements? a required consideration in the review process.

Korea The governing law is the Act, which regulates unfair trade practices such as the practice of resale price maintenance, forcing 2.9 What is the role of economic analysis in assessing vertical agreements? the transaction with binding terms and conditions to the trading partners or to the partners in each level of transaction, etc. In addition, special laws apply based on the types of transactions. For Economic analysis is used to determine whether there exists active example, the Large Franchise and Retail Business Act applies to the competition among brands in the relevant market or whether the vertical agreement between large-scale distributors and suppliers; resale price maintenance has restricted competition or functioned the Franchise Act applies to franchisors and franchisees; and the as a cartel price. Agency Act applies to authorised dealers. The special laws take priority over the Act. 2.10 What is the role of efficiencies in analysing vertical agreements? 2.4 Are there any type of vertical agreements or restraints that are absolutely (“per se”) protected? The KFTC does not consider trade practices based on vertical agreements illegal when the anti-competitiveness of the practices No vertical agreements or restraints are per se protected under is outweighed by their effects of increasing consumer benefits or current laws. efficiency.

2.5 What is the analytical framework for assessing 2.11 Are there any special rules for vertical agreements vertical agreements? relating to intellectual property and, if so, how does the analysis of such rules differ?

Since the Korean laws regulate vertical agreements by placing There is no specialised regulation on vertical agreements related to restrictions on specific types of practices such as the resale price intellectual property under the Korean laws. maintenance, the same analytical framework applies to the types of practices that are treated as vertical agreements. 2.12 Does the enforcer have to demonstrate anticompetitive effects? 2.6 What is the analytical framework for defining a market in vertical agreement cases? The KFTC has the burden to prove anti-competitive effect. The Supreme Court of Korea held that the standard for defining a market does not vary depending on the types of practices. A 2.13 Will enforcers or legal tribunals weigh the harm relevant market is comprised of (i) relevant product market, and (ii) against potential benefits or efficiencies? relevant local market. A relevant product market is defined based on the demand substitutability, with other considerations such as Yes. If the KFTC and the courts find that potential benefits or supply substitutability and potential competition. A relevant local efficiencies of a practice outweigh its harm, such a practice is ruled market is defined based on a comprehensive analysis of product to “have just cause” and its illegality is negated. price and characteristics, seller’s business ability, transportation cost, awareness of sellers and buyers on the potential change of sales 2.14 What other defences are available to allegations that a region, ease of change of sales region, the pace of technological vertical agreement is anticompetitive? development, etc. A business entity may first dispute the findings of facts by the KFTC 2.7 How are vertical agreements analysed when one of on vertically restrictive practice and also raise an argument that it the parties is vertically integrated into the same level has not forced vertically restrictive practice onto its trading partner. as the other party (so called “dual distribution”)? Are The firm may further argue that there are other just causes which these treated as vertical or horizontal agreements? negate the illegality of the practice.

The Korean laws do not specifically regulate dual distribution. There is no prior case where the KFTC and the courts have explicitly 2.15 Have the enforcement authorities issued any formal guidelines regarding vertical agreements? treated dual distribution as a vertical or horizontal agreement. However, if a dual distribution practice is determined as an unfair trade practice or abuse of market dominance regulated by the Act or The KFTC has not provided any guidelines on vertical agreements other relevant laws, it is regulated as such. but has provided review guidelines for specific practices that can be treated as vertical agreements such as the resale price maintenance practice.

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unjust dumping are prohibited as unfair trade practice. Exclusive 2.16 How is resale price maintenance treated under the dealings, etc. of a market dominant firm are also prohibited as abuse law? of market dominance.

The Korean laws prohibit the resale price maintenance that sets a certain price and forces it to a trading partner and other trading 2.23 How are MFNs treated under the law? partners at each level of transaction unless just cause exists. Under the Korean laws, there is no expressed rule regarding the treatment of MFNs related to the vertical agreements. 2.17 How do enforcers and courts examine exclusive

dealing claims? Korea 3 Dominant Firms The KFTC and courts first see whether there exists any exclusive dealing practice, in which a party trades with a trading partner on the condition that the trading partner will not compete against the 3.1 At a high level, what is the level of concern over, and scrutiny given to, unilateral conduct (e.g., abuse of party or its affiliates. Then, they determine whether such exclusive dominance)? dealing restricts the competition in the relevant market.

The KFTC has continuously been scrutinising and restraining the 2.18 How do enforcers and courts examine tying/ abuse of market dominance. According to the “Statistical Yearbook supplementary obligation claims? 2017”, there have been 298 abuse of market dominance cases from 1981 to 2017, which account for 1.2% all violations. Twelve cases The KFTC and the courts see tying as one of the compulsive trade were handled in 2017, nine cases in 2016, and 11 cases in 2015. Even practices. They determine whether any compulsive action exists recently, the KFTC has been actively monitoring and scrutinising forcing a trading partner to buy products from designated sellers. the abuse of market dominance, including the restriction placed on Then, they determine whether such tying restricts competition and Qualcomm’s abuse of market dominance in 2017. whether it is unfair compared to the normal trading practices.

3.2 What are the laws governing dominant firms? 2.19 How do enforcers and courts examine price discrimination claims? The Act governs the abuse of market dominant position.

The KFTC and the courts see price discrimination as one of the wrongful discriminations, and they review whether a party 3.3 What is the analytical framework for defining a market in dominant firm cases? traded at different prices (advantageous or disadvantageous) according to trade area or trading partners. Then, they determine if the price advantages and the disadvantages arising from the price The Supreme Court of Korea held that the standard for defining difference are conspicuous. They also determine whether the price a market does not vary depending on the types of practices. A discrimination limited competition in the market. relevant market is comprised of (i) relevant product market, and (ii) relevant local market. A relevant product market is defined based on the demand substitutability, with other considerations such as 2.20 How do enforcers and courts examine loyalty supply substitutability and potential competition. A relevant local discount claims? market is defined based on a comprehensive analysis of product price and characteristics, seller’s business ability, transportation Under Korean law, there is no clear established concept regarding cost, awareness of sellers and buyers on the potential change of sales the loyalty discount, and it is unclear whether it could be regulated region, ease of change of sales region, the pace of technological as a type of abuse of market dominance or unfair trade practice. development, etc. The KFTC and the courts have never clarified which conduct constitutes loyalty discount or how the illegality of that conduct is examined. 3.4 What is the market share threshold for enforcers or a court to consider a firm as dominant or a monopolist?

2.21 How do enforcers and courts examine multi-product The Act treats a firm(s) as market dominant if the market share is or “bundled” discount claims? (i) no less than 50% by one firm, or (ii) no less than 75% by three firms or less (excluding firms with a market share of less than 10%). The KFTC and the courts assess whether the goods or services have Firms with an annual revenue or purchase amount of less than KRW been supplied at a price lower than the supply cost and consider whether 4,000,000,000 are excluded from this standard (Article 4 of the Act). such supply practice has been continuous. Then, they assess whether In applying this standard, a firm and its subsidiaries are treated as the price is noticeably low based on the manufacturing cost or initial one firm (Article 4 Paragraph 3). purchase cost. After that, they determine the illegality of the practice by considering whether the practice would exclude competitors. 3.5 In general, what are the consequences of being adjudged “dominant” or a “monopolist”? Is dominance 2.22 What other types of vertical restraints are prohibited or monopoly illegal per se (or subject to regulation), or by the applicable laws? are there specific types of conduct that are prohibited?

The resale price maintenance is prohibited as a unilateral conduct. The Act does not consider the formation of market dominance or Moreover, the exclusive dealings, tying, price discrimination, and monopoly itself as a violation but only prohibits the conduct of

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abuse. The abuse of market dominance is constituted if (a) the firm is market dominant by law, (b) the conduct of the market 3.11 How do the laws in your jurisdiction apply to dominant firm is one of the abusive conducts prescribed in each dominant purchasers? Sub-paragraph of Article 3.2 Paragraph 1 of the Act, and (c) the conduct’s unfairness must be admitted. If a purchaser has a market position that he/she could independently or collaboratively change regarding price, amount, quality, and Article 3.2 Paragraph 1 of the Act enumerates the following six other contract conditions of products or services, it falls under conducts as the prohibited conducts of abuse of market dominance the category of market dominant firm, and therefore, the KFTC position: (i) unjust decision, maintenance, or change of price (Sub- interprets that the relevant laws also apply to the purchaser. paragraph 1); (ii) conduct of unjust release control (Sub-paragraph

Korea 2); (iii) conduct of unjust business activity disturbance (Sub- paragraph 3); (iv) conduct of unjust market entry disturbance (Sub- 3.12 What counts as abuse of dominance or exclusionary paragraph 4); (v) conduct of unjust competing business exclusion or anticompetitive conduct? (fore-part of Sub-paragraph 5); and (vi) conduct of unjust hindrance of noticeable consumer benefit (latter part of Sub-paragraph 5). Article 3.2 Sub-section 1 of the Act enumerates the following six conducts as market dominance abuse: (i) unfair determination, maintenance or change of the price; (ii) unfair release control; (iii) 3.6 What is the role of economic analysis in assessing market dominance? unfair interference of business activities; (iv) unfair interference of another’s market entry; (v) unfair exclusion against competitors; and (vi) extreme infliction of consumer interests. The economic analysis is used to assess whether a firm is market dominant or not; it defines the related product market and local market, calculates the market share of the firm in the related market, 3.13 What is the role of intellectual property in analysing and considers overall factors such as the degree of entry barriers dominant firm behaviour? or the size of competitors to assess whether a firm is in a market dominant position. Pursuant to “Examination Check Guideline to Unfair Exercise of Intellectual Property Rights” of the KFTC, it is a principle that a firm is able to solely exercise its intellectual property rights only 3.7 What is the role of market share in assessing market dominance? if the firm has market dominance. But this does not mean that the possession of the exclusive, monopolistic right to exercise intellectual property by itself proves the firm’s market dominance. The market share is one of the important elements to be considered When the KFTC decides whether or not the firm has market in determining the existence of market dominance of a firm. dominance, it comprehensively considers relevant situations such as Particularly, when the firm is admitted to have more market share the corresponding technique’s impacts on the market, existence of than a certain standard rate (market share of 50% or more by one alternative techniques, market competition situation, etc. firm, total market share 75% or more by three firms), the Act treats a firm as a market dominant firm. 3.14 Do enforcers and/or legal tribunals consider “direct effects” evidence of market power? 3.8 What defences are available to allegations that a firm is abusing its dominance or market power? The KFTC and the courts have never expressly mentioned about its position as to whether it should consider “direct effects” of exclusive A firm can argue against the finding of facts admitted by the KFTC strategies; however, these “direct effects” could be considered in that the firm is abusing its dominance of market power. Even if the any separate issues. fact-finding turns out to be true, it can argue i) that the firm did not have any intent to maintain its monopoly in the market, ii) that there is no concern for limiting fair competition in the market, or iii) that 3.15 How is “platform dominance” assessed in your there are just causes for alleged unfair conducts. jurisdiction?

The Supreme Court of Korea held that the “platform dominance” 3.9 What is the role of efficiencies in analysing dominant firm behaviour? should be determined considering a certain aspect or phase of the problematic abusive practice. In this context, even if it could infer market dominance from the market share of multi-aspect platform The efficiency brought by an action of a dominant firm, suchas firms, this cannot act as proof of its market dominance of the multi- promotion of innovation, increase of number and variety of aspect platform firms because it determines market dominance competitors, is one of the elements that the KFTC considers when it considering aspects or the phase of the problematic abusive decides whether the firm abused its market dominance. acts.

3.10 Do the governing laws apply to “collective” dominance? 3.16 Under what circumstances are refusals to deal considered anticompetitive?

The Supreme Court of Korea mentioned that “dominant firms” The KFTC and the courts do not find abuse of market dominance refer to individual firms which dominate the market in the form of only with the fact that a certain firm suffered disadvantages by trade monopoly or oligopoly, but does not refer to collective dominance refusals by the market dominant firms. Therefore, to find unfair created by mutual consent of multiple non-dominant firms. From refusals, the market dominant firm’s anti-competitive intention/ this decision it is interpreted that a definition of collective market purpose (subjective) and refusals which have risk of anti-competitive dominance admitted in the EU is not applicable in Korea. results (objective) must be found by the KFTC or the courts.

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The KFTC announced that this corrective order is significant since 4 Miscellaneous it was the first time that the KFTC ordered against Qualcomm to correct its unfair business model. Qualcomm appealed against the 4.1 Please describe and comment on anything unique to decision and filed a revocation suit to the Seoul High Court. This your jurisdiction (or not covered above) with regards appeal currently continues (July 2018) and Qualcomm’s competitors to vertical agreements and dominant firms. (Apple, Intel, Mediatech, Huawei, etc.) are participating to support the KFTC in the revocation suit. The KFTC charged KRW 1.3 trillion (the maximum amount) on Qualcomm for its abuse of market dominance and issued a corrective

order as to the unfair business model. Acknowledgment Korea The KFTC determined that, for the following three conducts, The authors would like to thank their colleague In Hyuk Yoo for his Qualcomm breached its FRAND agreement not only as a possessor assistance in the preparation of this chapter. of standard patent as to CDMS, WCDMA, LTE, which are standard Mr. Yoo is a foreign attorney at Barun Law LLC. Before joining techniques, but also as a vertically-integrated market dominant firm the firm in 2018, he worked as an associate attorney at Feingold & in the modem chipset manufacturing/selling industry: (i) despite Alpert, LLP in New York. He received his J.D. from the University the competitor’s request, it refused to provide licences regarding of Minnesota Law School and his LL.M. in taxation from New York a mobile communication standard patent; (ii) it compelled the University School of Law. He is a member of the New York Bar conclusion and fulfillment of an unfair licence contract; and (iii) Association. it compelled mobile phone companies to provide their licence at no cost, only providing general licences and arbitrarily setting Tel: +82 2 3479 2667 / Email: [email protected] conditions of licence providing.

Gwang Hyeon Baek Ye Eun Choi Barun Law LLC Barun Law LLC Barun Law Building Barun Law Building 92 gil 7, Teheran-ro, Gangnam-gu 92 gil 7, Teheran-ro, Gangnam-gu Seoul 06181 Seoul 06181 Korea Korea

Tel: +82 2 3479 2497 Tel: +82 2 3479 7875 Email: [email protected] Email: [email protected] URL: www.barunlaw.com URL: www.barunlaw.com

Mr. Baek is a partner attorney at Barun Law LLC. Since joining the Ms. Choi is an associate attorney at Barun Law LLC. After joining firm in 2011, his practice has focused on antitrust/competition matters. the firm in 2017, she accumulated experience in the field of antitrust/ He has accumulated in-depth experience and expertise in the field competition. She represented and advised in cases concerning the of antitrust/competition representing in a variety of cases involving abuse of market dominance by SEP (Standard Essential Patent) different industries. He advised in cases concerning unjust solicitation holders, unjust insider trading, cartel in various industries, etc. of customers, abuse of business position (refusal to deal), abuse of She received her LL.B. from Korea University College of Law and market dominance, breach of the Fair Transactions in Subcontracting graduated from Korea University Law School. She is a member of the Act (reduction of unit price), unjust insider trading, etc. He served as Bar of the Republic of Korea. a visiting scholar at American University and has been serving as an adjunct professor (Monopoly Regulation and Fair Trade Act) at Korea University Law School. Mr. Baek received his LL.B. from Korean University College of Law and is a member of the Bar of the Republic of Korea.

Barun Law LLC (“Barun Law”) is Korea’s fastest growing and most dynamic full-service law firm. Founded in 1998, Barun Law has quickly taken its place among Korea’s top, full-service law firms. Conveniently located in Seoul’s Gangnam Business District, next to one of Asia’s largest and most prestigious convention centre complexes, Barun Law is comprised of over 200 attorneys who, together with highly qualified support staff, provide a full range of legal services. The firm’s partners include some of the most prominent and well-respected members of the Korean Bar, while a sophisticated and highly experienced team of foreign lawyers adds international savvy and recognised expertise, creating a substantial comfort factor for international clients.

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Netherlands Annemieke van der Beek

Kennedy Van der Laan Martijn van Bemmel

objections). This report will be handed over to the Legal Department 1 General of the ACM (Juridische Zaken/JZ). The undertakings concerned will have the opportunity to respond to the allegations in the statement 1.1 What authorities or agencies investigate and enforce of objections. The Legal Department will subsequently advise the the laws governing vertical agreements and dominant Board of the ACM whether a sanction should be imposed. The firm conduct? Board can subsequently impose a sanction (such as a fine) through an administrative decision. In the Netherlands, the Autoriteit Consument en Markt (ACM) is in The decision-making process of the ACM is set out in the Dutch charge of investigating and enforcing Dutch competition law. The General Administrative Law Act (Algemene wet bestuursrecht/Awb). ACM is the successor of the Nederlandse Mededingingsautoriteit (NMa) after it merged with the Independent Post and Telecommunications Authority and the Consumer Authority on 1 1.4 What remedies (e.g., fines, damages, injunctions, etc.) are available to enforcers? April 2013. The ACM is tasked with the enforcement of the Dutch Competition Act/DCA (Mededingingswet/Mw). The ACM can impose the following remedies at the end of the Apart from the ACM, there is a specific authority tasked with decision-making process: the enforcement of healthcare regulations, the Dutch Healthcare ■ Imposition of fines (an administrative fine up to EUR 900,000 Authority (Nederlandse Zorgautoriteit/NZa). Under article 20 or – if this is greater – 10% of the previous year’s annual of the Healthcare Market Regulation Act (Wet Marktordening group turnover. For cartels spanning multiple years, the gezondheidszorg) the Dutch Healthcare Authority may assess the maximum fine can be as high as 40% of the annual turnover. dominant position of parties in the healthcare sector. In case of repeat violations, the fine can be doubled). ■ Ordering to bring an infringement to an end (subject to a 1.2 What investigative powers do the responsible penalty). competition authorities have? ■ Take a commitment decision. The ACM can also impose sanctions for procedural breaches, for The ACM has far-reaching competences to investigate possible example for a failure to cooperate with the administrative powers of infringements of competition law. The ACM has, amongst others, the ACM (generally an administrative fine up to EUR 900,000 or – the power to request information, enter companies’ premises, seal if this is greater – 1% of the previous year’s annual group turnover. business premises and material, conduct interviews, make copies In case of repeat violations, the fine can be doubled). of information and documents and if the copies cannot be made on the spot, the ACM is entitled to take the information and documents away for this purpose for a short time. Furthermore, subject to the 1.5 How are those remedies determined and/or calculated? approval of a supervisory judge the ACM may enter the premises of individuals. The sanction is determined by the specific circumstances of the case. A fine will be calculated by taking into account the turnover. If the 1.3 Describe the steps in the process from the opening of ACM cannot decide on the exact turnover it will make an estimation. an investigation to its resolution. When determining the amount of the fine the ACM takes into The ACM generally opens an investigation on its own initiative, account the seriousness of the infringement, the circumstances following a complaint by a third party, based on (anonymous) in which the infringement was committed and the duration of the whistleblowing or following a leniency application. infringement. The ACM has the authority to determine its own priorities and The ACM takes into consideration any aggravating or mitigating can reject to act on complaints; for example, because of a lack of circumstances. Aggravating circumstances are for example: the consumer interest or economic impact. When not pursuing a formal offender committed a comparable infringement before, the offender complaint, the ACM will issue a reasoned decision. hindered the ACM’s investigation, the offender instigated or played a leading role in the committing of the infringement or the offender If the ACM concludes, based on the investigation, that there is an used control methods or coercive methods for the continuation of infringement of competition law, it will draft a report (statement of

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anti-competitive conduct. Mitigating circumstances could be the following: the offender cooperated (more than legally required) 1.9 Are private rights of action available and, if so, how with the ACM or provided full compensation to the parties injured do they differ from government enforcement actions? by the infringements on its own initiative. Yes, it is possible to make a private claim before a court regarding The ACM can also fine natural persons who were de facto a breach of competition law against an undertaking. Follow-on responsible for the infringement by an undertaking. For those types litigations following a decision by the ACM or another competition of fines, the ACM takes into account the level of involvement of the authority are also possible. person with the infringement.

1.10 Describe any immunities, exemptions, or safe harbors 1.6 Describe the process of negotiating commitments or that apply.

other forms of voluntary resolution. Netherlands

Article 7(1) DCA provides that the cartel prohibition of article The commitments may be offered by the undertaking or initiated 6 DCA does not extend to agreements where no more than eight by the ACM during a so-called state of play meeting. The ACM undertakings are involved and the combined turnover of the will assess whether the proposed commitment will be efficient undertakings does not exceed EUR 5,500,000 (for undertakings of and effective. If the ACM and the undertaking agree on the which the core activity is the supply of goods) or EUR 1,100,000 commitments, the undertaking can request the ACM to make the in all other cases. Hard-core restrictions also benefit from this commitments binding. The ACM will then issue a decision and exception. This is different under the European De Minimis. third parties will have the possibility to appeal. Article 7(2) DCA provides an exception to the cartel prohibition The commitment decision will be binding for a certain period of for horizontal agreements (between actual or potential competitors). time. Failure to comply with a commitment decision may result in the imposition of a fine (see answer in question 1.4). Parties may claim an individual exemption under article 6(3) DCA and argue that the positive effects of an agreement outweigh the There is also the possibility of a settlement, which takes the form negative effects on competition. Article 6(3) DCA is materially the of a simplified procedure and can lead to a shorter decision and same as article 101(3) TFEU. The parties will have to prove that speedier procedure. The ACM could decide to impose a lower fine the agreement leads to efficiencies that are beneficial for consumers, as a result of the settlement. It is possible to discuss a settlement that it does not restrict competition further than necessary and that it with the ACM even during the course of the investigation, before does not eliminate competition completely in respect of a substantial the statement of objections is issued, but also at a later stage when part of the product in question. the possible sanctions are being determined. Under article 15 DCA Dutch block exemption regulations may be The ACM also has a leniency policy regarding breaches of article issued by general administrative orders. There are currently two 6 DCA and a person or undertaking may submit a leniency request. orders in place: ■ Exemption agreements in the retail sector. 1.7 Does the enforcer have to defend its claims in front ■ Exemption agreements’ protection of branches. of a legal tribunal or in other judicial proceedings? If so, what is the legal standard that applies to justify an Furthermore, through articles 12 and 13 DCA the EU exemptions enforcement action? are incorporated into Dutch competition law. If an agreement is exempted under an EU Block Exemption Regulation, it will also be No, the ACM has the power to issue sanction decisions. Please also exempted under Dutch competition law. see the answer to question 1.8. 1.11 Does enforcement vary between industries or 1.8 What is the appeals process? businesses?

Any decision of the ACM is an administrative decision against Article 6 DCA applies to all undertakings, in all sectors. Although which an objection is possible. It is possible to file an objection the ACM does have policy guidelines for specific sectors, such as within six weeks after the decision. In the objection phase the the health sector, its enforcement does not generally vary between parties have the opportunity to present their view on the alleged industries or businesses. infringement and fine in a written document and/or in a hearing. The board of the ACM will decide in the objection phase whether 1.12 How do enforcers and courts take into consideration the objection is founded or not. an industry’s regulatory context when assessing It is possible to appeal against this decision at the administrative competition concerns? court in Rotterdam. After this appeal a higher appeal is possible at the Trade and Industry Appeals Tribunal (College voor het Beroep In general, Dutch competition law is applied in the same way for en bedrijsleven/CBb). The term for appeal at the administrative regulated industries as for other industries. The ACM does take into court in Rotterdam or the College voor het Beroep en bedrijfsleven account the industry’s regulatory context during its legal assessment. is six weeks. The ACM has a certain level of discretion in its decision making. An 1.13 Describe how your jurisdiction’s political environment administrative court will for example assess whether the ACM made may or may not affect antitrust enforcement. a plausible claim regarding the application of the competition law provisions, acted in line with the principles of proper administration, The ACM is an independent administrative body. fulfilled the substantiation requirement and correctly interpreted the competition law provision.

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The cartel prohibition of article 6 DCA is based on and comparable 1.14 What are the current enforcement trends and to article 101 TFEU. priorities in your jurisdiction?

In 2015, the ACM published a document in which it provides insight 2.4 Are there any type of vertical agreements or restraints that are absolutely (“per se”) protected? into its strategy and enforcement priorities with regard to vertical agreements. The ACM particularly focuses on those agreements that negatively affect consumers. No. The cartel prohibition of article 6 DCA prohibits vertical agreements or restraints if they have an appreciable anticompetitive In the last few years, the ACM has not prioritised vertical restraints object or effect. in its enforcement policy, but the ACM does seem to take a slightly bigger interest in vertical agreements than in previous years. This Netherlands is combined with an increased interest in the digital economy and 2.5 What is the analytical framework for assessing ecommerce sector. vertical agreements? The ACM periodically publishes agendas in which the ACM In general, it needs to be established whether the arrangement announces which topics it will focus on. Currently the following is an agreement, a decision by an association of undertakings fields are on the agenda for 2018–2019: digital economy; the energy or a concerted practice. Subsequently it needs to be established market in transition; ports and transport; and the prices of medicines. whether the agreement has as its the object or effect the prevention, More information on the publications of the ACM is available on its restriction or distortion of competition. Object and effect restrictions website: www.acm.nl. are assessed in line with European case law. It will also have to be determined whether the agreement has an appreciable effect on 1.15 Describe any notable case law developments in the competition. past year. An agreement will still fall outside the scope of article 6 DCA if it fulfils the criteria of the exception of article 7 DCA (see question One of the most notable decisions of the last year is a civil case 1.10); is concluded by public entities carrying out non-economic relating to selective distribution systems and platform bans (Nike activities; is concluded by undertakings within the same single (NEON)/Action Sport). The Dutch court ruled that Nike can restrict economic unit; or concerns a genuine agency relationship. online sales via online platforms within its selective distribution Once an agreement falls within the scope of the prohibition of article system. The decision of the Dutch court was issued before the 6 DCA it will have to be determined whether it qualifies under an decision in the European Coty case, but the court did refer to the EU or Dutch block exemption or is exempted on the basis of article Opinion of the Advocate General in the Coty case. 6(3) DCA. Under Dutch competition law both object and effect restrictions can qualify for such an exemption. However, in practice 2 Vertical Agreements an object restriction will rarely meet the criteria.

2.6 What is the analytical framework for defining a market 2.1 At a high level, what is the level of concern over, and in vertical agreement cases? scrutiny given to, vertical agreements?

The definition of the relevant market with regard to article 6 DCA is In general, vertical agreements are considered less restrictive to in line with the definition of the market under European competition competition than horizontal agreements. However, in recent years law. The ACM refers to the Commissions Notice on the definition the ACM seems to have taken a bigger interest in vertical agreements. of relevant market for the purposes of European Competition Law (97/C 372/03). 2.2 What is the analysis to determine (a) whether there is an The relevant market consists of the relevant product market and agreement, and (b) whether that agreement is vertical? the relevant geographical market. The relevant product market “comprises all those products and/or services which are regarded Dutch competition law follows the same analysis as under European as interchangeable or substitutable by the consumer, by reason of competition law. The ACM regularly refers to the case law of the the products’ characteristics, their prices and their intended use”. EU Court and European Commission. The relevant geographical market “comprises the area in which the The DCA does not contain a definition of vertical agreements or undertakings concerned are involved in the supply and demand of vertical restraints. However, in its 2015 publication “ACM’s strategy products or services, in which the conditions of competition are and enforcement priorities with regard to vertical agreements” the sufficiently homogeneous and which can be distinguished from ACM defined a vertical agreement as: “an agreement between two neighbouring areas because the conditions of competition are or more undertakings that are active at different levels of the same appreciably different in those areas”. distribution chain of goods or services. The agreement could relate to the conditions of the purchase, sale or resale of the respective goods 2.7 How are vertical agreements analysed when one of or services”. This generally follows the definition under EU law. the parties is vertically integrated into the same level as the other party (so called “dual distribution”)? Are 2.3 What are the laws governing vertical agreements? these treated as vertical or horizontal agreements?

Vertical agreements are governed by the cartel prohibition of article This is analysed in the same way as under European competition 6 DCA. Furthermore, the ACM applies article 101 of the Treaty on law. the Functioning of the European Union (TFEU) if, amongst others, the vertical agreement may affect trade between EU Member States.

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2.8 What is the role of market share in reviewing a vertical 2.15 Have the enforcement authorities issued any formal agreement? guidelines regarding vertical agreements?

The market shares of the undertakings are important for determining The ACM follows, amongst others, the European Commission the application of the European Vertical Block Exemption Regulation Guidelines on Vertical restrictions and the VBER. The ACM can (VBER) and to assess the effects of an agreement on the market. also publish its own formal guidelines, such as the guidelines for Furthermore, the existence of cumulative effects and the existence of combination agreements from 2013. The ACM also provides an insight a parallel network of similar restraints is relevant for the assessment into its strategy and priorities in its 2015 publication “ACM’s strategy of a vertical agreement under Dutch competition law. and enforcement priorities with regard to vertical agreements”. Netherlands 2.9 What is the role of economic analysis in assessing 2.16 How is resale price maintenance treated under the law? vertical agreements? The ACM treats resale price maintenance largely in line with Economic analysis is most relevant in assessing the effect on European competition law. This means that minimum or fixed prices competition of an agreement. It has a lesser impact on the assessment (or recommended prices with the same effect) can be prohibited of restrictions by object. Economic analysis also plays an important under the cartel prohibition of article 6 DCA. role when determining the relevant market and the assessment of Following its 2015 publication “ACM’s strategy and enforcement efficiencies (in the context of an exemption). priorities with regard to vertical agreements” the ACM will review whether an arrangement establishing resale price maintenance has 2.10 What is the role of efficiencies in analysing vertical an effect on consumer welfare, before taking enforcement actions. agreements? The ACM does not necessarily believe that resale price maintenance is harmful in all situations. Efficiencies are not part of the initial research of the ACM in finding In general, the ACM is reluctant to take enforcement actions competitive restraints in vertical agreements. Parties may claim involving resale price maintenance. There have been several that the anticompetitive aspects of an agreement are justified by cases were the Dutch courts decided that, although resale price efficiencies, in order to benefit from an exemption under article maintenance can be considered a hardcore restriction, there was no 6(3) DCA. The ACM will assess the market circumstances and appreciable effect on competition. For example, in the Foka/Loewe product characteristics to determine whether efficiencies are likely. case it was established that Loewe had the intention to influence Examples of efficiencies are solving a “free-rider” problem, opening the price level of Foka, but it was not established that this had an up or entering new markets or solving the so-called hold-up problem. appreciable effect on competition. Another example is the Secon case in 2000. The ACM had fined 2.11 Are there any special rules for vertical agreements fashion house Secon for imposing a fixed minimum resale price on its relating to intellectual property and, if so, how does distributors. However, the Dutch Trade and Industry Appeals Tribunal the analysis of such rules differ? (CBb) ruled in 2005 that the ACM had not sufficiently established that there also was an appreciable restriction of competition. There are no specific Dutch rules for vertical agreement relating There is one specific type of fixed resale prices mandated by Dutch to intellectual property. The analysis will be the same as under law. The Dutch Act on fixed book prices mandates publishers in European competition law. For example, the VBER and the the Netherlands to set consumer prices of new books, and prohibits block exemption concerning the transfer of technology might be book dealers from providing discounts on these prices. applicable.

2.17 How do enforcers and courts examine exclusive 2.12 Does the enforcer have to demonstrate dealing claims? anticompetitive effects? This is examined generally in the same way as under European Where the agreement has as its object the restriction of competition, competition law. the ACM does not need to demonstrate anticompetitive effects. The An example of exclusive dealing is the investigation by the ACM ACM must demonstrate those effects for other vertical restraints. into the beer breweries in 2002 and 2013. Breweries concluded vertical agreements with businesses (such as bars and hotels) 2.13 Will enforcers or legal tribunals weigh the harm containing obligations to purchase beer from only one brewery against potential benefits or efficiencies? (exclusive distribution). As a consequence, a bar could not sell competing brands of other breweries. The ACM concluded that the The harm of a vertical restraint will be weighed against potential exclusive dealings agreements were not anticompetitive due to the benefits or efficiencies with regard to an exemption based on article specific dynamics of the beer market. A deciding factor was the 6(3) DCA or article 101(3) TFEU. finding that the beer breweries did actually substantially compete with each other for those sale outlets.

2.14 What other defences are available to allegations that a An example of a Dutch court case involving exclusive dealing is vertical agreement is anticompetitive? BP/Benschop. The Dutch court decided that an exclusive purchase obligation for a gas station infringed competition law, because of the See questions 1.10 and 2.5. Furthermore, it could also be argued duration of 20 years, the market share of the involved parties and that an agreement qualifies as an ancillary restraint. network effects. This decision was later confirmed by the Dutch Supreme Court.

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Normally a distinction is made between two types of MFNs: wide 2.18 How do enforcers and courts examine tying/ APPAs and narrow APPAs. In a wide APPA, the manufacturer supplementary obligation claims? agrees that the price of its product or service on the platform (such as a booking site) is not higher on any other (competing) platform. This is examined generally in the same way as under European In a narrow APPA, the manufacturer agrees that the price is not competition law. higher on its own platform or own website. The ACM states that Tying is mostly evaluated under the prohibition of abuse of APPAs can infringe competition law as it may be difficult for new dominance, but tying could also constitute a vertical restraint under platforms to acquire market share and APPAs can lead to higher article 6 DCA, for example where it results in a single branding type commissions for manufacturers for using the platform. of obligation for the tied product. The ACM stipulates that APPAs could also lead to efficiencies that could counterbalance the possible harm. For example, APPAs Netherlands 2.19 How do enforcers and courts examine price could protect platforms against “free riding” by manufacturers on discrimination claims? the platform and APPAs could promote price competition between manufacturers. This is examined generally in the same way as under European In 2016, the ACM decided not to further investigate thuisbezorgd. competition law. nl, an online food ordering platform. Thuisbezorgd.nl required the Price discrimination is assessed under the prohibition of abuse guarantee from the restaurants on its platform that the prices would not of dominance. Price discrimination in vertical agreements is not be higher than on their own platform, thus a narrow APPA. According considered a restriction of competition. to the ACM, this “same-price guarantee” did not negatively affect consumers. The ACM was also actively involved in the European investigations 2.20 How do enforcers and courts examine loyalty discount claims? by competition authorities in the Booking.com case and the ACM agreed with the outcome of this case. The ACM decided not to start a local investigation into Booking.com. This is examined generally in the same way as under European competition law. Loyalty discounts are also assessed within the framework of abuse 3 Dominant Firms of a dominant position. Loyalty discounts in vertical agreements are not considered a restriction of competition. 3.1 At a high level, what is the level of concern over, and scrutiny given to, unilateral conduct (e.g., abuse of 2.21 How do enforcers and courts examine multi-product dominance)? or “bundled” discount claims? In 2017, the ACM, as in earlier years, has scrutinised unilateral As with tying, price discrimination and loyally discounts, multi- market conduct of dominant undertakings, although the number product or “bundled” discount claims are assessed in the context of of investigations and decisions tend to be lower than cartel abuse of a dominant position. investigations. In 2017, the ACM has imposed a substantial fine on the Dutch Railways for abuse of dominance in a public procurement procedure relating to public transport. 2.22 What other types of vertical restraints are prohibited by the applicable laws? Sector-specific regulations enable the ACM to impose measures ex ante on undertakings that have market power. For example, the Under Dutch law there is no exhaustive list of vertical restraints that Dutch postal service PostNL must allow competitors on its post are considered anticompetitive. distribution channel. As mentioned under question 1.14, the ACM is recently focusing on the digital economy and ecommerce sector. This also means that 3.2 What are the laws governing dominant firms? the ACM has more interest in vertical restraints relating to those sectors. For example, restrictions of online sales, platform bans Under article 24 DCA undertakings are prohibited from abusing and more in general restraints relating to selective and/or exclusive a dominant position. The Dutch provision is based on article 102 distribution systems. In 2009, the ACM conducted a sector scan TFEU. The ACM may also apply article 102 TFEU if trade between regarding online sales, focusing on resale price maintenance, Member States is affected. Specific provisions apply in regulated refusals to deal and dual pricing. The sector scan did not result in an industries such as the telecom, transport, energy and postal sectors. actual investigation by the ACM. An example of a case involving online sales is Voorne Koi/Oase. 3.3 What is the analytical framework for defining a market The court found that the contractual requirement for the distributor in dominant firm cases? Voorne Koi to get approval from the supplier Oase to conduct online sales constituted a hardcore restriction. The analytical framework is the same as under European competition law. The ACM refers to the Commissions Notice on the definition 2.23 How are MFNs treated under the law? of relevant market for the purposes of European Competition Law (97/C 372/03). The analysis is substantively the same as for defining In its 2015 publication “ACM’s strategy and enforcement priorities markets in vertical agreement cases (see question 2.6). with regard to vertical agreements” the ACM stipulates how it deals with price parity clauses (retail MFNs).

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3.4 What is the market share threshold for enforcers or a 3.9 What is the role of efficiencies in analysing dominant court to consider a firm as dominant or a monopolist? firm behaviour?

The market structure is taken into account to consider whether a firm See the answer to question 3.8. can act independently from its competitors, suppliers, purchasers or consumers. The most important element when considering the market 3.10 Do the governing laws apply to “collective” structure is market share. A market share of 50% is regarded as a strong dominance? indication of dominance. In this respect the ACM and the Dutch courts follow European competition law, more specifically European case Yes, article 24 DCA also applies to abuses conducted by several law and the Commissions Guidelines on article 102 TFEU. undertakings that collectively hold a dominant position. The Netherlands definition of a dominant position in article 1(i) DCA refers toa 3.5 In general, what are the consequences of being dominant position of one or more undertakings. adjudged “dominant” or a “monopolist”? Is dominance or monopoly illegal per se (or subject to regulation), or are there specific types of conduct that are prohibited? 3.11 How do the laws in your jurisdiction apply to dominant purchasers? Being adjudged “dominant” or a “monopolist” has no legal consequences as such; only the abuse of such a position is prohibited. The DCA, more specifically article 6 DCA and article 24 DCA, also As opposed to article 102 TFEU, article 24 DCA does not contain a apply to the behaviour of dominant purchasers. In 2004, the ACM list of abusive behaviour. The ACM considers the concept of abuse published a policy document regarding dominance of purchasers as an “open-ended concept” that also encompasses conduct other (Visiedocument Inkoopmacht). than the examples mentioned in article 102 TFEU. 3.12 What counts as abuse of dominance or exclusionary or anticompetitive conduct? 3.6 What is the role of economic analysis in assessing market dominance? Article 24 DCA relates to both exploitative and exclusionary abuses Economic analysis plays an essential role in various aspects of the of a dominant position. Examples of abuse are: imposing exclusive analysis of dominance: (i) the definition of the product/services and dealing agreements in order to foreclose competitors; tying and geographical relevant market; (ii) establishing the market share; and bundling; predatory pricing; discriminatory pricing; margin (iii) the assessment of elements that could constrain market power squeeze; and refusal to supply (see question 3.5). (such as potential competition and countervailing buyer power). Economic analysis is also crucial for analysing the restrictive effects 3.13 What is the role of intellectual property in analysing of abusive behaviour. dominant firm behaviour?

3.7 What is the role of market share in assessing market The exercise of an intellectual property right by a dominant dominance? undertaking may constitute an abuse of dominant position. For instance, under exceptional circumstances, a refusal to grant a In assessing market dominance, the market share of an undertaking licence may be considered abusive, as other types of refusals to deal plays an important role and may lead to the strong presumption of and refusal of access to essential facilities. dominance if it exceeds 50% (see questions 3.4 and 3.10). Especially in case of market shares below 50%, ACM and the Dutch courts will 3.14 Do enforcers and/or legal tribunals consider “direct also take into account an undertaking’s financial strength, access to effects” evidence of market power? supply or sales markets, links with other undertakings, legal or factual barriers for market entry by other undertakings, actual or potential The ACM and the Dutch courts may consider “direct effects” evidence competition, the undertaking’s ability to shift its supply or demand to of market power, such as price levels, but in practice they rely on other goods or commercial services and countervailing (buyer) power. criteria relating to the market structure (see questions 3.4 and 3.7).

3.8 What defences are available to allegations that a firm 3.15 How is “platform dominance” assessed in your is abusing its dominance or market power? jurisdiction?

Article 24 DCA does not provide an exemption to the prohibition of A firm dominant on a two-sided market, so-called “platform an abuse of dominant position, comparable to article 101(3) TFEU dominance”, can behave anticompetitively in the same way other or article 6(3) DCA. A dominant undertaking may defend that the dominant firms do. In 2016, the ACM published a document (Grote determination of the relevant market is incorrect, or allege that it platforms, Grote problemen?) in which it reflects on the question does not have a dominant position. It may also defend its behaviour whether data held by platforms lead to market power. In 2017 the by demonstrating that its conduct is objectively necessary or by ACM conducted a study into online platforms that stream videos and demonstrating that its conduct produces substantial efficiencies for the competition risks that come with these platforms (Rapportage consumers which outweigh any anti-competitive effects. The ACM Online videoplatforms onder de loep). The ACM concluded that it in this respect refers to the Guidelines on article 102 TFEU. had not found violations on the market of online advertisements, nor on the market for online videos.

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3.16 Under what circumstances are refusals to deal 4 Miscellaneous considered anticompetitive?

4.1 Please describe and comment on anything unique to Generally speaking, undertakings have the right to choose their your jurisdiction (or not covered above) with regards trading partners and to dispose freely of their property. Under certain to vertical agreements and dominant firms. conditions, refusal to deal may be considered abusive behaviour. The ACM and the Dutch courts apply the criteria for refusal to In 2015, the ACM published a policy document on vertical deal and refusal of access to an essential facility as developed in agreements in which it indicates its strategy on its enforcement European case law. The criterion that the refusal should lead to of competition law with respect to vertical agreements. In the exclusion of competition has been interpreted strictly by the Dutch last few years, the ACM has not prioritised vertical restraints in Netherlands courts (case Curator/NVM, LJN BM 1240). its enforcement policy. The ACM takes the view that in general the positive effects of such restraints outweigh the restriction of competition. The ACM will enforce competition law only in case of expected damages to consumer welfare.

Acknowledgment Annemieke van der Beek and Martijn van Bemmel thank their colleague Minke de Haan for her assistance in preparing this chapter.

Annemieke van der Beek Martijn van Bemmel Kennedy Van der Laan Kennedy Van der Laan Haarlemmerweg 333 Haarlemmerweg 333 1051 LH Amsterdam 1051 LH Amsterdam Netherlands Netherlands

Tel: +31 20 5506 684 Tel: +31 20 5506 653 Email: [email protected] Email: [email protected] URL: www.kvdl.com/en URL: www.kvdl.com/en

Annemieke advises on board room level the full range of EU and Dutch Martijn assists clients on various Competition-Law related subjects. competition law issues, including joint venture and mergers, as well as He often works with clients in the financial, technology, healthcare and cartels, distribution, abuse of dominance and state aid. Her clients are fashion/retail sectors. mainly active in the technology, finance and healthcare sectors. He advises his clients strategically with regards to cooperation Due to her practical approach and excellent relationships with agreements, abuse of dominance and mergers and acquisitions. In the authorities, she often obtains favourable results for clients particular, he represents clients when they are under investigation by from supervisory authorities such as the Netherlands Authority for regulators, such as the Authority for Consumers & Markets and the Consumers & Markets (ACM), the Dutch Healthcare Inspectorate European Commission and when these agencies are performing dawn (NZa), and the European Commission. Annemieke also has ample raids. Furthermore, Martijn advises and litigates on European, Dutch experience in representing clients in proceedings against the and American financial sanctions and export controls. supervisors (ACM, NZa and the European Commission), as well as in Martijn graduated with honours from the University of Amsterdam the Dutch and European courts. with an LL.M. degree in Corporate law. He also graduated from the Annemieke is a member of the Advisory Committee on Competition University of Amsterdam with an LL.M. degree in Information law and law of The Netherlands Bar Association and associate with the Dutch an M.Sc. degree in Social Sciences. In 2009, he moved to New York Magazine for European law. and studied at Benjamin N. Cardozo School of Law, Yeshiva University. Martijn also worked as a freelance graphic designer.

Kennedy Van der Laan is an independent Dutch law firm, with over 100 attorneys. For over 25 years, we have serviced market leaders with specialist legal know-how including competition law. We operate globally from our offices in Amsterdam and Eindhoven. Our EU and Competition law team has been involved in many landmark cases in the financial and banking sector. We are regarded as the leading competition law firm in the banking sector in the Netherlands and have been involved in all major projects in the field of payments. We also represent high profile clients in the fashion and retail sectors and have special expertise in the healthcare/life sciences sector as well as the media, ICT and technology sectors. As a spider in the firm’s web, our EU and Competition law team work together with all other teams of Kennedy Van der Laan. We have strong working relationships with top law firms in all major jurisdictions across the globe.

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Russia German Zakharov

ALRUD Law Firm Alla Azmukhanova

legal entities and company officers, or disqualify company officers 1 General as remedies. It should be mentioned that individuals or legal entities have a right to claim private damages actions, which may be also 1.1 What authorities or agencies investigate and enforce considered as a remedy. the laws governing vertical agreements and dominant firm conduct? 1.5 How are those remedies determined and/or calculated? The Federal Antimonopoly Service of the Russian Federation (hereinafter – the “FAS”) and its territorial bodies investigate and The FAS determines and calculates an administrative fine in enforce the laws governing vertical agreements and dominant firm accordance with the provisions of the Code of Administrative conduct. Offences of the Russian Federation No. 195-FZ of December 30, 2001. 1.2 What investigative powers do the responsible The FAS may impose an administrative fine on legal entities for competition authorities have? abuse of dominant position. Generally, the law provides the minimum and maximum amount of the fine. At the same time, if the The FAS has broad investigative powers in enforcing the competition abuse of dominance leads or may lead to prevention, restriction or rules and regulations. In particular, the FAS: may conduct elimination of competition, the FAS may impose an administrative scheduled and unscheduled inspections; may receive documents fine based on the sum of the offender’s turnover on the market on upon motivated request, as well as explanations and information in which the administrative offence has been committed (in the amount written or oral form (including the information constituting trade of 1% to 5% of the sum of the offender’s turnover). secret, state secret and other legally protected secrets); has powers Under the law, legal entities that conclude prohibited vertical of unimpeded access on the territory and (or) into the premises and agreements may face a “turnover-based fine” in the amount of 1% buildings of the inspected entity; and has powers of unimpeded to 5% of the sum of the offender’s proceeds from the sale of the examination of the territories, buildings and premises occupied by product (work or service) in the market on which the administrative the inspected entity. offence has been committed. Russian law provides mitigating and aggravating circumstances that 1.3 Describe the steps in the process from the opening of the FAS may take into account when calculating the fine. an investigation to its resolution.

The most common form of antitrust investigation is an initiation of 1.6 Describe the process of negotiating commitments or other forms of voluntary resolution. the case on the violation of antitrust legislation. The FAS initiates the case, and over three months (with possible prolongation to six months) it analyses all of the circumstances to consider the case. Russian competition law establishes such form of voluntary As a result, the FAS may resolve the case by issuing a decision. resolution as a leniency programme (only for anticompetitive Herewith, before pronouncement of the final decision, the FAS agreements or concerted actions). should issue a statement of objections based on the circumstances A company can be discharged from liability if all of the following of a matter. Before the initiation of this procedure, the FAS may criteria are met: an antitrust authority had no information regarding conduct scheduled and unscheduled inspections and issue the request the committed administrative offence; the legal entity has refused on the provision of documents (information). The FAS often applies further participation in the agreement; and information and such preventive mechanism as an institution of warning. documents provided are sufficient to establish an administrative offence.

1.4 What remedies (e.g., fines, damages, injunctions, etc.) By applying for leniency, a company may have the chance to are available to enforcers? minimise reputational risks and may provide for information confidentiality. The company may also negotiate the commitments In relation to the abuse of dominant position or conclusion of a imposed by the FAS, but this would not be applied in an obligatory vertical agreement, the FAS may impose an administrative fine on manner.

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However, there is no administrative settlement procedure. The company may settle the dispute in a court during the hearings for 1.11 Does enforcement vary between industries or challenging the FAS decision on antimonopoly violation and/or businesses? imposition of an administrative fine. In this case, the commitments between the FAS and the company are set in the official settlement An enforcement of Russian antitrust law does not vary between agreement approved by the court. industries or businesses. Herewith, retail, banking, electricity, communication and some other industries are specially regulated industries. 1.7 Does the enforcer have to defend its claims in front of a legal tribunal or in other judicial proceedings? If In particular, special regulation spreads on the dominant position

Russia so, what is the legal standard that applies to justify an shares of the companies active in mentioned spheres. enforcement action? Banking: the financial organisation having a market share of more than 10% on the only market within the Russian Federation, or 20% The entire procedure is internal (please see question 1.3). The on the market, where the goods are also traded on other markets decision of the FAS may be appealed to the court. Further, the within the Russian Federation, is deemed to be dominant. decision of territorial offices of the FAS may be appealed to the FAS Electricity: an entity, which has generating equipment with the share central office, as well as to the court. exceeding 20%, is deemed dominant. Communication: the entity that is active in the market of mobile 1.8 What is the appeals process? radiotelephone communication services occupies a dominant position if the share in this market exceeds 25%. Complaints may be filed to the FAS, its territorial bodies or directly to the court. The limitation period for such claims is three months 1.12 How do enforcers and courts take into consideration from the date of issuing the decision or prescription by the FAS. an industry’s regulatory context when assessing The court procedure is governed by standard procedural rules. The competition concerns? court appellation may also be filed after the internal FAS appeal process. In such case, the limitation period is one month from the The FAS usually pays additional attention to industries with date the decision of prescription entered into force. regulatory context, for example, tariff regulation industries. The The Competition Law also provides for the formation of a collegial peculiarities of the particular market should be taken into account by body as a part of the FAS. This body may give explanations the FAS in order to assess the state of competition on the considered related to the applicability of the antimonopoly legislation and may market. Special rules are equally important as general competition consider complaints on decisions and (or) orders of the territorial rules. antimonopoly authorities. Such complaints may be filed by individuals or legal entities involved in the case on violation of the 1.13 Describe how your jurisdiction’s political environment antimonopoly legislation within one month from the date of making may or may not affect antitrust enforcement. such decision or issuing of the order. The collegial body makes the decision within two months from the date the complaint was made. Practically, the political environment may be a part of a general context that may be taken into account through the consideration 1.9 Are private rights of action available and, if so, how of a particular matter and forming the FAS position. We see the do they differ from government enforcement actions? tendency to initiate the cases against multinational companies, but consider this as the stage of development of the competition Individuals or legal entities, whose rights and interests are infringed authority rather than a political issue. as a result of violation of antimonopoly legislation, can file lawsuits under the established procedures, particularly, lawsuits to restore the 1.14 What are the current enforcement trends and violated rights, including lost profit and compensation of damage priorities in your jurisdiction? caused to property. Unlike government enforcement actions, this legal institute is underdeveloped and practice is quite rare. The main law enforcement trend related to vertical agreements and dominant firms is the elaboration of the new FAS approaches to the 1.10 Describe any immunities, exemptions, or safe harbors market analysis in the digital economy, in particular: that apply. ■ emergence of new markets of certain digital products, such as navigation, electronic document flow, etc. require new Certain anticompetitive agreements and forms of abuse of approaches for market analysis; dominance can be considered admissible if such actions or ■ appearance of new market participants – aggregators agreements (i) do not give rise to the possibility of competition rendering specific informational services and which being eliminated on the relevant market, (ii) do not impose on effectiveness depends on the number of users – require the the parties or third parties restrictions not corresponding to the FAS taking into account network effects within the market purposes of such actions or agreements, and (iii) lead or may lead analysis; and to the following: (1) improving the production and sale of goods, or ■ the use of big data, IP rights and pricing algorithms is assessed promoting of technical and economic progress, or an increase of the in detail by the FAS as a factor of increasing market power of competitiveness of Russian goods on the world market; or (2) if the global corporations. purchasers obtain preferences (benefits) commensurable with the Moreover, due to globalisation the FAS considers the Eurasian preferences (benefits) obtained by companies as a result of actions Economic Union (the “EEU”) to be an important platform for (omission) and agreements. There are also market share thresholds cooperation of antitrust authorities of the EEU member states within applied to safe harbour during assessment of dominant position and conducting transboundary antimonopoly investigations. There are vertical agreements. already some examples of the EEU investigations that resulted in

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holding the companies liable (Caterpillar case, NMLK case), and a number of them are still ongoing (Philips case, etc.). Moreover, 2 Vertical Agreements the Eurasian Economic Commission actively conducts market analysis and sends requests for information to market players. We 2.1 At a high level, what is the level of concern over, and expect that these trends will continue and the Commission has good scrutiny given to, vertical agreements? chances to occupy a role of proactive Eurasian regulator in antitrust enforcement. It is dependent on the type of agreement. However, there is a different approach: resale price maintenance cases are generally 1.15 Describe any notable case law developments in the approached as “per se”, while other cases are usually based on

past year. the rule of reason. The FAS considers vertical agreements as less Russia serious violations than cartel agreements. We have seen that the LG case (2017–2018) FAS tends to pay more attention to the economic effects of particular transactions and assesses vertical agreements more under the “rule The FAS reviewed the case against the Russian subsidiary of LG of reason” rather than the “per se” doctrine. Electronics, Inc., global developer and producer of consumer electronics, mobile communications and home appliances, on anticompetitive coordination of economic activity of resellers in the 2.2 What is the analysis to determine (a) whether there market of LG smartphones leading to resale price maintenance. is an agreement, and (b) whether that agreement is vertical? This is the first case where the FAS had to deal with anticompetitive effects of pricing algorithms. According to the FAS qualification, a) The law supposes that vertical agreements may be concluded the Russian subsidiary of LG Electronics, Inc. used special not only through civil contracts, the subject matter of software to monitor resale prices for LG smartphones and then which includes the transfer of goods from one undertaking used the results of such monitoring to correct prices of resellers up to another (contracts of sale, supply agreements, dealer to the recommended level. Within this case, the FAS elaborated agreements, distribution agreements and other agreements), an important position according to which “the use of pricing but also through oral agreements, implied-in-fact contracts or algorithms as itself does not constitute antimonopoly violation, but silent agreements. may facilitate committing such violation”. b) Vertical agreements are agreements between companies or The decision on the LG antimonopoly case was rendered on undertakings at different levels of the technological cycle March 2, 2018 and became a landmark precedent in the FAS law containing the conditions under which such entities should acquire, sell or resell certain goods or services. enforcement practice. In particular, this case raised new discussions in the Russian competition regulation regarding the use of pricing algorithms and resulted in the package of amendments related to 2.3 What are the laws governing vertical agreements? digital antitrust (the “fifth antimonopoly package”). Novolipetskiy Metallurgicheskiy Kombinat (NLMK) case (2017) Vertical agreements are governed by Articles 11 and 12 of the Within the year 2017, the Eurasian Economic Commission (the Federal Law from July 26, 2006 No. 135-FZ “On Protection of “Commission”) of the Eurasian Economic Union (the “EEU”) took Competition” (hereinafter – the “Competition Law”), Clarifications a more proactive role in the sphere of antitrust enforcement. In of the FAS Board No. 2 “On vertical agreements, including 2016–2017, the Commission analysed 16 complaints on antitrust dealership agreements” (approved by the Minutes of the FAS Board violations and initiated 10 investigations within the EEU markets from February 17, 2016 No. 3) and Decree of the FAS as of July of railway wheels and concrete sleepers, trucks and cars, tires, metal 16, 2009 No. 583 “On cases of acceptance of agreements between constructions, and smartphones. economic entities”, etc. In September 2017, the Commission held NLMK, the only Russian producer of special steel for transformers, liable for violation of the 2.4 Are there any type of vertical agreements or restraints Treaty of the EEU in the form of “economically, technologically or that are absolutely (“per se”) protected? otherwise unjustified establishment of different prices (tariffs) for the same goods and creation of discriminatory conditions”. The Competition Law provides that the following two types of vertical restraints are regarded as the most harmful and protected The Commission concluded that NLMK, holding 99.99% of the by rebuttable presumption of “per se”: (1) the obligation not to sell EEU market of steel for transformers, supplied steel to Kazakhstan goods of a legal entity who is a seller’s competitor; and (2) resale customers up to 23% more expensive than to Russian customers. price maintenance. Herewith, in the past years, we have seen that NLMK with its group of persons a received total fine of RUB 217 the FAS tends to use the “rule of reason” doctrine more often than million (approx. USD 3.5 million) for antitrust violation. the “per se” doctrine. EVRAZ case (2017) The FAS recognised Evraz, one of the largest global mining 2.5 What is the analytical framework for assessing companies, abusing its dominant position within the market of vertical agreements? producing wheels for locomotives with a diameter of 1,058 mm. According to the authority, the profitability of producing wheels The general analytical framework is “rule of reason”. In contrast to for locomotives with a diameter of 1,058 mm at the company’s the “per se” approach, “rule of reason” needs to prove the restriction plants was unjustifiably overstated. The turnover fine has not been of competition. For example, it may be expressed in the reduction imposed yet. of the number of economic entities on the market, or the increase or decrease of prices and other circumstances, which may be considered as a restriction to competition.

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etc.) agreements. To prove any other vertical agreements (imposing 2.6 What is the analytical framework for defining a market territorial restraints, aimed at selective distribution, etc.) the FAS has in vertical agreement cases? to show the anticompetitive effects of such restrictions. However in practice the authority does not always conduct an analysis to The general analytical framework is “rule of reason”. In contrast prove the anticompetitive agreements for some types of vertical to “per se” approach, “rule of reason” needs to prove the restriction agreements. of competition. For example, it may be expressed in the reduction of the number of economic entities on the market, or the increase or decrease of prices and other circumstances, which may be 2.13 Will enforcers or legal tribunals weigh the harm against potential benefits or efficiencies? considered as a restriction to competition. Russia The FAS may weigh the harm against potential benefits for the 2.7 How are vertical agreements analysed when one of customers or efficiencies according to Article 13 of the Competition the parties is vertically integrated into the same level Law. It provides that vertical agreements can be considered as the other party (so called “dual distribution”)? Are admissible if they (i) do not create an opportunity to eliminate these treated as vertical or horizontal agreements? competition in the relevant product market, (ii) do not impose on the parties or third parties restrictions that do not correspond to Agreements within “dual distribution” are treated by the FAS as achievement of purposes of such agreements, as well as (iii) result vertical agreements. or may result in the following: (1) improving the production and sale of goods, promoting 2.8 What is the role of market share in reviewing a vertical of technical and economic progress, or increasing the agreement? competitiveness of Russian goods on the world market; and (2) receiving of preferences (benefits) by the purchasers The Competition Law provides “safe harbour” for vertical commensurable with preferences (benefits) obtained by agreements. According to this rule, vertical agreements concluded companies as a result of agreements and concerted practices. between undertakings holding a market share of less than 20% on the relevant market should be regarded as permissible. 2.14 What other defences are available to allegations that a vertical agreement is anticompetitive? 2.9 What is the role of economic analysis in assessing vertical agreements? Apart from the “safe harbour” 20% threshold argument, franchising agreement argument, benefits for customers and economic efficiencies We may see the increased role of the economic analysis in assessing for vertical agreements estimated under the rule of reason, the party vertical agreements by the authority within the last months. This may provide the FAS with the results of economic analysis in order to tendency is applicable not only for vertical agreements, but also for prove that the agreement has no anticompetitive effects. other institutes of the Competition Law, as merger control, cartel agreements, etc. 2.15 Have the enforcement authorities issued any formal guidelines regarding vertical agreements? 2.10 What is the role of efficiencies in analysing vertical agreements? Yes; Clarifications of the FAS Board No. 2 “On vertical agreements, including dealership agreements” (approved by the Minutes of the Improving the production and sale of goods, promoting technical FAS Board from February 17, 2016 No. 3) and Decree of the FAS and economic progress, or increasing the competitiveness of Russian as of July 16, 2009 No. 583 “On cases of acceptance of agreements goods on the world market may be used by the party as arguments between economic entities” (amended as of April 29, 2014). in favour of admissibility of vertical agreements if certain additional requirements are met. 2.16 How is resale price maintenance treated under the law?

2.11 Are there any special rules for vertical agreements Minimum or fixed resale price maintenance is prohibited per se relating to intellectual property and, if so, how does (with theoretically rebuttable presumption), while maximum resale the analysis of such rules differ? price maintenance and communication on recommended resale price are generally permissible. All the agreements granting the right to use or transfer all the rights for intellectual property (licence agreements, etc.) are exempted from the scope of the Competition Law. Moreover, all vertical agreements 2.17 How do enforcers and courts examine exclusive dealing claims? are permissible in the case that they are franchising agreements (which should be registered), and exclusive dealership is permissible within vertical agreements aimed at the organisation of sale of goods Exclusive dealership agreements are prohibited by theoretically under the trademark of the relevant wholesaler (producer). rebuttable presumption “per se”.

2.12 Does the enforcer have to demonstrate 2.18 How do enforcers and courts examine tying/ anticompetitive effects? supplementary obligation claims?

The FAS is not obliged to demonstrate anticompetitive effects in Tying/supplementary obligation claims are reviewed on a case-by- vertical agreements prohibited per se, including (i) resale price case basis and estimated under the rule of reason and taking into maintenance agreements, and (ii) exclusive dealership (distribution, account the results of economic analysis.

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2.19 How do enforcers and courts examine price 3.4 What is the market share threshold for enforcers or a discrimination claims? court to consider a firm as dominant or a monopolist?

Price discrimination claims are reviewed on a case-by-case basis The dominant position of an entity in a particular commodity market and estimated under the rule of reason and taking into account the is presumed if the market share of the entity exceeds 50%. The entity results of economic analysis. having a market share of between 35% and 50% is also deemed to be dominant. Herewith, there are some special thresholds set for collective dominance, financial organisations, performers in state 2.20 How do enforcers and courts examine loyalty procurement and for some other cases (please see question 1.11).

discount claims? Russia

The general approach to loyalty discounts is negative, but there are 3.5 In general, what are the consequences of being no strong precedents on this issue. adjudged “dominant” or a “monopolist”? Is dominance or monopoly illegal per se (or subject to regulation), or are there specific types of conduct that 2.21 How do enforcers and courts examine multi-product are prohibited? or “bundled” discount claims? Dominance or monopoly is not prohibited per se. The Competition Multi-product or “bundled” discount claims are reviewed on a case- Law prohibits the abuse of dominant position; in particular, any by-case basis and estimated under the rule of reason and taking into abuse of dominant position which leads or may lead to prevention, account the results of economic analysis. restriction or elimination of competition and (or) infringement of the interests of other undertakings (economic entities) in the sphere 2.22 What other types of vertical restraints are prohibited of business activity or indefinite range of consumers. by the applicable laws? 3.6 What is the role of economic analysis in assessing There is no exhaustive list of prohibited vertical agreements. market dominance? Herewith, we may specify the following restrictions: territorial restraints; sales channel’s restrictions; and other vertical agreements The role of economic analysis is significant enough. Based on economic leading to anticompetitive effects. approaches in relation to definition of product and geographical boundaries of the relevant market, the FAS may define the market share 2.23 How are MFNs treated under the law? and, therefore, may establish dominant position. Moreover, the FAS will consider the influence of the dominant company’s actions using economic analysis. It should be noted that the dominant company may The Competition Law does not prohibit MFN clauses directly. use economical justifications as evidence that its actions may not lead However, within vertical agreements, the FAS may assess such to restriction of competition on the Russian market. clauses under the rule of reason to check whether they have any anticompetitive effects. 3.7 What is the role of market share in assessing market dominance? 3 Dominant Firms Market share is one of the most significant criteria for assessing 3.1 At a high level, what is the level of concern over, and dominance (please see question 3.4). scrutiny given to, unilateral conduct (e.g., abuse of dominance)? 3.8 What defences are available to allegations that a firm is abusing its dominance or market power? The FAS closely examines the business conduct of firms holding significant market shares with strong market power. Thus, the The firm may use as a defence evidence which indicates lack of the dominant position imposes many additional compliance obligations market power, lack of abuse or lack of restriction of competition. on the company. The FAS permanently renders decisions on notable Herewith, the company can provide economical and technological cases on abuse of dominant position with large turnover fines and justifications in order to prove the absence of violation ofthe broad coverage in mass media. Competition law.

3.2 What are the laws governing dominant firms? 3.9 What is the role of efficiencies in analysing dominant firm behaviour? The Federal Law “On protection of competition” No. 135-FZ as of July 26, 2006 (in particular, Articles 5, 6, 7 and 10). The role of efficiencies is similar to the role of economic analysis. The FAS may weigh the efficiencies according to Article 5 of the 3.3 What is the analytical framework for defining a market Competition Law during the assessment of dominance. in dominant firm cases? 3.10 Do the governing laws apply to “collective” In accordance with the FAS Order from April 28, 2010 No. 220 “On dominance? approval of the procedure of analysis of competition in the market”, the FAS shall use a “hypothetical monopolist” test to define the In general, collective dominance may be defined if the aggregate market boundaries. share of a maximum of three companies with the share of each of

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them being more than shares of others in the appropriate commodity implementation of exclusive rights for the results of intellectual market exceeds 50%, or the aggregate share of at most five activity, which creates individualisation of a legal entity or companies with the share of each of them being more than shares of individualisation of production, executed works or rendered others exceeds 70%. This provision shall not apply if the share of at services. least one of the abovementioned companies is less than 8%. However, the FAS, following the trend for introducing new regulation of the digital markets, launched reforms to the current 3.11 How do the laws in your jurisdiction apply to antimonopoly legislation. According to the FAS public statements, dominant purchasers? the reform is aimed, inter alia, at the cancellation of these antimonopoly immunities with respect to IP rights.

Russia Practice of recognition of purchasers as dominant is equally applicable. At the same time, there were some cases where both the FAS and the 3.14 Do enforcers and/or legal tribunals consider “direct court established a dominant position in relation to a purchaser. effects” evidence of market power?

3.12 What counts as abuse of dominance or exclusionary Direct evidence (such as a “hot document”, internal correspondence or anticompetitive conduct? or press release) might be considered as evidence of market power.

The Competition Law provides a non-exhaustive list of possible 3.15 How is “platform dominance” assessed in your actions that may be qualified as abuse of dominance or market jurisdiction? power. For example, the abuse of dominant position includes the following activities: There are no strong precedents on this issue. ■ setting up and maintenance of a monopolistically high and monopolistically low price; 3.16 Under what circumstances are refusals to deal ■ withdrawal of a product from circulation which caused the considered anticompetitive? increase of the product’s price; ■ imposing contractual terms upon a counterparty that are Refusals to deal are considered anticompetitive if (i) the supplier unfavourable or not connected with the subject of an is dominant, (ii) such a refusal is economically or technologically agreement; unjustified, (iii) there is economic and technological possibility to ■ economically or technologically unjustified reduction or produce (supply) goods/render services, and (iv) such a refusal is cutting off the production of goods in case there is a demand not provided directly by applicable laws and regulations or judicial and an ability of profitable production; acts. ■ economically or technologically unjustified refusal to enter into the contract with customers in case there is possibility of production (delivery); 4 Miscellaneous ■ discrimination (setting economically, technologically or otherwise unjustified different prices or other terms of an agreement for different counterparties); 4.1 Please describe and comment on anything unique to ■ creation of barriers which block entry into or exist from the your jurisdiction (or not covered above) with regards market for other economic entities; to vertical agreements and dominant firms. ■ violation of the procedure of pricing established by applicable legislation; and The Russian law details the “abuse of dominant position” quite broadly and the standard of proof of abuse of dominance is low ■ manipulation of prices on wholesale and (or) retail markets of electric power (capacity). enough, so it is often applied in practice (for about 2,000–3,000 cases per year). As for anticompetitive agreements, there are approximately 400 cases initiated by the FAS per year. 3.13 What is the role of intellectual property in analysing dominant firm behaviour?

The Competition Law provides that actions of a dominant firm may not be recognised as abuse if these actions concern the

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German Zakharov Alla Azmukhanova ALRUD Law Firm ALRUD Law Firm 17 Skakovaya street, building 2, 6th floor 17 Skakovaya street, building 2, 6th floor 125040 Moscow 125040 Moscow Russia Russia

Tel: +7 495 234 96 92 / +7 495 926 16 48 Tel: +7 495 234 96 92 / +7 495 926 16 48 Email: [email protected] Email: [email protected] URL: www.alrud.com URL: www.alrud.com Russia German is a partner of Competition/Antitrust Practice in ALRUD Law Alla Azmukhanova is a senior attorney of the Competition/Antitrust Firm. He is a recommended expert in the antitrust regulation area, and Practice in ALRUD Law Firm. Alla participates in projects related to supports clients on a wide range of antitrust issues: coordination of clearance with FAS Russia, Governmental Committee on exercising merger control transactions with Federal Antimonopoly Service of the control over foreign investments and other state authorities of the Russian Federation (FAS Russia); cartel investigations; advising on transactions on purchase of shares of companies doing business in distributorship agreements; and analysing compliance of commercial Russia. She conducts competitive analysis for complex transactions agreements with antitrust requirements. German represents and large clients. Alla also consults various clients on matters companies during dawn raids performed by FAS Russia and its concerning compliance with the requirements of Russian antitrust territorial subdivisions, and also represents clients before the court. legislation. She takes part in projects concerning “vertical” restraints regulation within distribution agreements and participates in the project German graduated with honours from the Law Faculty of M.V. related to cartel investigations. Lomonosov Moscow State University. He joined ALRUD in May 2010 as an attorney. Before joining ALRUD, German worked in the Central Alla joined ALRUD Law Firm in 2014. Directorate of the Federal Antimonopoly Service, participating in Alla graduated from the National Research University – Higher School examining applications and notifications, drafting changes to antitrust of Economics law department, with a Bachelor’s degree in civil law. and industry legislation, examining cases of antitrust legislation Alla graduated from a Master’s programme at Moscow State Law breaches, and investigating activity of business entities in various Academy, law department, specialising in competition law, gaining a industries. diploma with honours. German is a member of the Competition Experts Association, member Alla is a member of the International Bar Association (the IBA) and of FAS Russia Expert Council for supporting small and medium member of the Competition Support Association in CIS countries. businesses, and the executive director and member of the Board of Association “Supporting competition in the CIS”. He is also a member of the ABA and the International Bar Association (IBA).

ALRUD is one of the leading full-service Russian law firms, serving domestic and international clients. We stand for high quality advice, excellent service and rigorous ethical standards. Established in 1991 by Senior Partners Maxim Alekseyev and Vassily Rudomino, ALRUD is widely recognised as one of the leading and most reputable Russian law firms. We provide a full scope of legal services to local and international clients in the areas of corporate/M&A, competition/antitrust, banking & finance, intellectual property, commercial law, data protection, dispute resolution, inward investment, employment, restructuring/insolvency, real estate and tax. Our clients include blue-chip multinationals, privately-owned companies and Russian State-owned enterprises. Outside of our domestic market, our clients are spread across Europe, Asia, North and South America. ALRUD serves clients across a range of industries including energy and natural resources, mining, banking and finance, consumer goods and retail, investment management, government and public services, healthcare, life sciences and chemicals, industrials, technology, media and telecoms, transport and logistics.

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Singapore

Lee & Lee Tan Tee Jim, S.C.

1 General 1.4 What remedies (e.g., fines, damages, injunctions, etc.) are available to enforcers?

1.1 What authorities or agencies investigate and enforce the laws governing vertical agreements and dominant Upon reaching a decision that there is an infringement, the CCCS firm conduct? may issue fines and give any directions necessary to bring any infringement to an end, such as requiring parties to cease or vary The Competition and Consumer Commission of Singapore their infringing conduct. As regards interim measures, if the CCCS (“CCCS”). has reasonable grounds for suspecting that there is an infringement but has not completed its investigations, the CCCS is empowered to give directions to protect public interest or to prevent serious, 1.2 What investigative powers do the responsible irreparable damage to a particular person or category of persons. competition authorities have?

The CCCS has the power to require the production of specified 1.5 How are those remedies determined and/or documents or specified information or to enter premises without calculated? a warrant, and to enter and search premises with a warrant. The officer empowered to enter any premises under a warrant may The fines are determined by considering: also orally examine any individual on the premises who appears ■ the seriousness of the infringement; to be acquainted with the facts and circumstances relevant to the ■ the turnover of the business of the undertaking in Singapore investigation and require the individual to answer any question for the relevant product and relevant geographic markets relating to the investigation. affected by the infringement; ■ the duration of the infringement; 1.3 Describe the steps in the process from the opening of ■ aggravating or mitigating factors; an investigation to its resolution. ■ other relevant factors, e.g. deterrent value; ■ whether the fine to be imposed exceeds the statutory There are four main phases in the process: maximum penalty (i.e. 10% of the turnover of the business of First, when a matter is brought to the CCCS’s attention, it may carry the undertaking in Singapore for each year of infringement, up to a maximum of three years); and out informal checks and enquiries. ■ immunity, leniency reductions and/or fast track procedure Second, if there is reasonable cause to suspect that an infringement discounts. of the section 34 prohibition (regarding anti-competitive conduct) (“Section 34 Prohibition”), the section 47 prohibition (regarding abuse of dominant position) (“Section 47 Prohibition”) and the 1.6 Describe the process of negotiating commitments or section 54 prohibition (regarding anti-competitive mergers) has other forms of voluntary resolution. occurred, the CCCS launches a formal investigation by issuing notices to the parties concerned to compel them to provide A firm may offer legally binding voluntary commitments to the information, documents and answers and/or entering premises to CCCS before the CCCS makes a decision. The case will be closed seize evidence. if the voluntary commitments satisfy the CCCS’s concerns. Third, following the investigations, if the CCCS believes that there has been an infringement, it will issue a Proposed Infringement 1.7 Does the enforcer have to defend its claims in front Decision (the “PID”) setting out the basis for its decision, and invite of a legal tribunal or in other judicial proceedings? If parties to make representations, inspect evidence, or provide other so, what is the legal standard that applies to justify an information for consideration before the CCCS finalises its decision. enforcement action? The party receiving the PID may request for a meeting with CCCS to make oral representations. No, unless there is an appeal against its decision. Finally, after considering the parties’ representations, the CCCS will finalise its infringement decision.

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1.8 What is the appeals process? 1.12 How do enforcers and courts take into consideration an industry’s regulatory context when assessing Upon receiving a decision, a party may lodge a notice of appeal competition concerns? to the Competition Appeal Board (“CAB”). The notice should contain a concise statement of the facts, a summary of the grounds On cross-sectoral competition cases, the CCCS will work out with for appeal, and a succinct presentation of arguments supporting each the relevant sectoral regulator which regulator is best placed to ground of appeal. After receiving the notice, the CCCS must submit handle the case in accordance with the legal powers given to each its defence to the CAB. The appeal is generally heard in public regulator. unless there are good reasons against it. If a party is not satisfied

with the decision of the CAB, it may further appeal to the High 1.13 Describe how your jurisdiction’s political environment Singapore Court and ultimately to the Court of Appeal. may or may not affect antitrust enforcement.

1.9 Are private rights of action available and, if so, how Singapore has a strong and stable pro-business government which do they differ from government enforcement actions? promotes competition law to spur firms to be more efficient, innovative, and responsive to consumer needs. Competition law Private rights of action are available for parties who have suffered is seen as a means to achieve market efficiency and innovation. loss or damage arising directly from an infringement. They differ Accordingly, the CCCS is given strong powers of enforcement to from enforcement actions by the CCCS in that the actions are civil achieve these objectives. proceedings rather than regulatory in nature, and the private litigant has to prove loss or damage whereas the CCCS does not have to 1.14 What are the current enforcement trends and show any loss or damage. priorities in your jurisdiction?

1.10 Describe any immunities, exemptions, or safe harbors The CCCS places particular focus on enforcing against cartels and that apply. abuse of dominance and continues to fine-tune its investigative processes and powers. Singapore’s Competition Act was amended A number of exclusions are available in relation to both the Section in 2018 to: 34 Prohibition and the Section 47 Prohibition. They include the (a) allow entities under investigation for the infringement of following: the Section 34 Prohibition or Section 47 Prohibition to offer legally binding commitments to the CCCS to address the (a) if the undertaking is entrusted with the operation of services anti-competitive conduct; and of general economic interest or having the character of a revenue-producing monopoly, and the prohibition would (b) allow CCCS officers to orally examine any individual on the obstruct the performance of the particular tasks assigned to premises who appears to be acquainted with the facts and that undertaking; circumstances relevant to the investigation. (b) if the allegedly infringing act was done to comply with a legal requirement; 1.15 Describe any notable case law developments in the (c) if a finding of infringement would be in conflict with past year. international obligations; (d) if there are exceptional and compelling reasons of public There have been no notable case law developments concerning policy why the prohibition ought not to apply; vertical agreements and dominant firms over the past year. (e) if the allegedly infringing act relates to any goods or services which are regulated by other competition law and another regulatory authority; 2 Vertical Agreements (f) if the allegedly infringing act relates to a specified activity (such as the supply of piped potable water or the supply of 2.1 At a high level, what is the level of concern over, and scheduled bus and rail services); scrutiny given to, vertical agreements? (g) if the allegedly infringing act relates to clearing houses; (h) if the allegedly infringing act is directly related and necessary There is a low level of concern and scrutiny given to vertical to the implementation of a merger; and agreements. They are perceived to be mostly beneficial or benign, (i) if the allegedly infringing act results in a merger. especially if there is effective competition at both the upstream and The following three exclusions are available only in relation to the downstream levels. Section 34 Prohibition: (a) if the agreement provides net economic benefit; 2.2 What is the analysis to determine (a) whether there (b) vertical agreement; and is an agreement, and (b) whether that agreement is vertical? (c) a block exemption in relation to liner shipping agreements.

“Agreement” has a wide meaning and may be written or oral, 1.11 Does enforcement vary between industries or enforceable or non-enforceable. All that is required is that parties businesses? arrive at a consensus on the action which each party will, or will not, take. No, it does not.

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An agreement is vertical if the parties to that agreement operate on there has been abuse of the dominant position. In the latter regard, different levels of the production or distribution chain for the purposes an economic effects-based assessment is used in order to determine of the agreement (e.g. an agreement between a manufacturer and a whether the conduct has, or is likely to have, an adverse effect on the retailer). A vertical agreement also includes provisions contained in process of competition. an agreement which relate to the assignment to the buyer or use by the buyer of intellectual property rights, provided that the provisions do not 2.10 What is the role of efficiencies in analysing vertical constitute the primary object of the agreement and are directly related agreements? to the use, sale or resale of products by the buyer or its customers. A vertical agreement will be considered to be benign or beneficial 2.3 What are the laws governing vertical agreements? if it can generate benefits through the promotion of efficiencies. Singapore However, a dominant firm must still show that its conduct is Vertical agreements are governed by the Section 47 Prohibition but proportionate to the benefits produced. not by the Section 34 Prohibition. 2.11 Are there any special rules for vertical agreements 2.4 Are there any type of vertical agreements or restraints relating to intellectual property and, if so, how does that are absolutely (“per se”) protected? the analysis of such rules differ?

No, there are not. Yes. The Section 34 Prohibition does not apply to vertical agreements relating to intellectual property (e.g. a franchise agreement where the franchisor sells to the franchisee products 2.5 What is the analytical framework for assessing for resale) or containing intellectual property provisions (e.g. trade vertical agreements? mark or know-how licence provisions). The prohibition would, however, apply to such agreements which have as their primary Where a vertical agreement involves a dominant firm, the CCCS will object the assignment or the licensing of intellectual property rights adopt a two-step test: (a) decide whether the firm is dominant in a for the manufacture of products. relevant market, either in Singapore or elsewhere; and (b) if it is, whether it is abusing that dominant position in a market in Singapore. 2.12 Does the enforcer have to demonstrate anticompetitive effects? 2.6 What is the analytical framework for defining a market in vertical agreement cases? Yes. In particular, the CCCS has to demonstrate likely anticompetitive effects in the Section 47 Prohibition context. To date, there have been no vertical agreement cases which set out an analytical framework for defining a market specifically in relation to vertical agreements. Generally, for cases dealing with 2.13 Will enforcers or legal tribunals weigh the harm the Section 47 Prohibition (which include vertical agreements), the against potential benefits or efficiencies? market is defined as having two dimensions: the relevant product and the geographic scope of the market. Yes. The harm must be proportionate to the potential benefits or efficiencies produced by the vertical agreement.

2.7 How are vertical agreements analysed when one of the parties is vertically integrated into the same level 2.14 What other defences are available to allegations that a as the other party (so called “dual distribution”)? Are vertical agreement is anticompetitive? these treated as vertical or horizontal agreements? See question 1.10 and 2.10 above. While a dual distribution agreement may generally be considered to be a vertical agreement, a horizontal concerted practice may also 2.15 Have the enforcement authorities issued any formal be found in such an agreement which is of a hub-and-spoke nature. guidelines regarding vertical agreements?

2.8 What is the role of market share in reviewing a vertical Yes, in the context of the Section 34 Prohibition and Section 47 agreement? Prohibition.

Market share is an important factor in assessing dominance in respect 2.16 How is resale price maintenance treated under the of a vertical agreement but does not, on its own, determine whether law? a firm is dominant. It is also important to consider the positions of other firms operating in the same market and how market shares It is treated like a vertical agreement from the Section 47 Prohibition have changed over time. A firm is more likely to be deemed to be perspective. dominant if its competitors have relatively weak positions and it has enjoyed a persistently high market share over time. 2.17 How do enforcers and courts examine exclusive dealing claims? 2.9 What is the role of economic analysis in assessing vertical agreements? They would consider whether the exclusive dealing would foreclose competition in the relevant market and thus infringe the Section The role of economic analysis is to assess whether a dominant 47 Prohibition. For instance, there may be such a foreclosure if a position exists in respect of the vertical agreement and whether

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dominant manufacturer imposes a requirement that its retailers must which amounts to the abuse of a dominant position in any market purchase a minimum quantity of its products which is set close to in Singapore”. The section cites several examples of such conduct, each retailer’s total input requirement. including: (a) predatory behaviour towards competitors; 2.18 How do enforcers and courts examine tying/ (b) limiting production, markets or technical development to the supplementary obligation claims? prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with Tying/supplementary obligations would be examined in the same other trading parties, thereby placing them at a competitive manner as vertical restraints. For example, a firm which leverages disadvantage; or its dominance in a market to attempt to gain a foothold in another (d) making the conclusion of contracts subject to acceptance by market in which it is not dominant by tying products together is the other parties of supplementary obligations which, by their Singapore likely to infringe the Section 47 Prohibition. nature or according to commercial usage, have no connection with the subject of the contracts.

2.19 How do enforcers and courts examine price discrimination claims? 3.3 What is the analytical framework for defining a market in dominant firm cases? Price discrimination would infringe the Section 47 Prohibition if it is used to harm competition, such as if a dominant firm engages in A market is defined in terms of the product and the geographic scope predatory pricing or if it offers discounts in a way that forecloses of the market. competition in the relevant market. 3.4 What is the market share threshold for enforcers or a court to consider a firm as dominant or a monopolist? 2.20 How do enforcers and courts examine loyalty discount claims? As a starting point, a market share above 60% is considered to indicate Loyalty discounts will be examined for their effect on competition. that a firm is dominant in the relevant market. However, a firm with a They may constitute abuse of dominance if the discounts are used to market share below 60% may also be considered dominant depending bring prices down to predatory levels or are conditional on buyers on the presence of other factors, such as entry barriers, the degree of making all or a large proportion of their purchases from the dominant innovation in the market, product differentiation, the responsiveness of firm or conditional on the purchase of tied or bundled products. buyers to price increases, and the price responsiveness of competitors.

2.21 How do enforcers and courts examine multi-product 3.5 In general, what are the consequences of being or “bundled” discount claims? adjudged “dominant” or a “monopolist”? Is dominance or monopoly illegal per se (or subject to regulation), or are there specific types of conduct that See question 2.20 above. are prohibited?

2.22 What other types of vertical restraints are prohibited Being “dominant” or “monopolist” per se is not illegal. However, it by the applicable laws? does mean that the dominant firm must be careful not to fall foul of the Section 47 Prohibition by engaging in conduct which harms, or Other types of vertical restraints which may be prohibited include is likely to harm, competition. quantity forcing, refusals to supply and refusals to allow access to essential facilities, tying and full-line forcing. 3.6 What is the role of economic analysis in assessing market dominance? 2.23 How are MFNs treated under the law? The role of economic analysis is to assess dominance through There is no specific guidance on MFNs in Singapore. In general, factors such as market power, extent of existing competition, entry however, they would infringe the Section 47 Prohibition if they barriers and other constraints (e.g., buyer power). involve an abuse of a dominant position. 3.7 What is the role of market share in assessing market dominance? 3 Dominant Firms Market share is an important factor in determining the extent of 3.1 At a high level, what is the level of concern over, and competition and hence market dominance. scrutiny given to, unilateral conduct (e.g., abuse of dominance)? 3.8 What defences are available to allegations that a firm is abusing its dominance or market power? The level of concern and scrutiny is high. The Act does not provide for any specific defences for the Section 3.2 What are the laws governing dominant firms? 47 Prohibition. In general, a dominant firm may argue that it is not abusing its dominant position because of its efficiencies, successful The laws are provided in Section 47 of the Competition Act which innovation, economies of scale or that it behaved in a proportionate prohibits “any conduct on the part of one or more undertakings manner in defending its legitimate commercial interest.

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legitimate exploitation of the intellectual property right. Examples 3.9 What is the role of efficiencies in analysing dominant of such illegitimate exploitation include a firm attempting to use an firm behaviour? intellectual property right to extend its market power into another market (such as by tying products together) and refusing to grant a See question 3.8 above. licence where the intellectual property right concerns an essential facility which has no substitutes and which are indispensable to the 3.10 Do the governing laws apply to “collective” exercise of the activity concerned. dominance? 3.14 Do enforcers and/or legal tribunals consider “direct Yes, they do. effects” evidence of market power? Singapore

3.11 How do the laws in your jurisdiction apply to There are no cases or guidelines which suggest that enforcers and/ dominant purchasers? or legal tribunals in Singapore would consider “direct effects” evidence of market power. In the same manner as the laws for dominant sellers. 3.15 How is “platform dominance” assessed in your jurisdiction? 3.12 What counts as abuse of dominance or exclusionary or anticompetitive conduct? There are no cases or guidelines which specifically discuss “platform The following practices count as abuse of dominance or exclusionary dominance”. or anti-competitive conduct: (a) predatory behaviour towards competitors; 3.16 Under what circumstances are refusals to deal (b) limiting production, markets or technical development to the considered anticompetitive? prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with Refusals to supply may be considered anticompetitive if they are other trading parties, thereby placing them at a competitive likely to substantially harm competition (such as if they remove disadvantage; or an efficient competitor or prevent competitors from entering the (d) making the conclusion of contracts subject to acceptance by market) and cannot be objectively justified. the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of the contracts. 4 Miscellaneous

3.13 What is the role of intellectual property in analysing 4.1 Please describe and comment on anything unique to dominant firm behaviour? your jurisdiction (or not covered above) with regards to vertical agreements and dominant firms. The legitimate exercise of an intellectual property right, even by a dominant undertaking, will not, in general, be regarded as The unique aspect is that vertical agreements are generally excluded an abuse. However, the way in which an intellectual property from the Section 34 Prohibition. right is exercised may give rise to concerns if it goes beyond the

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Tan Tee Jim, S.C. Lee & Lee 50 Raffles Place #06-00 Singapore Land Tower Singapore 048623

Tel: +65 6557 4615 Email: [email protected] URL: www.leenlee.com.sg

Tee Jim leads the Intellectual Property and Competition Law Practice Singapore at Lee & Lee. He was appointed Senior Counsel in 1999, a scheme introduced in 1997 to recognise outstanding advocates who have extensive knowledge of the law and the highest professional standing in Singapore. Tee Jim has been involved in numerous court cases, including cases which have become landmarks in the local dispute resolution and intellectual property fields. He is a prolific writer on competition and intellectual property laws, and acts as a contributing editor of several publications. He is the author of Law of Trade Marks & Passing Off in Singapore (Sweet & Maxwell, 3rd ed., 2014). Tee Jim is regularly cited as a leading intellectual property lawyer by various legal publications. Tee Jim also sits as a member on the Competition Appeals Board, and has acted as counsel in a number of prominent competition law cases.

Lee & Lee is one of Singapore’s leading law firms, with over 90 lawyers. The firm provides a comprehensive range of legal services to serve the differing needs of companies, financial institutions and individuals. The firm’s philosophy is to serve its clients’ needs with an approach that is traditional yet innovative, conservative yet forward-looking, and which is in step with the trends of the future while relying on the experiences of the past. The firm’s Intellectual Property & Competition Practice provides an integrated service advising on both contentious and non-contentious matters, such as brand protection, prosecution and enforcement of trademarks and patents, drafting technology transfer and licence agreements, filing representations in relation to competition infringement decisions and leniency applications.

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Spain Pedro Callol

Callol, Coca & Asociados, SLP Laura Moya

phase, led by the Competition Directorate; and (ii) the decision 1 General phase before the Council of the CNMC. An antitrust administrative decision must be issued no later than 18 months from the formal 1.1 What authorities or agencies investigate and enforce opening of the antitrust proceedings. the laws governing vertical agreements and dominant The antitrust proceedings may be closed without fines or declaration firm conduct? of infringement if no evidence of an infringement is found, or if the parties submit a request for a commitments termination, which is The National Markets and Competition Commission (CNMC) is the allowed by the CNMC. Otherwise, a fining antitrust decision can authority responsible to guarantee, preserve and promote the correct be expected. The decision of the Council of the CNMC may be functioning, transparency and existence of effective competition. appealed before the administrative courts. According to Law 1/2002 of 21 February 2002 on the coordination of the jurisdictions of the State and the Autonomous Communities in 1.4 What remedies (e.g., fines, damages, injunctions, etc.) the field of defence of competition, regional competition authorities are available to enforcers? are responsible for exercising their powers in their territory when business conduct alters or may alter free competition within the The CNMC may impose penalties for any infringement of Law scope of the respective region. 15/2007 of 3 July 2007 for Defence of Competition Act (LDC) without the permission or confirmation by another entity or court. 1.2 What investigative powers do the responsible Regional authorities may fine on the same basis regarding conduct competition authorities have? within their jurisdiction. The CNMC and regional authorities have powers to issue interim The responsible competition authorities are entitled to: measures decisions, including injunctions to stop a given conduct ■ Conduct inspections at the undertaking’s premises: as a matter of urgency. a. Access any premise, facility or vehicle of the company. Note: substantive law applicable to the CNMC is also applicable to b. Access company directors’ homes (with a court warrant). regional authorities. c. Review books, records and documents.

d. Require the production of, examine, copy or even seize 1.5 How are those remedies determined and/or any documents relevant to the investigation (with the calculated? exception of confidential, privileged documents). e. Retain books, records or documents for a maximum of 10 According to Article 62.3.a) LDC, vertical restraints are categorised days. as a serious infringement that can be fined by up to five per cent of f. Seal filing cabinets or rooms. the turnover of the infringing party in the business year preceding g. Require on-site explanations of relevant documents or the imposition of the fine. practices. If the turnover cannot be determined, the infringing parties may be ■ Address information requests. exposed to a fine ranging from €500,000 to €10 million.

1.3 Describe the steps in the process from the opening of 1.6 Describe the process of negotiating commitments or an investigation to its resolution. other forms of voluntary resolution.

The process is initiated ex officio by the Directorate of Investigation In case the CNMC considers that the agreement would not produce of the CNMC, either on its own initiative or by order of the Council of negative effects on competition if it were modified, the CNMC could the CNMC or upon a third party (natural or legal person) complaint. welcome commitment proposals by the parties. If the commitments First, the Competition Directorate may start a preliminary are considered appropriate, the CNMC could close the proceedings (confidential) inquiry to assess if there are sufficient reasons to open with a commitments termination decision without a fine and without antitrust proceedings. Once the antitrust proceeding is formally express admission of guilt. open, the procedure is divided in two phases: (i) the investigation

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The CNMC monitors that parties comply with those commitments restraints, in which case the parties can seek to be covered under and keeps the execution of commitments under review. the exemption provided for in Article 101.3 TFEU and/or Article 1.3 LDC, as explained above. For these purposes, the case law and guidance both of the Spanish courts and agencies, and the European 1.7 Does the enforcer have to defend its claims in front of a legal tribunal or in other judicial proceedings? If Commission guidelines and practice, and case law of the European so, what is the legal standard that applies to justify an courts, are of relevance. enforcement action? 1.11 Does enforcement vary between industries or No. Decisions of the CNMC are self-executive. Only if CNMC businesses? decisions are appealed in court does the CNMC appear in court to Spain defend the legality of its actions. No, although there has been a focus on retail, supermarkets and vehicle distribution in recent years. 1.8 What is the appeals process? 1.12 How do enforcers and courts take into consideration Decisions of the Council of the CNMC amount to final agency an industry’s regulatory context when assessing action and may be appealed only before the High Court (Audiencia competition concerns? Nacional in Spanish) within two months from the notification of the Decision. Along with the functions of competition enforcement of the CNMC, this agency also acts as regulatory Authority in certain sectors and regulated markets. These sectors or areas are the following: 1.9 Are private rights of action available and, if so, how do they differ from government enforcement actions? electronic communications and audiovisual communication, the electricity and natural gas markets, the postal sector, airport tariffs and certain aspects of the railway sector. Commercial courts have authority to declare the existence of infringements of Article 1.1 LDC (which prohibits, for instance, Generally, the CNMC and the courts will look and bear in mind resale price maintenance) as well as to declare an agreement exempt the entire legal and regulatory landscape. In particular, the LDC from that prohibition pursuant to Article 1.3 LDC, always within immunises from antitrust scrutiny conduct carried out in observance the boundaries of the petition addressed to the competent court. The of another law (Act of Parliament). same applies, mutatis mutandis, in connection with Articles 101.1 and 101.3 TFEU, which have direct effect and can therefore be 1.13 Describe how your jurisdiction’s political environment invoked before national courts. may or may not affect antitrust enforcement. Parties to a vertical agreement are entitled to seek declaratory judgments or injunctions and bring damages claims. Theoretically, The Council of Ministers (i.e., the government) may intervene in third parties could seek damages if such parties can prove that they the merger review process in those circumstances when the Council have suffered a loss as a result of the anti-competitive agreement. of the CNMC: (i) has decided to ban a concentration; or (ii) when These forms of order must be sought from the commercial courts, it has decided to subject the merger clearance to conditions. In except where the party is simply seeking damages from a previously those circumstances, the Council of Ministers may decide to lift a declared infringement (follow-on actions), in which case it must do prohibition or alter the merger conditions on the basis of a number so before the ordinary civil courts. Consumer associations have of public interest-related grounds. This is very rarely used. standing to sue on behalf of consumers. Otherwise, members of the Council of the CNMC are ultimately The remedies available are those typical of any other civil claim, decided on the basis of Parliament majorities, but their designation ranging from cease-and-desist orders to the award of damages. is staggered overtime, so generally there is no political intervention Assuming that a private enforcement action goes through all the in the decisions of the CNMC in principle. possible appeals up to the Supreme Court, a final judgment may be rendered after several years. For example, in the Sugar case (a 1.14 What are the current enforcement trends and follow-on damages claim for damages arising from a sugar cartel), priorities in your jurisdiction? the claim was filed in 2007 and, after several appeals, the Supreme Court decided on the case in 2012 (Judgment of the Supreme Court In the past, the CNMC was inclined to fine mostly suppliers. This of 8 June 2012, case 2163/2009). is because it was considered that, although both suppliers and customers were parties to the vertical agreement, responsibility for 1.10 Describe any immunities, exemptions, or safe harbors the infringement fell on the party with a higher bargaining power, that apply. usually the supplier. This trend has changed overtime as a broader knowledge and conscience of buyer power has extended. Thus, Pursuant to Article 1.4 LDC, the Commission Regulation (EU) in June 2007 the CNMC fined both the supplier and the buyer on No 330/2010, Article 101.3 of the Treaty of the Functioning of the the basis that both parties had obtained an unlawful benefit from European Union to categories of vertical agreements and concerted the agreement and both parties had countervailing bargaining practices (the Vertical Block Exemption) is applicable in Spain. power (see Decision of the CNMC of 21 June 2007 in case 612/06, Aceites 2). In 2010, the CNMC ruled that exclusive contracts for Consequently, the safe harbour applies when the market share held the acquisition and resale of football broadcasting rights lasting for by the supplier does not exceed 30% of the relevant market in more than three seasons for Spanish league and cup matches are which it sells the contract goods or services and the market share anticompetitive and fined four buyers (broadcasting operators) but held by the buyer does not exceed 30% of the relevant market in none of the suppliers (football clubs). Two years later, the CNMC which it purchases the contract goods or services. As previously fined Suzuki and five of its authorised dealers in Spain for agreeing indicated, this safe harbour does not apply in case of hard-core

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minimum resale prices for Suzuki motorbikes (i.e., the CNMC fined market share held by (non-competing) parties to an agreement again both the supplier and the buyer) (see Decision of the CNMC does not exceed 15% on any of the relevant markets affected by of 27 March 2012 in case S/0237/10, Motocicletas). the agreement. This de minimis exemption does not apply to hard- core agreements, which include resale price maintenance, absolute territorial protection and generally the other hard-core restrictions 1.15 Describe any notable case law developments in the past year. blacklisted in the EU Vertical Block Exemption.

In the past 12 months the CNMC has continued the trend of settling 2.5 What is the analytical framework for assessing vertical agreements that restrict competition without imposing a vertical agreements? Spain fine provided that the alleged offenders voluntarily submit a number of commitments to restore effective competition in the market. Article 1.1 LDC prohibits vertical agreements between two or more The Decision of 13 July 2017, in case S/DC/0567/15, Estudios de parties, which have the object or the effect of preventing, restricting Mercado Industria Farmacéutica (which concerned a vertical matter or distorting competition within the national market. although in the context of Article 102 of the Treaty of Functioning Pursuant to Article 1.3 LDC, the prohibition contained in Article 1.1 of the European Union (TFEU) and national equivalent) the CNMC LDC shall not apply to agreements (i) generating efficiency gains by accepted to close the file with commitments on IMS Health. contributing to improving production or distribution, or to promoting Spain seems to have generally been less active in areas such technical or economic progress, (ii) from which consumers must as online sales and distribution than other countries. It is to be obtain a fair share of these efficiency gains,(iii) which do not impose expected that more decisions will take place in the coming years on the undertakings concerned any vertical restraints not essential for in connection with online markets. Another area of focus is that of reaching the sought efficiency benefits, and (iv) which do not allow food and consumer goods distribution, where large purchasers (e.g., the participating companies to eliminate competition with regard to supermarket chains) have in recent years been perceived as wielding a substantial part of the considered products or services. It is worth great economic power from the purchasing side. There is to that highlighting that the criteria contained in Article 1.3 LDC are almost extent a study from the CNMC in that particular sector and some identical to those contained in Article 101.3 of the TFEU. sector law in the area of food production and distribution seeking to In addition, as pointed out above, Article 1.4 LDC provides that the protect suppliers against large retail organisations. prohibition foreseen in Article 1.1 shall not apply to the agreements or collective recommendations meeting the criteria of any EU 2 Vertical Agreements block exemption regulation, which in case of vertical restraints is Commission Regulation (EU) No 330/2010, on the application of Article 101.3 of the Treaty of the Functioning of the European 2.1 At a high level, what is the level of concern over, and Union to categories of vertical agreements and concerted practices scrutiny given to, vertical agreements? (the Vertical Block Exemption).

The CNMC has, in theory at least, a high level of concern over 2.6 What is the analytical framework for defining a market vertical agreements. In practice, there are substantially less in vertical agreement cases? enforcement cases than in other European jurisdictions. Market definition criteria on the demand and supply-side must 2.2 What is the analysis to determine (a) whether there generally be followed based on precedent. The European is an agreement, and (b) whether that agreement is Commission methodology followed in the Notice on market vertical? definition is authoritative, but national practice, precedent and local market idiosyncrasies are looked at. The concept of agreement covers anything that enables identifying a meeting of minds of two or more independent companies. 2.7 How are vertical agreements analysed when one of Arguably, the concept may be even wider under Spanish law than the parties is vertically integrated into the same level under EU competition law, as conscious parallelism is also included as the other party (so called “dual distribution”)? Are as conduct enabling characterisation under Article 1 LDC. these treated as vertical or horizontal agreements? The concept of vertical implies that the companies’ parties to the agreement are situated at different levels of the production chain. Each practice is looked at on a case-by-case basis bearing in mind exactly in which companies (other competitors, customers) the practice has effects. 2.3 What are the laws governing vertical agreements?

The laws applicable to vertical restraints in Spain are: (i) LDC; (ii) 2.8 What is the role of market share in reviewing a vertical Royal Decree 261/2008 of 22 February 2008 approving the Defence of agreement? Competition Regulation (RDC); and (iii) European competition law. Article 1.4 LDC refers directly to the Vertical Block Exemption, incorporating its text into national competition law. The Vertical 2.4 Are there any type of vertical agreements or restraints Block Exemption establishes that the exemption foreseen applies that are absolutely (“per se”) protected? when the market share held by the supplier does not exceed 30% of the relevant market on which it sells the contract goods or services. There are two types of exemptions, which do not appreciably restrict competition (de minimis): if the aggregate market share However, outside the scope of the Vertical Block Exemption, the held by (competing) parties to an agreement does not exceed 10% vertical agreements should be analysed individually according to of any of the relevant markets affected by the agreement; or if the the rules referred to in Article 1.3 LDC.

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Montesa Honda); fixing maximum discount levels (vid. Decision 2.9 What is the role of economic analysis in assessing of 5 October 2006 in case 599/06, Maquinaria agropecuaria); or by vertical agreements? means of a finalist strategy aimed at monitoring discounts applied by a distributor (see Decision of 19 October 2004 in case 619/04, It is relevant in theory, although less so in practice. Técnicas Ganaderas). The CNMC also considers minimum resale prices as an infringement 2.10 What is the role of efficiencies in analysing vertical of Article 1 LDC (vid. Decision of 2 November 2004 in case 578/04, agreements? EKO-AMA Mondáriz). The CNMC does not regard recommended resale prices as contrary It is relevant in theory, although less so in practice. to Article 1 LDC (vid. Decision of 3 November 2008 in case Spain 2765/07, Animales de compañía). However, and depending on the 2.11 Are there any special rules for vertical agreements specific context and means employed, price recommendations have relating to intellectual property and, if so, how does been considered by the CNMC as fixed resale prices. For instance, the analysis of such rules differ? in the Repsol/Cepsa/BP case (vid. Decision of 30 July 2009 in case 652/07, Repsol/Cepsa/BP), the CNMC fined three petrol companies There are no special rules for intellectual property. The block for notifying recommended and maximum resale prices to petrol exemption is only applicable to the licence directly related to the use, stations which were, in practice, applied as fixed retail prices. The sale or resale of goods and services when those intellectual property CNMC relied on, inter alia, the following indicia: rights provisions do not constitute the primary object of the agreement. ■ high compliance (in more than 80 per cent of the cases) with the suggested or maximum retail prices; 2.12 Does the enforcer have to demonstrate ■ reduction of incentives to apply discounts by reducing the anticompetitive effects? retailers’ margins; and ■ the IT system communicating the suggested resale prices The CNMC has to demonstrate anticompetitive effects in principle, hampered in practice the ability of petrol stations to deviate but it must be borne in mind that some vertical restraints are from the suggested resale prices. considered unlawful per se when they contain hard-core restrictions Regarding maximum resale prices, the CNMC considers this practice such as: (i) price fixing; (ii) non-competition clauses for a duration to be compliant with the LDC (vid. Decision of 30 November 1998 above five years; and(iii) restrictions on passive sales. in case 389/96, Cervezas Mahou).

2.13 Will enforcers or legal tribunals weigh the harm 2.17 How do enforcers and courts examine exclusive against potential benefits or efficiencies? dealing claims?

As already mentioned in question 2.5, the prohibition of Article This type of restraint can be acceptable unless in circumstances that 1.1 LDC shall not apply to agreements, decisions of practices lead to market foreclosure. See for instance the reference to the that contribute to the production or marketing and distribution of football rights investigation, above at question 1.14, which concerned goods and services or to promoting technical or economic progress, a network of exclusive agreements which foreclosed competition. without any prior decision being necessary due to compliance with the requirements of Article 1.3 LDC. 2.18 How do enforcers and courts examine tying/ supplementary obligation claims? 2.14 What other defences are available to allegations that a vertical agreement is anticompetitive? See question 2.17.

Legal exemption defences may be available; see question 1.10, 2.19 How do enforcers and courts examine price above. discrimination claims?

2.15 Have the enforcement authorities issued any formal Price discrimination may be contrary to applicable national rules guidelines regarding vertical agreements? on retail trade or unfair trade. Discrimination can also be contrary to Article 1 LDC and may also amount to an abuse of dominant The CNMC and the LDC incorporate the Vertical Block Exemption. position under some circumstances.

2.16 How is resale price maintenance treated under the 2.20 How do enforcers and courts examine loyalty law? discount claims?

According to the CNMC, the resale price maintenance is per se The CNMC analyses these questions in accordance with the Vertical restriction of competition (vid. Decision of 29 February 2008 in case Block Exemption and the Vertical Guidelines. 647/08, Distribuciones Damm). Resale price maintenance can be executed by any means or devices 2.21 How do enforcers and courts examine multi-product which have as their object or effect the restriction of the distributor’s or “bundled” discount claims? freedom to set end prices. This can take place, for instance, by establishing the margin that dealers must offer to their respective The CNMC analyses these questions in accordance with the Vertical agents (vid. Decision of 11 January 2012 in case S/0154/09, Block Exemption and the Vertical Guidelines.

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c. The unjustified refusal to satisfy the demands of purchase of 2.22 What other types of vertical restraints are prohibited products or provisions of services. by the applicable laws? d. The application, in trading or service relationships, of dissimilar conditions to equivalent transactions, thereby In addition to resale price maintenance, exclusive dealing, tying placing some competitors at a disadvantage compared with arrangements, price discrimination, loyalty discount and multi- others. product discount, we may find other types of vertical restraints: e. The subordination of the conclusion of contracts to ■ Exclusive supply, where the supplier is required to exclusively acceptance of supplementary obligations, which, by their or mainly distribute the products to only one purchaser. nature or according to commercial usage, have no connection with the subject of these contracts. Spain ■ Exclusive customer allocation, where the supplier agrees to sell his products only to one distributor for resale to a particular group of customers. 3.4 What is the market share threshold for enforcers or a ■ Selective distribution, where distribution systems are based court to consider a firm as dominant or a monopolist? in quality criteria. ■ Single branding, concerning agreements which have as Much as under EU law, showing a dominant position depends on their main element that the buyer is obliged or induced to the particular circumstances of the allegedly dominant company and exclusively or mainly sell products from a single brand. the relevant market. As a rule of thumb, dominant position requires ■ Category management agreements whereby a distributor a stable market share of around 40 per cent or higher, with no entrusts the supplier with the marketing of a category of competitors with similar market shares, in markets with significant products including in general not only the supplier’s products, barriers to entry and expansion, preferably mature and with a low but also the products of its competitors. elasticity of demand. However, this is no mathematical rule and ■ Franchising agreements generally containing licences of a number of factors must be looked at to determine the existence intellectual property rights related in particular to trademarks of a dominant position: the entry barriers, the degree of market or signs and know-how for the use and distribution of goods concentration, the elasticity, the degree of vertical integration, etc. or services.

3.5 In general, what are the consequences of being 2.23 How are MFNs treated under the law? adjudged “dominant” or a “monopolist”? Is dominance or monopoly illegal per se (or subject to The CNMC analyses the MFNs in accordance with the Vertical regulation), or are there specific types of conduct that Block Exemption and the Vertical Guidelines, as well as under are prohibited? Article 102 TFEU and its national equivalent, Article 2 LDC, when applicable. The case on pharmaceutical studies cited under question Generally, dominant companies are subject to a stricter test when 1.15, above, concerned in part an MFN clause, which IMS Health behaving in the market, as some courses of conduct that would not agreed to drop from its pharmaceutical marketing data purchasing be objectionable for the majority of companies may be considered agreements as a result of the investigation. abusive when carried out by a dominant company.

3 Dominant Firms 3.6 What is the role of economic analysis in assessing market dominance?

3.1 At a high level, what is the level of concern over, and The importance of economic analysis when studying a possible abuse scrutiny given to, unilateral conduct (e.g., abuse of of dominant position is key, both in establishing that a dominant dominance)? position exists and in evidencing the abuse, more so perhaps after the landmark Intel case of the European Court of Justice. The CNMC has a high level of concern and is active in the enforcement of the prohibition of abuse of dominant position. 3.7 What is the role of market share in assessing market dominance? 3.2 What are the laws governing dominant firms? As already mentioned in question 3.4, the market share close to 40 The LDC regulates the abuse of dominant position in line with EU per cent or higher may indicate that there is a dominant position, law. although this figure may change depending on the market, plus there are other factors to be taken into account in assessing market dominance. 3.3 What is the analytical framework for defining a market in dominant firm cases? 3.8 What defences are available to allegations that a firm Article 2 LDC prohibits any abuse by one or more undertakings of is abusing its dominance or market power? their dominant position in all or part of the national market. The abuse may consist in: Economic defences of various types, such as absence of foreclosure a. The direct or indirect imposition of prices or other unfair in exclusionary abuses, for instance, are available. One example trading or services conditions. of this is the recent Supreme Judgment of 5 February 2018 (vid. b. The limitation of production, distribution or technical case 2808/2015) where Correos (which owns the public postal development to the unjustified prejudice of undertakings or network and assumes the provision of the postal universal service consumers. in Spain) was sanctioned by the NMCC for margin-squeeze that

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prevented competitors from competing effectively in the segment of large postal service customers, constituting an abuse of dominant 3.13 What is the role of intellectual property in analysing position. dominant firm behaviour? Spanish courts upheld the appeal filed by Correos, considering that, There is in Spain a very substantial body of precedents related to even acknowledging the existence of a margin-squeeze, the NMCC intellectual property collective management societies. Some cases had not demonstrated that such practice had exclusionary effects for have led to damage actions before the Spanish commercial courts. companies. The Supreme Court concluded that alternative operators The claims challenged in most of the cases exploitative excessive can and must make optimal use of their own capacity to compete. pricing (vid. Decision of the CNMC of 6 November 2014 in case S/460/13, SGAE Conciertos). There are other important IP rights Spain 3.9 What is the role of efficiencies in analysing dominant related cases such as various matters related to IP licensing of firm behaviour? premium content (football rights and movies rights, output deals).

The rules of the European Union on this matter are to be followed. 3.14 Do enforcers and/or legal tribunals consider “direct effects” evidence of market power? 3.10 Do the governing laws apply to “collective” dominance? The courts tend not to consider these as much as the enforcer.

Article 2 LDC prohibits abuse of dominant position both by a single 3.15 How is “platform dominance” assessed in your undertaking and several undertakings. jurisdiction?

3.11 How do the laws in your jurisdiction apply to Foreseeably largely in line with EU law. dominant purchasers?

3.16 Under what circumstances are refusals to deal Buyer power can be a source of dominance much in the same way considered anticompetitive? as supplier power. Generally, only refusals to supply regular customers or refusals 3.12 What counts as abuse of dominance or exclusionary to supply a product or service essential to operate in the market is or anticompetitive conduct? considered to restrict competition, unless the refusal is objectively justified. However, in case a potential or actual economically viable Spanish law does not make any express distinction between abuse supply alternative exists, it will be difficult to conclude that an abuse of dominance and exclusionary abuses. However, in the framework has taken place (vid. Decision of the CNMC of 15 June 2009 in case of the investigations of potential breaches of the relevant provision S/0034/08, Olympus Medical Systems Europa). prohibiting unilateral anticompetitive conduct, when identifying the specific abuse committed by the undertaking enjoying a dominant position in the market, both the decisional practice of the CNMC 4 Miscellaneous and the case law assess the conduct and identify conduct as being exclusionary (such as predatory pricing, margin-squeeze practices 4.1 Please describe and comment on anything unique to or refusal to supply) or exploitative (such as imposing excessively your jurisdiction (or not covered above) with regards high prices or imposing discriminatory conditions), largely in line to vertical agreements and dominant firms. with EU competition law. This is not applicable.

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Pedro Callol Laura Moya Callol Coca & Asociados, SLP Callol Coca & Asociados, SLP Calle Don Ramón de la Cruz 17, 2º izquierda Calle Don Ramón de la Cruz 17, 2º izquierda 28001, Madrid 28001, Madrid Spain Spain

Tel: +34 91 737 67 68 Tel: +34 91 737 67 69 Email: [email protected] Email: [email protected] URL: www.callolcoca.com URL: www.callolcoca.com Spain

Pedro Callol is a senior partner praised for his extensive experience Attorney admitted to the Madrid Bar. Laura holds a law degree with a in antitrust law and litigation, as well as in the antitrust and regulatory special degree in EU law and an LL.M. in Business Law from the San angles of complex mergers and acquisitions. Prior to co-founding Pablo CEU University (Madrid). Callol Coca & Asociados, SLP, Pedro Callol was an equity partner Laura has participated in antitrust cases (infringement proceedings leading the EU and competition practice of one of Spain’s largest under Articles 101 and 102 TFEU and 1 and 2 of the SCA, general corporate law firms; before this he created and led the EU, competition advice to companies and self-assessments) in the sectors of car law practice of a London ‘Magic Circle’ law firm in Spain and prior to distribution, bus transportation services and the chemical industry. that he was an associate with Arnold & Porter in Washington DC and She has worked in the drafting and preparation of merger filings before London. He is dual qualified in Spain and England, holds an LL.M. national competition authorities in connection with advertising online from the College of Europe, Bruges (grantee of the Minister of Foreign platforms. Additionally, Laura has assisted in connection with the Affairs of Spain) and is a law graduate of the University of Chicago Law judicial review of cartel decisions in Spain. School (Fulbright). Pedro is currently President of the Fulbright Alumni Association of Spain and of the Ryder Club of Spain. He is a member of the Advisory Board of the American Antitrust Institute in Washington, D.C. and a member of the Board of Directors of the Spanish Competition Law Association.

We are a specialist team devoted to antitrust law and providing our professional services in a zealously independent and professionally demanding environment. We provide services to private equity and investment funds, media, technology, consumer goods, pharmaceutical, distribution and industrial corporations mostly from the EU, America and Asia. In the area of merger control, we have intervened successfully in the main transactions of the last few years where approval has been required in Spain (e.g., Telefonica/Digital+, Fresenius/Quiron, Cerberus/Renovalia, Glintt/Pharmaplus, and HIG/Dominion). In the area of investigations, we have in the past succeeded in persuading the authorities to close investigations without fines (Barcelona harbour, dyestuffs, insecticide equipment investigations) or with symbolic fines (ice cream manufacturers, football broadcasting rights). We have top credentials in administrative investigation, having succeeded in recent years in annulling or reducing fines, such as in the case of the Supreme Court litigation on behalf of Mediterranean Shipping Company in the Valencia harbour case. We have a flourishing distribution law practice and also advise and represent our clients in connection with antitrust damages claims, both in non-contentious (settled) matters (e.g., food packaging EU cartel), as well as in court litigation (where we have assisted in litigation ending with a declaratory judgment exonerating our client, a member of the sodium chlorate cartel, of civil liability). Our unfair trade litigation experience spans matters dealing with poaching of workers, sales at a loss, economic dependence or unfair competition through breach of regulations, amongst others.

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Turkey Gönenç Gürkaynak

ELIG Gürkaynak Attorneys-at-Law Hakan Özgökçen

The investigated undertakings have 30 calendar days as of the 1 General formal service of the notice to prepare and submit their first written defences. Subsequently, the main investigation report is issued by 1.1 What authorities or agencies investigate and enforce the Authority and once it is served on the defendants, they have 30 the laws governing vertical agreements and dominant calendar days to respond, extendable for a further 30 calendar days firm conduct? (second written defence). The investigation committee will then have 15 calendar days to prepare an opinion concerning the second The national competition authority for enforcing competition law written defence. The defending parties will have another 30-day in Turkey is the Competition Authority (“Authority”), a legal entity period to reply to the additional opinion (third written defence). with administrative and financial autonomy. The Authority consists When the parties’ responses to the additional opinion are served on of the Competition Board (“Board”), presidency and service the Authority, the investigation process will be completed. An oral departments. As the competent body of the Authority, the Board hearing may be held ex officio or upon request by the parties. The is responsible for, inter alia, investigating and enforcing the laws Board will render its final decision within 15 calendar days of the governing vertical agreements and dominant firm conduct. hearing, if an oral hearing is held, or within 30 calendar days of completion of the investigation process, if no oral hearing is held.

1.2 What investigative powers do the responsible competition authorities have? 1.4 What remedies (e.g., fines, damages, injunctions, etc.) are available to enforcers? The Board may request all information it deems necessary from all public institutions and organisations, undertakings and trade In the case of a proven anticompetitive conduct or agreement, the associations. Officials of these bodies, undertakings and trade undertakings concerned shall be separately subject to administrative associations are obliged to provide the necessary information within monetary fines of up to 10% of their Turkish turnover generated the period fixed by the Board. in the financial year preceding the date of the fining decision. Article 15 of the Law No. 4054 on Protection of Competition Employees and/or managers of the undertakings or association (“Competition Law”) authorises the Board to conduct on-site of undertakings that had a determining effect on the creation of investigations. Accordingly, the Board can examine the records, the violation are also fined up to 5% of the fine imposed on the paperwork and documents of undertakings and trade associations undertaking or association of undertakings. and, if need be, take copies of the same and request undertakings The Board is also authorised to take all necessary measures to and trade associations to provide written or verbal explanations on terminate the restrictive agreement, to remove all de facto and legal specific topics. consequences of every action that has been taken unlawfully, and to take all other necessary measures in order to restore the level of competition and status as before the infringement. Furthermore, 1.3 Describe the steps in the process from the opening of such a restrictive agreement shall be deemed as legally invalid an investigation to its resolution. and unenforceable with all its legal consequences. Similarly, the Competition Law authorises the Board to take interim measures The Board is entitled to launch an investigation into an alleged until the final resolution of the matter, in case there is a possibility anti-competitive conduct ex officio or in response to a complaint. of serious and irreparable damages. The Board decides to conduct a pre-investigation if it finds the notice or complaint to be serious. The preliminary report of the Authority experts will be submitted to the Board within 30 calendar 1.5 How are those remedies determined and/or days after a pre-investigation decision is taken by the Board. The calculated? Board will then decide within 10 calendar days whether to launch a fully-fledged investigation. If the Board decides to initiate an The Competition Law makes reference to Article 17 of the Law investigation, it will send a notice to the undertakings concerned on Minor Offences to require the Board to take into consideration within 15 calendar days. The investigation will be completed within factors such as the level of fault and the amount of possible damage in six months. If deemed necessary, this period may be extended, once the relevant market, the market power of the undertakings within the only, for an additional period of up to six months by the Board. relevant market, the duration and recurrence of the infringement, the cooperation or driving role of the undertakings in the infringement,

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the financial power of the undertakings and compliance with the how long it takes for a regional court to finalise its review on a file. commitments, etc., in determining the magnitude of the monetary Accordingly, the Council of State’s review period (for a regional fine. court’s decision) should also be tested before providing an estimate In line with this, the Regulation on Monetary Fines for Restrictive time period. The appeal period before the Council of State usually Agreements, Concerted Practices, Decisions and Abuses of takes about 24 to 36 months. Dominance, which applies to restrictive agreements, concerted practices and abuse of dominance, sets out detailed guidelines 1.9 Are private rights of action available and, if so, how as to the calculation of monetary fines applicable in the case of do they differ from government enforcement actions? an antitrust violation. Accordingly, fines are calculated by first

Turkey determining the basic level, which is between 2% and 4% for cartels The Board does not decide whether the victims of the anti-competitive and 0.5% and 3% for other violations; aggravating and mitigating conducts merit damages. These aspects are supplemented with factors are then factored in. The Regulation on Monetary Fines also private lawsuits. Articles 57 et seq. of the Competition Law entitle applies to managers or employees that had a determining effect on any person who is injured in his or her business or property by the violation and provides for certain reductions in their favour. reason of anything forbidden in the antitrust laws to sue the violators to recover up to three times their personal damages, plus litigation 1.6 Describe the process of negotiating commitments or costs and attorney fees. Therefore, Turkey is one of the exceptional other forms of voluntary resolution. jurisdictions where a triple-damages principle exists in the law. In private suits, the incumbent firms are adjudicated before regular The settlement procedure is not regulated under the Turkish civil courts. Most of the civil courts wait for the decision of the competition law regime. The commitments are available only for Board in order to build their own decision on the Board’s decision. concentrations under the Turkish competition law regime. Article 14 of Communiqué No. 2010/4 on Mergers and Acquisitions 1.10 Describe any immunities, exemptions, or safe harbors Requiring the Approval of the Board enables the parties to provide that apply. commitments to remedy substantive competition law issues of a concentration. The prohibition on restrictive agreements and practices does not apply to agreements that benefit from a block exemption issued 1.7 Does the enforcer have to defend its claims in front by the Board and/or an individual exemption. The applicable of a legal tribunal or in other judicial proceedings? If block exemption rules are: (i) Block Exemption Communiqué No. so, what is the legal standard that applies to justify an 2002/2 on Vertical Agreements (“Communiqué No. 2002/2”); (ii) enforcement action? Block Exemption Communiqué No. 2017/3 on Vertical Agreements and Concerted Practices in the Motor Vehicle Sector; (iii) Block If a Board decision is appealed, the Board has a right to defend Exemption Communiqué No. 2016/5 on R&D Agreements; (iv) its decision before the administrative courts by way of submitting Block Exemption Communiqué No. 2008/3 for the Insurance Sector; response petitions to the plaintiff’s claims. (v) Block Exemption Communiqué No. 2008/2 on Technology Article 2/1(a) of Law No. 2577 on Administrative Procedure sets Transfer Agreements; and (vi) Block Exemption Communiqué No. out that “annulment actions concerning administrative acts that are 2013/3 on Specialization Agreements. brought by a person whose interests were violated by the act, with the claim that the act is illegal due to a mistake made in one of 1.11 Does enforcement vary between industries or the elements of competence, form, reason, subject and purpose”. In businesses? other words, an administrative act must be in compliance with the law in terms of all of the following five elements: (i) jurisdiction; (ii) There are no industry-specific offences or defences in the Turkish form; (iii) reason; (iv) subject matter; and (v) purpose. jurisdiction. The Competition Law applies to all industries, without exception. To the extent that they act as an undertaking within the 1.8 What is the appeals process? meaning of the Competition Law (i.e. a single integrated economic unit capable of acting independently in the market to produce, market or sell goods and services), state-owned entities also fall According to Article 55(1) of the Competition Law, administrative within the scope of application of the Competition Law. penalty decisions of the Board can be submitted for judicial review before the administrative courts in Ankara by filing an appeal within 60 calendar days on receipt of the Board’s reasoned decision. The 1.12 How do enforcers and courts take into consideration Board’s decisions are considered administrative acts, and thus an industry’s regulatory context when assessing legal actions against them must be taken in accordance with the competition concerns? Administrative Procedural Law. According to Article 27 of Law No. 2577 on Administrative The Board, in particular in the telecommunications and energy Procedure, filing an administrative action does not automatically sectors, takes into account the regulatory context within its stay execution of the Board’s decision. However, on request by the competitive analysis (e.g. in terms of entry barriers) in order to plaintiff, the court may stay execution if the decision is likely to assess the nature of the market and if the investigated undertaking cause irreparable damage or contravene the law. could justify its conducts based on these regulations. The judicial review period before the Ankara administrative courts The decisional practice of the Board and the court decisions indicate usually takes about 12 to 24 months. Decisions by the Ankara that if the conducts of professional organisations remain in the administrative courts are, in turn, subject to appeal before the framework of powers granted by law and the related legislation, regional courts (appellate courts) and the Council of State. As the the Board will not establish any decisions regarding the relevant regional courts are newly established, it has not been yet evidenced conducts (e.g. Türkiye Barolar Birliği, November 13, 2003, 03- 73/876(a)-374; Türk Tabipler Birliği, September 22, 2005, 05-

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59/877-236). However, in terms of competition advocacy, the Board could send an opinion to the relevant institutions regarding 2.2 What is the analysis to determine (a) whether there the conducts which have legal grounds and the potential to restrict is an agreement, and (b) whether that agreement is vertical? competition.

Reasoning of the Competition Law indicates that, for the purposes 1.13 Describe how your jurisdiction’s political environment of the Competition Law, the term “agreement” refers to all kinds of may or may not affect antitrust enforcement. compromise or accord to which the parties feel bound, even if these do not meet the conditions for validity as regards the Civil Law. The current political climate in Turkey does not have an impact on Article 2 of Communiqué No. 2002/2 defines vertical agreements as the Turkish competition law regime as the Authority continues to Turkey agreements which are concluded between two or more undertakings function in the same usual manner. operating at different levels of the production or distribution chain, with the aim of purchase, sale or resale of particular goods or 1.14 What are the current enforcement trends and services. priorities in your jurisdiction?

2.3 What are the laws governing vertical agreements? The Authority has amended the Guidelines on Vertical Agreements within the scope of the ongoing re-evaluation studies of Communiqué Article 4 of the Competition Law prohibits all agreements between 2002/2. The amendment mainly focuses on (i) MFN clauses, and undertakings, decisions by associations of undertakings and (ii) online sales. The recent enforcement trend of the Authority also concerted practices that have (or may have) as their object or effect supports that the Authority is becoming more interested in the MFN the prevention, restriction or distortion of competition within a clauses (e.g. Yataş, September 27, 2017, 17-30/487-211; Booking. Turkish product or services market or a part thereof. The prohibition com, January 5, 2017, 17-01/12-4; Yemeksepeti, June 9, 2016, 16- on restrictive agreements and practices does not apply to agreements 20/347-156). that benefit from a block exemption issued by the Board (please see the answer to question 1.10 above) and/or an individual exemption. 1.15 Describe any notable case law developments in the past year. 2.4 Are there any type of vertical agreements or restraints that are absolutely (“per se”) protected? The Board conducted an investigation against Booking.com in order to determine whether Booking.com violated the provisions of the The Board’s established practice adopts a very sensitive approach in Competition Law through the “best price guarantee” practices in connection with all resale price maintenance arrangements. Indeed, terms of the booking services they offer. The Board concluded Communiqué No. 2002/2 does not exempt agreements that directly that the agreements of the Booking.com including the price and or indirectly restrict the buyer’s ability and freedom to determine its availability parity clause as well as the best price guarantee clauses own resale prices. violate the provisions of the Competition Law (January 5, 2017, 17- 01/12-4). Despite certain decisions where the Board somehow signalled “rule of reason” analysis by considering the market structure, competition In October 2017, at the end of a fully-fledged investigation launched level and effect on consumers (e.g. Çilek August 20, 2014, 14- against Mey İçki in order to determine whether Mey İçki has abused 29/597-263; Dogati October 22, 2014, 14-42/764-340), the Board’s its dominant position thereby hindering its competitors in the vodka established precedent clearly points towards viewing resale price and gin market, the Board concluded that Mey İçki has abused its maintenance as a per se violation (e.g. Anadolu Elektronik, June dominant position in the relevant market. However, the Board 23, 2011, 11-39/838-262; Akmaya, May 20, 2009, 09-23/491-117; decided that there is no need to impose a further administrative Kuralkan, May 27, 2008, 08-35/462-162). monetary fine on Mey İçki since it has already had an administrative monetary fine imposed for the consequences of the same conduct in the raki market (traditional Turkish spirit) within the same 2.5 What is the analytical framework for assessing time period (October 25, 2017, 17-34/537-228). To that end, the vertical agreements? decision is a candidate to set a landmark precedent in terms of the interpretation of the “non bis in idem” principle under the Turkish Article 4 of the Competition Law is akin to and closely modelled competition law regime. on Article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”). It prohibits all agreements between undertakings, decisions by associations of undertakings and concerted practices 2 Vertical Agreements that have (or may have) as their object or effect the prevention, restriction or distortion of competition within a Turkish product or 2.1 At a high level, what is the level of concern over, and services market or a part thereof. scrutiny given to, vertical agreements? 2.6 What is the analytical framework for defining a market According to the Authority’s Activity Report of 2016 (the Activity in vertical agreement cases? Report 2017 is not yet available), the number of decisions based on vertical and horizontal agreements considerably reduced between The Board issued the Guidelines on the Definition of the Relevant 2012 and 2015. Nevertheless, the decline within the number of Market (“Guidelines on Market Definition”) on January 10, 2008. decisions decelerated in 2016. Furthermore, the Report stated that The Guidelines on Market Definition is closely modelled on the an exception was made in 2016 since the number of decisions based Commission Notice on the Definition of Relevant Market for the on vertical agreements was more than the number of decisions for Purposes of Community Competition Law (97/C 372/03), and each year between 2012 and 2015.

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it considers demand-side substitution as the primary standpoint of market definition and supply-side substitution and potential 2.11 Are there any special rules for vertical agreements competition as secondary factors. relating to intellectual property and, if so, how does the analysis of such rules differ? Pursuant to paragraph 59 of the Guidelines on Vertical Agreements, the Guidelines on Market Definition is taken into consideration As per Article 2 of Communiqué No. 2002/2, if a vertical agreement in terms of market definition regarding vertical agreements. In concerns sale and resale of goods and services and also includes addition, certain specific conditions of vertical restrictions which provisions on the transfer of intellectual rights to the buyer or the might concern market definition are discussed under the Guidelines exercise of such rights by the buyer, the relevant vertical agreement on Vertical Agreements. might benefit from block exemption under Communiqué No.

Turkey 2002/2 provided that the relevant intellectual rights directly concern 2.7 How are vertical agreements analysed when one of the use, sale or resale, by the buyer or the customers of the buyer, the parties is vertically integrated into the same level of the goods or services which constitute the substantial matter of as the other party (so called “dual distribution”)? Are the agreement, and that the transfer or use of such intellectual rights these treated as vertical or horizontal agreements? does not constitute the main purpose of the agreement.

Similar to Article 2(4) of the European Commission’s Block Exemption Regulation, Article 2 of Communiqué No. 2002/2 2.12 Does the enforcer have to demonstrate anticompetitive effects? covers agreements where the supplier is a manufacturer and distributor of goods, while the buyer is only a distributor and not also a manufacturer of the competing products of the buyer. Article According to Article 4 of the Competition Law, it is sufficient for 2 of Communiqué No. 2002/2 considers these agreements as either the effect or the object to exist in order for there to be an vertical agreements and, accordingly, they could benefit from block infringement within the meaning of Article 4 of Competition Law. exemption under Communiqué No. 2002/2. That said, the investigated parties might argue that a restrictive agreement could benefit from an individual exemption under Article 5 of the Competition Law (please see the answer to question 2.10 2.8 What is the role of market share in reviewing a vertical above). agreement?

Vertical agreements could qualify for block exemption under 2.13 Will enforcers or legal tribunals weigh the harm against potential benefits or efficiencies? Communiqué No. 2002/2 if the market share of the supplier is below 40% in the relevant market. However, for cases of exclusive supply obligation, both the buyer’s and the supplier’s market share The Board takes into account potential efficiencies or benefits are taken into consideration. for consumers to decide whether a restrictive agreement could be subject to an individual exemption. Pursuant to Article 5 of the Competition Law, restrictions should not be more than what 2.9 What is the role of economic analysis in assessing is necessary to reach efficiencies and benefits and the agreement vertical agreements? should not eliminate competition in a significant part of the relevant market. The Authority recently established an economic analysis division in previous years where case handlers with a background in economics are devoted solely to the economic analysis of antitrust matters. The 2.14 What other defences are available to allegations that a vertical agreement is anticompetitive? establishment of the new economic analysis division can be viewed as a positive step towards more economics-oriented competitive analyses. The Guidelines on Vertical Agreements do not refer to any specific defences in addition to the “efficiency defence”. To that end, possible defence scenarios would heavily depend upon the circumstances of 2.10 What is the role of efficiencies in analysing vertical each case. agreements?

Pursuant to paragraph 47 of the Guidelines on Vertical Agreements, 2.15 Have the enforcement authorities issued any formal guidelines regarding vertical agreements? vertical agreements falling outside the scope of Communiqué No. 2002/2 are not automatically deemed to be in violation of the Competition Law and the undertakings may plead efficiencies The Board introduced the “Guidelines Explaining the Block defence. Exemption Communiqué on Vertical Agreements in the Motor Vehicles Sector, No 2017/3” on January 19, 2017. Recently, the The conditions for an individual exemption set out under Article 5 “Guidelines on Vertical Agreements” which aims to revise the of the Competition Law are similar to the conditions existing under former guidelines was published on 30 March 2018. the EU law, and are namely: (i) the agreement must contribute to improving the production or distribution of goods or to promoting technical or economic progress; (ii) the agreement must allow 2.16 How is resale price maintenance treated under the consumers a fair share of the resulting benefit; (iii) the agreement law? should not eliminate competition in a significant part of the relevant market; and (iv) the agreement should not restrict competition more See the answer to question 2.4 above. than what is compulsory for achieving the goals set out in (i) and (ii).

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2.17 How do enforcers and courts examine exclusive 2.21 How do enforcers and courts examine multi-product dealing claims? or “bundled” discount claims?

If a vertical agreement qualifies for the block exemption under Bundled rebates can cause competition law concerns where they Communiqué No. 2002/2, the supplier can automatically benefit permit the dominant undertaking to leverage a wider portfolio to from certain privileges, such as conducting exclusive dealing. the disadvantage of competitors who are only able to compete Provisions that extend beyond what is permissible under an with respect to one or at least a narrower portfolio of products. In appropriately defined exclusive distribution system, such as the Doğan Yayın (March 30, 2011, 11-18/341-103), where the dominant restriction of passive sales and restriction on the sales of customers undertaking which owned a set of different newspapers provided a of the buyers, cannot benefit from the block exemption provided rebate for those customers who advertised with multiple newspapers Turkey under Communiqué No. 2002/2 (e.g. Mey İçki, June 12, 2014, 14- owned by it, the Board regarded the relevant rebate as loyalty- 21/410-178; Novartis, July 4, 2012, 12-36/1045-332). inducing as competitors were deemed to possess narrower portfolios In its recent Tuborg decision, the Board evaluated whether of publications and therefore unable to respond with similar bundles. the individual exemption granted to the exclusive distribution agreements of Tuborg with its decision of March 18, 2010 (no. 2.22 What other types of vertical restraints are prohibited 10-24/331-119) should be revoked. The Board has evaluated by the applicable laws? the current market structure and determined that the dynamics in the market differ from those in 2010, effectively altering the Non-compete obligations could be considered as restrictive under the competitive landscape. To that end, the Board concluded that even Turkish competition law regime. As per Article 5 of Communiqué though Tuborg’s market share at the end of 2016 was below 40%, No. 2002/2, non-compete obligations for more than five years the relevant agreements no longer satisfy the condition of “not and non-compete provisions that are designed to remain in effect eliminating competition in a significant part of the relevant market” post-termination cannot benefit from the block exemption (e.g. set forth under Article 5 of the Competition Law and thus, the Takeda, April 3, 2014, 14-13/242-107; Sanofi Aventis, November individual exemption granted to Tuborg in 2010 should be revoked 22, 2012, 12-59/1570-571). However, as per the paragraph 45 of (November 9, 2017, 17-36/583-256). the Guidelines on Vertical Agreements, non-compete obligations for the buyer could be maintained for one year at most following the 2.18 How do enforcers and courts examine tying/ expiration date of the agreement, provided that certain conditions supplementary obligation claims? are fulfilled. Also, Article 4 Communiqué No. 2002/2 provides that restrictions on Paragraph 208 of the Guidelines on Vertical Agreements states (i) a wholesaler’s sales to end users and (ii) the sales by the member that tying may constitute vertical restriction under Article 4 of the of a selective distribution system to unauthorised distributors could Competition Law if it results in a single branding type of obligation be considered as restrictive and cannot benefit from the block for the tied product. If the supplier’s market share does not exceed exemption provided under Communiqué No. 2002/2. the 40% threshold, both for the tied and the tying product, a vertical agreement which contains tying obligations could benefit from the 2.23 How are MFNs treated under the law? block exemption under Communiqué No. 2002/2.

Under the current Turkish competition law, there is no statutory 2.19 How do enforcers and courts examine price provision explicitly allowing or disallowing MFNs. On the other discrimination claims? hand, the Guidelines on Vertical Agreements recognises the pro- competitive nature of MFN clauses and adopts a rule of reason The Guidelines on Vertical Agreements state that exclusivity clauses approach for the analysis of the anti-competitive effects of these and exclusive customer allocation in a vertical agreement might clauses. The relevant guidelines provide that in the analysis of constitute price discrimination by reducing intra-brand competition these clauses, the factors, such as (i) the relevant undertakings’ and and market partitioning. According to the Guidelines on Vertical their competitors’ position in the relevant market, (ii) the object Agreements, a combination of exclusive distribution and exclusive of the MFN clause in the relevant agreement, and (iii) the specific buying might also create the same competition law concerns. characteristics of the market, should be taken into consideration. However, MFNs, especially when used by a strong market player, 2.20 How do enforcers and courts examine loyalty might raise competition law concerns if and to the extent they discount claims? “artificially increase market transparency”, “raise barriers to entry” or “raise the rivals’ costs”. Loyalty rebates are not considered per se illegal under the The Board’s Booking.com (January 5, 2017, 17-01/12-4) and Yemek Competition Law. The protective cloak of Communiqué No. 2002/2 Sepeti (June 9, 2016, 16-20/347-156) decisions could be indicated also applies to arrangements containing loyalty-inducing rebates, if as significant examples regarding the practice of MFN clauses the undertaking applying loyalty rebates has a market share lower within the Turkish competition law (for details of the Booking.com than 40%. The Board does not tend to forbid implementation of decision, see the answer to question 1.15). rebate systems altogether, without engaging in a market analysis to The Board concluded that Yemek Sepeti holds a dominant position assess their potential or actual foreclosing effects. All in all, loyalty in the online meal order-delivery platform services market. The discounts and their potential impacts are analysed on a case-by-case Board has further decided that preventing restaurants from offering basis. better/different conditions to rival platforms through MFN practices creates exclusionary effects in the relevant market and thus constitutes an abuse of dominant position.

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Competition Law does not define what constitutes ‘abuse’ per se, 3 Dominant Firms but it provides five examples of forbidden abusive behaviours (see the answer to question 3.2 above). 3.1 At a high level, what is the level of concern over, and scrutiny given to, unilateral conduct (e.g., abuse of 3.6 What is the role of economic analysis in assessing dominance)? market dominance?

According to the decisional practice of the Board, the dominant The answer to question 2.9 above is also applicable to Article 6 undertakings have a “special responsibility” not to allow enforcement. their conduct to restrict competition and, therefore, the Board Turkey continuously monitors the conducts of the dominant firms. 3.7 What is the role of market share in assessing market dominance? 3.2 What are the laws governing dominant firms? The Board’s decisions and the Guidelines on Exclusionary Abuses The main legislation applying specifically to the behaviour of are clear that market shares are the primary indicator to the dominant firms is Article 6 of the Competition Law. It provides that dominant position, but not the only one. The barriers to entry, the “any abuse on the part of one or more undertakings, individually or market structure, the competitors’ market positions and other market through joint agreements or practices, of a dominant position in a dynamics, as the case may be, should also be considered. market for goods or services within the whole or part of the country is unlawful and prohibited”. The article does not define what constitutes “abuse” per se, but it provides a non-exhaustive list of specific 3.8 What defences are available to allegations that a firm is abusing its dominance or market power? forms of abuse, which is, to some extent, similar to Article 102 of the TFEU. Accordingly, these examples include the following: (i) directly or indirectly preventing entries into the market or hindering The chances of success of certain defences and what constitutes a competitor activity in the market; (ii) directly or indirectly engaging defence depend heavily on the circumstances of each case. It is also in discriminatory behaviour by applying dissimilar conditions to possible to invoke efficiency gains, as long as it can be adequately equivalent transactions with similar trading parties; (iii) making the demonstrated that the pro-competitive benefits outweigh the anti- conclusion of contracts subject to acceptance by the other parties of competitive impact. restrictions concerning resale conditions such as the purchase of other goods and services, or acceptance by the intermediary purchasers of 3.9 What is the role of efficiencies in analysing dominant displaying other goods and services or maintenance of a minimum firm behaviour? resale price; (iv) distorting competition in other markets by taking advantage of financial, technological and commercial superiorities As per paragraph 32 of the Guidelines on Exclusionary Abuses, in the dominated market; and (v) limiting production, markets or when assessing the efficiency justification put forward by the technical development to the prejudice of consumers. investigated undertaking, the Board will expect from the undertaking to prove that all of the following four conditions are fulfilled: (i) 3.3 What is the analytical framework for defining a market the efficiencies should be realised or are likely to be realised as a in dominant firm cases? result of the conduct; (ii) the conduct should be indispensable to the realisation of those efficiencies; (iii) the likely efficiencies brought The Guidelines on the Definition of the Relevant Market (see the about by the conduct should outweigh any possible negative effects answer to question 2.6 above) also apply to dominance cases. on competition and consumer welfare in the affected markets; and (iv) the conduct should not eliminate effective competition by removing all or most existing sources of actual or potential 3.4 What is the market share threshold for enforcers or a competition. court to consider a firm as dominant or a monopolist?

In theory, there is no market share threshold above which an 3.10 Do the governing laws apply to “collective” dominance? undertaking will be presumed to be dominant. Although not directly applicable to dominance cases, the Guidelines on Horizontal Mergers confirm that companies with market shares in excess of Collective dominance is also covered by the Competition Law. 50% may be presumed to be dominant. The Board’s precedents and However, precedents concerning collective dominance are not the Guidelines on the Assessment of Exclusionary Abusive Conduct abundant and mature enough to allow for a clear inference of a by Dominant Undertakings (“Guidelines on Exclusionary Abuses”) set of minimum conditions under which collective dominance indicates that an undertaking with a market share lower than 40% should be alleged. That said, the Board has considered it necessary is unlikely to be in a dominant position (e.g. Mediamarkt, May 12, to establish an economic link for a finding of abuse of collective 2010, 10-36/575-205; Pepsi Cola, August 5, 2010, 10-52/956-335). dominance (e.g. Turkcell/Telsim, June 9, 2003, 03-40/432-186 and Biryay, July 17, 2000, 00-26/292-162).

3.5 In general, what are the consequences of being adjudged “dominant” or a “monopolist”? Is dominance 3.11 How do the laws in your jurisdiction apply to or monopoly illegal per se (or subject to regulation), or dominant purchasers? are there specific types of conduct that are prohibited? While the Competition Law does not contain a specific reference to In similar fashion to Article 102 of the TFEU, dominance itself dominant purchasers, dominant purchasers may also be caught by is not prohibited, only the abuse of dominance. Article 6 of the the legislation, if and to the extent their conduct amounts to an abuse

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of their dominant position as the Board did not decline jurisdiction over claims of abuse by dominant purchasers in the past (e.g. ÇEAS, 3.15 How is “platform dominance” assessed in your November 10, 2003, 03-72/874-373). jurisdiction?

“Platform dominance” has not been categorically assessed by the 3.12 What counts as abuse of dominance or exclusionary Board so far. Although, in Yemek Sepeti (June 9, 2016, 16-20/347- or anticompetitive conduct? 156), the Board found that Yemek Sepeti was in a dominant position in “the online meal order-delivery platform services”, but it did not Article 6 of the Competition Law does not define what constitutes mention “platform dominance”. ‘abuse’ per se; it provides five examples of forbidden abusive

behaviour, which comes as a non-exhaustive list and falls to some Turkey extent in line with Article 102 of the TFEU (see the answer to 3.16 Under what circumstances are refusals to deal question 3.2 above). considered anticompetitive?

As per paragraph 43 of the Guidelines on Exclusionary Abuses, the 3.13 What is the role of intellectual property in analysing Board looks for the presence of all of the following three conditions dominant firm behaviour? in order to find a violation through refusal to deal conducts: the refusal should (i) relate to a product or service that is indispensable The market power in relation to intellectual property rights is in order to be able to compete in a downstream market; (ii) be likely discussed in secondary legislation, although the discussion is limited to lead to the elimination of effective competition in the downstream and relates mainly to the assessment of the effects of agreements on market; and (iii) be likely to lead to consumer harm (e.g. Lüleburgaz competition and does not directly relate to the application of rules Şoförler ve Otomobilciler Esnaf Odası, August 7, 2017, 17-28/477- on unilateral conduct. 205; Congresium, October 27, 2016, 16-35/604-269 and Türk Telekomünikasyon, June 9, 2016, 16-20/326-146). 3.14 Do enforcers and/or legal tribunals consider “direct effects” evidence of market power? 4 Miscellaneous Market shares are the primary indicator of the dominant position, but not the only one. The Board would assess the market power of an 4.1 Please describe and comment on anything unique to undertaking in terms of the dynamic structure of the relevant product your jurisdiction (or not covered above) with regards market and consider various market characteristics as indicators of to vertical agreements and dominant firms. competitive pressures in the market which can potentially set-off or abate the effects of high market shares and concentration levels. Unlike the TFEU, the Competition Law does not refer to “appreciable effect” or “substantial part of a market” and thereby excludes any de minimis exception.

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Gönenç Gürkaynak Hakan Özgökçen ELIG Gürkaynak Attorneys-at-Law ELIG Gürkaynak Attorneys-at-Law Çitlenbik Sokak No. 12 Çitlenbik Sokak No. 12 Yıldız Mahallesi Yıldız Mahallesi Beşiktaş Beşiktaş 34349 Istanbul 34349 Istanbul Turkey Turkey

Tel: +90 212 327 1724 Tel: +90 212 327 1724 Email: [email protected] Email: [email protected] URL: www.elig.com URL: www.elig.com Turkey Mr. Gönenç Gürkaynak is a founding partner of ELIG Gürkaynak Mr. Hakan Özgökçen joined the firm in 2007. He graduated from Attorneys-at-Law, a leading law firm of 87 lawyers based in Istanbul, Marmara University Law School in 2003 and received an LL.M. degree Turkey. Mr. Gürkaynak graduated from Ankara University, Faculty from Istanbul Bilgi University during 2010. Mr. Özgökçen has been a of Law in 1997, and was called to the Istanbul Bar in 1998. Mr. member of the Istanbul Bar since 2005. Gürkaynak received his LL.M. degree from Harvard Law School, and Mr. Özgökçen became a partner within the “Regulatory and is qualified to practise in Istanbul, New York, Brussels and England Compliance” department of ELIG Gürkaynak in 2015 and has extensive and Wales. Before founding ELIG Gürkaynak Attorneys-at-Law in experience in competition law, mergers & acquisitions, contracts law, 2005, Mr. Gürkaynak worked as an attorney at the Istanbul, New York administrative law and general corporate law matters. Mr. Özgökçen and Brussels offices of a global law firm for more than eight years. has represented defendants and complainants in complex antitrust Mr. Gürkaynak heads the competition law and regulatory department investigations concerning all forms of abuse of dominant position of ELIG Gürkaynak Attorneys-at-Law, which currently consists of allegations, along with merger notifications and clearances, and 45 lawyers. He has unparalleled experience in Turkish competition cartel legislation and enforcement. He has also represented various law counselling issues with more than 20 years of competition law multinational and national companies before the Turkish Competition experience, starting with the establishment of the Turkish Competition Authority and Turkish courts. Authority. Mr. Gürkaynak frequently speaks at conferences and symposia on competition law matters. He has published more than 150 articles in English and Turkish by various international and local publishers. Mr. Gürkaynak also holds teaching positions at undergraduate and graduate levels at two universities, and gives lectures in other universities in Turkey.

ELIG Gürkaynak Attorneys-at-Law is committed to providing its clients with high-quality legal services. We combine a solid knowledge of Turkish law with a business-minded approach to develop legal solutions that meet the ever-changing needs of our clients in their international and domestic operations. Our competition law and regulatory department is led by our partner, Mr. Gönenç Gürkaynak, and consists of three partners, three counsel and 40 associates. In addition to unparalleled experience in merger control issues, ELIG Gürkaynak has vast experience in defending companies before the Turkish Competition Board in all phases of antitrust investigations, abuse of dominant position cases, leniency handlings, and before courts on issues of private enforcement of competition law, along with appeals of the administrative decisions of the Turkish Competition Authority. During the past year, ELIG Gürkaynak has been involved in over 60 merger clearances by the Turkish Competition Authority, more than 20 defence project investigations, and over 15 antitrust appeals before the administrative courts. ELIG Gürkaynak also provided more than 50 antitrust education seminars to employees of its clients. ELIG Gürkaynak has an in-depth knowledge of representing defendants and complainants in complex antitrust investigations concerning all forms of abuse of dominant position allegations, and all forms of restrictive horizontal and/or vertical arrangements, including price-fixing, retail price maintenance, refusal to supply, territorial restrictions and concerted practice allegations. In addition to significant antitrust litigation expertise, the firm has considerable expertise in administrative law, and is well equipped to represent clients before the High State Court, both on the merits of a case and for injunctive relief. ELIG Gürkaynak also advises clients on a day-to-day basis in a wide range of business transactions that almost always contain antitrust law issues, including distributorship, licensing, franchising and toll manufacturing issues.

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United Kingdom Ajal Notowicz

Dickson Minto Maria Ziprani

1 General 1.3 Describe the steps in the process from the opening of an investigation to its resolution.

1.1 What authorities or agencies investigate and enforce the laws governing vertical agreements and dominant A typical CMA investigation into an alleged infringement of the firm conduct? rules regarding vertical agreements (in practice, most likely resale price maintenance (“RPM”)) or abuse of dominance consists of the The main competition authority in the UK is the Competition and following key steps: Markets Authority (“CMA”). The CMA came into existence on 1. Prior to opening a formal investigation, the CMA will gather 1 April 2014, and is the successor to the Office of Fair Trading and consider information on an informal basis, and apply its (“OFT”) and Competition Commission (“CC”). published prioritisation principles to decide whether or not to open an investigation. In addition, the following sectoral regulators have concurrent powers 2. If there is a reasonable suspicion of an infringement and the to enforce competition law (including regarding vertical agreements case falls within the CMA’s casework priorities, the CMA and abuse of dominance): Civil Aviation Authority (“CAA”); Financial will open a formal investigation. Conduct Authority (“FCA”); Gas and Electricity Markets Authority 3. The CMA will then be able to use its formal information- (“Ofgem”); Northern Ireland Authority for Utility Regulation gathering powers, such as issuing information requests, (“NIAUR”); Office of Communications (“Ofcom”); Office of Rail and searching premises and conducting interviews. Road (“ORR”); Payment Systems Regulator (“PSR”); Water Services 4. If the CMA has sufficient evidence of an infringement, it will Regulation Authority (“Ofwat”); and NHS Improvement (“Monitor”). issue a Statement of Objections, and give the parties access to In the remainder of this contribution, any mention of the CMA’s the file and the opportunity to make representations. powers should be read as including powers which may be exercised by 5. The CMA will close its investigation by either: these sectoral regulators, unless stated otherwise. ■ deciding that there are no grounds for action; The UK’s substantive competition law provisions (outside the merger ■ issuing an infringement decision which includes certain control and market investigations sphere) are enshrined in Chapters I actions (such as penalties and/or an order to bring the and II of the Competition Act 1998 (“CA98”) and are closely based infringement to an end); or on the corresponding provisions of the Treaty on the Functioning of ■ accepting binding commitments (see question 1.6 below the European Union (“TFEU”), Articles 101 and 102, respectively. for more information regarding the commitments process). Where a UK court, the CMA or any of the above-mentioned sectoral regulators apply the Chapter I and/or Chapter II provisions, they must also apply the equivalent EU provisions, provided the conduct 1.4 What remedies (e.g., fines, damages, injunctions, etc.) in question may affect trade between EU Member States. are available to enforcers? The future application of EU law in the UK is uncertain as a result of the UK’s stated intention to leave the EU, commonly known as The CMA may: “Brexit”. In this regard, see question 1.13 below. ■ Impose penalties of up to 10% of the company’s worldwide group turnover. ■ Give directions to bring an infringement to an end. 1.2 What investigative powers do the responsible competition authorities have? ■ Order the disqualification of an individual from holding company directorships, where that individual is or has been a director of a company which breached competition law. The CMA has the power to open an investigation if it has “reasonable ■ Impose interim measures where it has begun an investigation, grounds for suspecting” that there has been a breach of competition and considers it necessary to take urgent action to prevent law. serious irreparable damage or to protect the public interest. The CMA has the power to request information from companies and It should also be noted that an agreement (or a clause from the natural persons, as well as to enter and search business and domestic agreement – see question 2.3 below regarding severability) which premises for documents and other materials relevant to the investigation infringes competition law will be unenforceable. Whilst criminal (more colloquially known as dawn raids). Depending on the nature of sanctions may be imposed on individuals in cartel cases, such the premises, a warrant from a judge may first be required. sanctions are not available in the event of an infringement of the

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rules on vertical agreements or abuse of dominance. Finally, the The legal standard which applies to the CMA’s decisions is the courts may award damages, grant an injunction (such as an order to one applied in civil cases of the “balance of probabilities”, as the cease certain conduct) or make a declaration (such as a confirmation CAT confirmed in an appeal by the pharmaceuticals producer that an exclusivity clause in a vertical agreement is unenforceable). Napp against an OFT decision finding an abuse of dominance (Napp Pharmaceutical Holdings Limited v Director General of Fair Trading (2002)). However, the CAT added that Chapter I and 1.5 How are those remedies determined and/or calculated? Chapter II cases involving penalties require “strong and convincing evidence” before they are found to be proven. The CMA issued guidance as to the appropriate penalty amount in April 2018. The document sets out a six-step approach. The main 1.8 What is the appeals process? factors taken into account are the relevant turnover of the company involved, the seriousness and duration of the infringement, aggravating

United Kingdom Decisions by the CMA and sectoral regulators may be appealed to and mitigating circumstances, and a possible adjustment for deterrence the CAT, both on liability and on the penalty amount. The appeal and proportionality. At the end of the determination, the CMA will needs to be lodged within two months of the date on which the also need to ensure that the penalty cap of 10% of worldwide group appellant was notified of the decision or the date of the publication turnover is not exceeded by the proposed fine, and that any discounts of the decision, whichever is the earlier. CAT judgments may be for leniency and settlement are fully reflected. The Competition appealed to the Court of Appeal, from where a further appeal may Appeal Tribunal (“CAT”) has unlimited jurisdiction to review the be possible to the Supreme Court. For example, National Grid amount of a penalty imposed by the CMA. appealed to the Court of Appeal in relation to a CAT judgment in an As discussed in the response to question 1.10 below, in a limited set abuse of dominance case relating to domestic gas meters, originally of circumstances businesses may qualify for immunity from fines. investigated by Ofgem (National Grid plc v Gas and Electricity Markets Authority et al (2010)). The Court of Appeal dismissed the appeal regarding liability but substantially reduced the penalty 1.6 Describe the process of negotiating commitments or amount. National Grid’s attempts to appeal further were rejected by other forms of voluntary resolution. the Supreme Court.

The CMA can accept binding commitments from parties suspected The CAT may uphold the original decision, set it aside, remit it to the of having infringed competition law in the UK. It is up to the parties CMA or regulator to reconsider, or make any decision that the CMA to decide whether they would like to offer commitments to the or regulator could have made. An example of the latter approach was CMA. From their perspective, the main advantage is that the case is a CAT judgment in 2005, which found that a Hertfordshire funeral closed without a penalty and without a finding of an infringement. firm held a dominant position and abused this position by refusing a Commitment decisions are also beneficial to the CMA, in that they competitor access to its crematorium, despite the OFT’s decision to the normally result in a quicker and more efficient resolution of a case. contrary (J.J. Burgess & Sons v The Office of Fair Trading (2005)). Commitments can only be accepted by the CMA after it has started an investigation, but before it has issued a decision. The CMA 1.9 Are private rights of action available and, if so, how has stated that it is very unlikely to accept commitments in cases do they differ from government enforcement actions? involving secret cartels or a serious abuse of a dominant position (including predatory pricing). Nevertheless, there have been Whereas historically in the UK the emphasis has been more on several instances of alleged abuse cases where commitments were public enforcement, in the past few years the interest in private considered acceptable. For example, in 2014 the OFT accepted enforcement of competition law has increased. In particular the commitments from Certas Energy UK Limited and its parent DCC Consumer Rights Act 2015 introduced several important changes, plc to resolve possible concerns regarding an abuse of a dominant including a fast track procedure intended to facilitate access to position in relation to the long-term exclusive supply of road fuels justice for SMEs in private competition law actions. Furthermore, in the Western Isles of Scotland. In that case, the CMA required this legislation introduced a new collective proceedings regime for amendments to the proposed commitments in order to address third damages cases, covering both opt-in and opt-out actions, thus going party comments received during the public consultation process. beyond the requirements of the EU Directive regarding actions The commitments procedure should be distinguished from the for damages for infringements of competition law of 2014. For settlement process under which the parties admit a breach of example, in 2016, a collective damages action was launched on an competition law in exchange for a penalty discount of up to 20%. opt-out basis on the back of a CMA decision which found unlawful The CMA’s administrative process in settlement cases is more restrictions regarding the advertising of discounts in relation to streamlined than in non-settlement cases, resulting in efficiencies the supply of mobility scooters, though the case was dropped in for both the CMA and the parties. The CMA has discretion in May 2017 following difficulties in assessing the claimants’ losses determining which cases to settle. For example, in an RPM case and mounting litigation costs (Dorothy Gibson v Pride Mobility which the CMA concluded in 2017 (Light Fittings), the CMA Products Limited). granted a 20% settlement discount on account of the infringing Private enforcement actions may be brought on a stand-alone or party’s admissions. follow-on basis.

1.7 Does the enforcer have to defend its claims in front 1.10 Describe any immunities, exemptions, or safe harbors of a legal tribunal or in other judicial proceedings? If that apply. so, what is the legal standard that applies to justify an enforcement action? The CMA operates a corporate leniency policy, with full immunity or a partial reduction of the fine being available in appropriate cases. Unless a decision is appealed (see question 1.8 below), the CMA does Leniency is only available in relation to cartel activity (which, for not need to substantiate or defend its case in judicial proceedings. these purposes, includes RPM), but not with regards to other vertical

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agreements nor abuse of dominance cases. The CMA has adopted 29 March 2017, the UK is expected to leave the EU on 29 March the OFT’s Guidance regarding applications for leniency and no- 2019, or later if the negotiating period is extended with the consent action in cartel cases of 2013. of all EU Member States. At present, a “transition period” is being The CA98 provides immunity from fines for so-called “small negotiated which, subject to political agreement between the UK agreements” (which do not include price-fixing arrangements) between and the EU, would most likely last until 31 December 2020, during SMEs whose combined group turnover does not exceed £20 million. which it is expected that EU competition law would continue to For example, in two cases in 2013 and 2014 the OFT found that apply in the UK. suppliers and retailers of mobility scooters had agreed on restrictions The CMA is an independent, non-ministerial government regarding online sales and advertising by the retailers, but the OFT department. At present, the CMA and courts must interpret the was unable to impose penalties as the parties’ combined turnover (for Chapter I and II prohibitions consistently with the corresponding any combination of supplier and retailer) did not exceed £20 million. provisions under EU law. If this requirement is repealed, it is likely In addition, a company with a turnover of not more than £50 million that in the short term the CMA and courts will continue to follow United Kingdom that abuses its dominant position also qualifies for immunity from EU precedents, but in the longer term a divergence is expected to fines, on the basis that it is considered to be “conduct ofminor materialise in certain areas. significance”. For example, in 2007 the OFT found that Cardiff Bus One particular area where divergence is most likely relates to the had abused its dominant position by engaging in predatory conduct, EU’s internal market integration objective. For example, the EU but the OFT was unable to impose a penalty as a result of Cardiff has traditionally objected to clauses in distribution agreements Bus’ turnover not exceeding £50 million. which restrict parallel trade between Member States, and dominant It is worth noting that the immunity from fines only applies to companies discriminating between trading partners based on the infringements of CA98, but not of the corresponding EU provisions trading partners’ Member State of origin. In a post-Brexit world, (which, as outlined in response to question 1.1 above, the CMA is the CMA is unlikely to take the market integration objective into obliged to apply in certain circumstances). Furthermore, the CMA account in its enforcement practice. may withdraw the immunity for arrangements or conduct which occur As the CMA will also no longer form part of the European after the date of such a decision (as indeed it did in 2017 in relation to a Competition Network post-Brexit, a new system for cooperation in supplier of mobility scooters). Finally, the immunity does not provide key areas such as the launch and conduct of investigations will also protection against the other consequences of competition law breaches, need to be agreed upon. It remains to be seen whether Brexit will in particular possible private damages actions and unenforceability. have an impact on the UK’s current status as a favoured jurisdiction for launching antitrust private damages actions, or whether a shift will take place to other jurisdictions such as the Netherlands and 1.11 Does enforcement vary between industries or businesses? Germany. Assuming that the UK will no longer be covered by the “one stop The Chapter I and II prohibitions (and corresponding EU provisions) shop” regime of the EU Merger Regulation, a very substantial apply across all industries in the UK, with limited exceptions for increase in the number of merger cases handled by the CMA is the agricultural, defence and planning sectors. Whereas the CMA’s expected. This would normally require a reallocation of resources enforcement powers apply across virtually all parts of the economy, at the CMA, possibly resulting in a decreased focus on enforcement the various sectoral regulators have concurrent enforcement action under the CA98, including regarding abuse of dominance and powers in their respective sectors (see question 1.1 above). The vertical restraints. However, the CMA has been awarded an extra Competition Act 1998 (Concurrency) Regulations 2014 contain £2.8 million a year by the Government in order to deal with the rules for the co-ordination of the enforcement actions by the CMA increased caseload. In its Annual Plan for 2018/2019, the CMA and sectoral regulators. has committed to increase the number of competition enforcement investigations to 10, up from six in the previous year (in addition to The CMA is not particularly focused on one sector of industry, and its continued use of warning and advisory letters). indeed noted in its 2018/2019 Annual Plan that it intends to send a signal that competition matters, regardless of the location or size of the business involved. See also question 1.14 below. 1.14 What are the current enforcement trends and priorities in your jurisdiction?

1.12 How do enforcers and courts take into consideration an industry’s regulatory context when assessing The CMA’s 2018/2019 Annual Plan highlighted a number of competition concerns? areas of interest that form the basis of its current investigative and enforcement efforts. The rationale behind sectoral regulators enforcing competition law Of particular interest in the context of this contribution is the is that they are normally best placed to take account of the regulatory CMA’s increased focus on vulnerable consumers and “trust-based” context in the sector which they oversee. Before taking regulatory markets, including tackling breaches of competition law in the action, the sectoral regulators are legally required to consider supply of pharmaceuticals to the National Health Service. Indeed whether it would be more appropriate to proceed on the basis of the the CMA has recently opened more excessive pricing cases against general competition law powers under the CA98. pharmaceutical companies (see also question 1.15 below). Another area of ongoing interest to the CMA relates to online 1.13 Describe how your jurisdiction’s political environment markets and new technologies. For example, the CAT is due to may or may not affect antitrust enforcement. give its verdict on appeal with regards to the CMA’s £1.45 million penalty imposed on Ping, a supplier of golf clubs, for banning The UK’s political stage continues to be dominated by the Brexit online sales by its retailers. In September 2017, the CMA opened process. As the UK Government gave notice under Article 50 of an investigation into the use of most favoured nation clauses by a the Treaty on European Union (also known as the Lisbon Treaty) on price comparison website in the insurance sector. Furthermore, the

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first case in which the CMA used its director disqualification powers infringements in the UK. Such cartel conduct is subject to civil (Online sales of posters and frames (2016)) involved the use of and potentially also criminal sanctions. Only slightly lower in the automated re-pricing software to implement a cartel relating to the pecking order are RPM (see question 2.16 below) and abuse of sale of posters on the Amazon Marketplace. dominance (see Section 3 below), which are both areas of substantial CMA enforcement action. With the exception of RPM and internet sales bans, the CMA tends to be less keen on pursuing other vertical 1.15 Describe any notable case law developments in the past year. arrangements (such as exclusive purchasing or distribution), and instead these areas are more likely to be raised in private disputes. In the past year, several notable case law developments took place The general approach to vertical agreements is reflected in the in relation to vertical agreements (see Section 2 below) and abuse OFT’s guidelines on vertical agreements of 2004 (the “UK Vertical of dominance (see Section 3 below). On 7 June 2018, the CAT Guidelines”), adopted by the CMA in 2014, which state that “vertical partially upheld Flynn Pharma and Pfizer’s appeal against the agreements do not generally give rise to competition concerns unless United Kingdom CMA’s decision which found that they had abused their dominant one or more of the parties to the agreement possesses market power position by charging excessive prices for phenytoin sodium capsules on the relevant market or the agreement forms part of a network of (Flynn Pharma Limited and Flynn Pharma (Holdings) Limited similar agreements”. v Competition and Markets Authority and Pfizer Inc and Pfizer Limited v Competition and Markets Authority). Whilst the CAT 2.2 What is the analysis to determine (a) whether there held that the CMA had correctly concluded that both Flynn Pharma is an agreement, and (b) whether that agreement is and Pfizer held dominant positions, it found that the CMA had not vertical? applied the correct legal test in relation to the question of abuse. Therefore, the CAT remitted the matter back to the CMA for further The UK Court of Appeal made it clear in Toys and Football Kits consideration. The CAT’s judgment provides useful guidance for (2006) that for an agreement to exist as a matter of competition the assessment of excessive pricing cases. The CMA has applied for law, a “concurrence of wills” is required. An agreement does not permission to appeal the judgment. need to have been formalised between the parties, or written down. This case needs to be seen against the backdrop of a renewed interest Indeed, an agreement can arise as a result of an oral understanding at the EU level in excessive pricing, as borne out by Margrethe between two or more parties, or if one party’s unilateral actions Vestager’s (the EU Competition Commissioner) speech in November are tacitly accepted by the other. The Chapter I prohibition also 2016 on the subject and the European Court of Justice’s (“ECJ”) covers “concerted practices”, which occur when companies co- judgment of 14 September 2017 in the Latvian collecting society case. ordinate their behaviour, without entering into a binding agreement. On 8 March 2018, the CAT handed down an intermediate Finally, the prohibition also covers decisions by associations of judgment on appeals lodged by GlaxoSmithKline (“GSK”) and undertakings, such as trade bodies. Genuinely unilateral conduct, various generics pharma companies against the CMA’s decision in however, is not captured by the prohibition (but this may be covered Paroxetine that these companies had entered into anti-competitive by the prohibition on abuse of a dominant position, as discussed in pay-for-delay agreements regarding the supply of anti-depressants, Section 3 below). and that GSK had abused its dominant position (Generics (UK) For an agreement to be vertical in nature, it needs to be entered into Limited and GlaxoSmithKline plc et al v Competition and Markets by companies which, for the purposes of the agreement, operate at Authority). On 27 March 2018 the CAT referred questions to the ECJ different levels of the production or distribution chain. regarding the correct legal standard, and ordered that proceedings A few examples of vertical restraints are exclusive purchasing, be stayed pending the ECJ’s response. The issues raised in the exclusive supply, exclusive distribution, export restrictions and questions are similar to those at the heart of Lundbeck and Servier RPM. pay-for-delay cases which are currently pending with the ECJ. The CAT decided that, in light of these questions to the ECJ, it would 2.3 What are the laws governing vertical agreements? be inappropriate in the meantime to decide the challenges to the penalties imposed by the CMA (c. £45 million in total). The CA98 prohibits agreements between undertakings, decisions In April 2017, the High Court dismissed the competition aspect of by associations of undertakings or concerted practices which may a counterclaim in a commercial dispute (Seafood Holdings Limited affect trade within the UK, and have as their object or effect the v My Fish Company Limited and others). The court made it clear prevention, restriction or distortion of competition within the UK. that, for a party to establish the existence of a dominant position This is commonly known as the Chapter I prohibition. Whilst in of a counterparty, it would normally expect to see expert evidence RPM cases fines are the main sanction, in other instances involving to that effect. The court also noted that the alleged restriction on vertical agreements, unenforceability is likely to be the main risk suppliers to sell to a party would not amount to a competition law for the parties. If a vertical agreement infringes the Chapter I infringement, as such a vertical agreement would be exempt under prohibition, is it void and unenforceable, unless the offending clause the EU Vertical Agreements Block Exemption Regulation, taking is severable from the agreement under the “blue pencil” approach into account that the parties’ market shares did not exceed 30%. (in which case only that clause would be unenforceable, with the remainder surviving). 2 Vertical Agreements As set out in response to question 1.1 above, at present the Chapter I prohibition needs to be interpreted consistently with its EU equivalent, Article 101 TFEU. The CA98 operates on the basis 2.1 At a high level, what is the level of concern over, and of a parallel exemption system which ensures that the EU Vertical scrutiny given to, vertical agreements? Agreements Block Exemption Regulation (the “VABER”, discussed in more detail below) automatically exempts certain types of vertical Price fixing, market allocation and bid rigging are generally agreements from the Chapter I prohibition. considered the most egregious examples of competition law

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Since 2004, it as been up to companies to self-assess the compliance established, the OFT rejected Pride’s argument that the discount of their vertical agreements with UK and EU competition law, and advertising restrictions as agreed with retailers could be justified no prior exemption or clearance can be granted by the authorities. under an individual exemption. There is an option of seeking a non-binding Short-Form Opinion from the CMA by way of guidance, but this route is only rarely used 2.6 What is the analytical framework for defining a market in practice. It is therefore important to emphasise that, when the in vertical agreement cases? remainder of this contribution discusses the criteria for an individual exemption, this does not entail some form or prior exemption or Market definition is used as a tool to identify the competitive constraints consent granted by the CMA or another authority, but rather an which a business faces. In the context of vertical agreements, its main exemption based on self-assessment by the parties (which may practical relevance lies in the consequential ability to determine the ultimately be tested before the CMA or in court proceedings). parties’ (and if necessary, competitors’) market shares. Relevant markets have a product and a geographic dimension. United Kingdom 2.4 Are there any type of vertical agreements or restraints Whilst both demand substitution and supply substitution are taken that are absolutely (“per se”) protected? into account, in practice more weight tends to be given to the former than to the latter. The main tool for assessing demand substitution There are no vertical agreements which qualify for absolute or “per involves asking whether the parties’ customers would switch to se” protection. However, it is clear that certain types of agreements readily available substitutes or to suppliers located elsewhere, in do not cause competition law concerns. For example, there is response to a hypothetical small (5–10%) but permanent relative established EU case law that certain restrictions (such as an obligation price increase in the products and areas being considered. If on a franchisee to sell only products in an environment which meets substitution is enough to make the price increase unprofitable, certain standards set by the franchisor) fall outside the scope of additional substitutes and areas are included in the relevant market, Article 101 TFEU and its national equivalents, such as the Chapter until the set of products and geographical areas is such that a small, I prohibition. Furthermore, if an agreement meets the conditions of permanent increase in relative prices would be profitable. the VABER (the main one being that the parties’ market shares do not The CMA is only required to define the relevant market if, exceed 30%), the agreement is protected from further competition law without such a definition, it is not possible to determine whether scrutiny. Under certain conditions, arrangements between a principal the agreement is liable to affect trade in the UK, and whether it and an agent, and between a contractor and a subcontractor, also fall has as its object or effect the prevention, restriction or distortion outside the scope of the rules regarding vertical restraints. of competition. As most cases pursued by the CMA are hard core See also question 1.10 above in relation to the immunities which infringements (such as cartels and RPM), there is a dearth of cases may be available. where the CMA has needed to define the relevant market (other than for penalty purposes). Somewhat unusually, in 2003 the OFT 2.5 What is the analytical framework for assessing proceeded to define the relevant market in an RPM infringement vertical agreements? decision regarding the supply of luxury ornamental ware in the UK (Lladró Comercial S.A.). The first step in the analysis is to assess whether a vertical agreement has an anti-competitive object or effect. If this is the case, the 2.7 How are vertical agreements analysed when one of agreement may qualify for exemption in order to escape illegality. the parties is vertically integrated into the same level An exemption may result from the application of either the VABER as the other party (so called “dual distribution”)? Are or the rules regarding an individual exemption. If an agreement these treated as vertical or horizontal agreements? cannot be exempt under the VABER (for example, because the parties’ market shares exceed 30%), it does not automatically mean Though the VABER does not, in general, apply to vertical that the agreement is unlawful, but rather that it will be necessary to agreements between competitors, there is a limited exception for assess whether the restrictions in question may be justified by way non-reciprocal agreements, which requires that one of the following of an individual exemption on the basis that the economic benefits two conditions be satisfied (in addition to the standard requirements of the agreement outweigh its anti-competitive effects. under the VABER, such as market shares not exceeding 30% – see More specifically, in order to qualify for an individual exemption, the question 2.5 above): parties must be able to prove that the restrictions in the agreement ■ the supplier is a manufacturer and a distributor, while the are indispensable, and contribute to improving the production or buyer is a distributor and not a competitor at the manufacturing distribution of goods, or to promoting technical or economic progress, level; or while allowing consumers a fair share of the resulting benefit, and at the ■ the supplier is a service provider at several levels of trade, same time not eliminating competition. As mentioned under question while the buyer sells its products at the retail level and does 2.3 above, this exemption is not one which can be obtained in advance not compete at the level of trade where it purchases the from the CMA, but rather requires the parties to self-assess the position contract services. when they enter into a vertical agreement containing restrictions. If the agreement falls outside the VABER, it may still be lawful based The European Commission’s Guidelines on Vertical Restraints (the on the criteria for an individual exemption (see question 2.5 above). “EU Vertical Guidelines”) as well as the UK Vertical Guidelines will assist in the determination of the various steps outlined above. The 2.8 What is the role of market share in reviewing a vertical CMA and the UK courts may also take these guidance documents agreement? into account. For example, in its Pride Mobility Scooters decision in 2014, the OFT relied on the EU Vertical Guidelines as a basis Market power plays a key role in the assessment of vertical for explaining the requirement that anti-competitive restrictions agreements. The VABER only provides a safe harbour if the market in a vertical agreement must be indispensable for an individual share of the supplier does not exceed 30% of the relevant market on exemption to apply. Because such indispensability could not be which it sells the contract goods or services, and the market share of

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the buyer does not exceed 30% of the relevant market on which it as long as those IP provisions do not constitute the primary object of purchases the contract goods or services. the agreement, and they are directly related to the use, sale or resale If an agreement falls outside the VABER (e.g. because one of the of the goods or services by the buyer or its customers. parties’ market shares exceeds 30%), the EU Vertical Guidelines By contrast, the EU Technology Transfer Block Exemption Regulation provide guidance as to whether the buyer’s or the supplier’s market exempts IP licensing agreements concluded between companies that share is considered more important to the analysis. For example, when have limited market power (i.e. a market share not exceeding 20% assessing a non-compete obligation (such as exclusive purchasing) in for agreements between competitors, or 30% for agreements between a vertical agreement, the supplier’s market share will be key, while in non-competitors), that fulfil certain conditions. Further discussion of the case of an exclusive supply obligation, the buyer’s market share this block exemption falls outside the scope of this contribution. on the downstream market will carry more weight. IP rights do not tend to feature prominently in assessments of vertical Generally, the higher the market shares of the parties involved, the agreements by the CMA or by UK courts. Nevertheless, they have more difficult it will be for the parties to justify the agreement under occasionally been discussed in the context of RPM investigations United Kingdom the criteria for an individual exemption. In Calor Gas Ltd v Express (see question 2.16), where suppliers withdrew copyright consent for Fuels (Scotland) Ltd (2008), the supplier’s high market share (c. resellers to use official photos of products on their websites, unless 50%) in a mature market was one of the main factors taken into the resellers agreed to follow the suppliers’ retail pricing schemes account by the Scottish Court of Sessions in its assessment of a (for example in the CMA’s 2016 Bathroom Fittings decision and single branding obligation. 2017 Light Fittings decision). If a party to a vertical agreement has sufficient market power to be considered dominant, that party’s conduct may also be scrutinised 2.12 Does the enforcer have to demonstrate under the abuse of dominance provisions (see Section 3 below). anticompetitive effects?

2.9 What is the role of economic analysis in assessing The CMA may be required to demonstrate anti-competitive effects, vertical agreements? depending on whether the agreement in question is anti-competitive by object or not. If it is anti-competitive by object, there is no need Economic analysis is integral to the assessment of vertical to prove harmful effects, as they will be presumed to exist. By agreements, for example in defining the relevant market and contrast, if the agreement’s object is not anti-competitive, harmful establishing market shares, as well as in the competitive assessment effects need to be proven. of the effects of an agreement. Even in cases which are pursued An agreement is anti-competitive by object if it is, by its very as so-called “object” infringements (where anti-competitive effects nature, harmful to the proper functioning of competition. The main do not need to be proven – see question 2.12 below), economic example in a vertical context is RPM, but there are other examples, expertise is frequently required for the analysis of the available such as restrictions imposed on a distributor regarding passive sales evidence. In practice, the CMA’s project team investigating a into a territory or customer group which is exclusively allocated to potential infringement tends to include one or more economists. another distributor. If such “hard core” restrictions are contained in an agreement, the parties are no longer able to avail themselves of the safe harbour of the VABER (though an individual exemption is 2.10 What is the role of efficiencies in analysing vertical agreements? still a possibility). Whilst the CMA is not legally required to carry out a full effects The rationale underlying the VABER is that certain types of analysis if it has established an anti-competitive object, in decisions vertical agreements can improve economic efficiency. Where such raising particularly complex or novel questions, the CMA may choose agreements (which do not contain hard core restrictions) are entered to do so in any event. The CMA took this approach for example in into by parties with market shares not exceeding 30%, there is a 2016 in its first pay-for-delay decision, involving agreements between presumption that efficiencies will outweigh any negative effects. GSK and generics manufacturers in relation to paroxetine. The appeal in that case (Generics (UK) Limited and GlaxoSmithKline plc However, if a vertical agreement falls outside the VABER, et al v Competition and Markets Authority – see question 1.15 above) efficiencies are not presumed, and it is then for the parties to adduce remains pending as the CAT decided to refer questions to the ECJ. evidence that the agreement will result in efficiencies that will be passed on to end-consumers, thus qualifying for an individual Another example of a “by object” restriction of competition with a exemption (see question 2.5). vertical dimension is information sharing by way of a so-called “hub and spoke” arrangement. This sometimes occurs when retailers For example, in Pirtek (UK) Ltd v Joinplace Ltd (2010), the High coordinate their pricing behaviour by using a common supplier as Court determined that a post-termination non-compete in a franchise an intermediary. Such arrangements can result in significant fines agreement qualified for an individual exemption. The court agreed for the parties involved. For example, in 2003 the OFT imposed that a business has a legitimate need to protect its goodwill against a £22.7 million fine on retailers Argos and Littlewoods for having ex-franchisees when establishing a new franchising agreement with engaged in price fixing with toy manufacturer Hasbro, who escaped a replacement retailer or distributor, as otherwise the ex-franchisees a fine of £15.6 million due to a successful leniency application. The would have an unreasonable advantage over the new ones. penalties were upheld by the CAT and Court of Appeal (Toys and Football Kits (2006)). 2.11 Are there any special rules for vertical agreements relating to intellectual property and, if so, how does the analysis of such rules differ? 2.13 Will enforcers or legal tribunals weigh the harm against potential benefits or efficiencies? There are no special UK rules for vertical agreements regarding intellectual property (“IP”) rights. A vertical agreement that contains As outlined in the response to question 2.5, if a vertical agreement IP provisions will be able to benefit from the VABER’s safe harbour, which restricts competition is unable to benefit from the safe harbour

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of the VABER (e.g. due to the parties’ market shares exceeding 30%), then the pro-competitive benefits of the agreement need to outweigh 2.17 How do enforcers and courts examine exclusive its anti-competitive harm for it to qualify for an individual exemption. dealing claims? In 2008, following a request from a group of newspaper and Exclusivity provisions in vertical agreements are considered under magazine publishers regarding the inclusion of exclusive territorial the VABER in the first place, but will only benefit from the VABER’s restrictions in agreements with wholesalers, the OFT issued an safe harbour if the parties’ market shares do not exceed 30%. Opinion to facilitate self-assessment by industry players. In it, the OFT discussed the potential efficiency gains that may arise from Exclusive purchasing and single branding obligations fall within territorial agreements in the newspaper and magazine industry, the definition of “non-compete obligations” in the VABER. As a how these may be passed on to consumers, and whether they are consequence, in addition to the 30% market share requirement, the indispensable, while also balancing them against the anticipated duration of the obligation should not be in excess of five years or competitive harm (Newspaper and magazine distribution). indefinite (which would also include tacitly renewable obligations beyond five years). An exclusive purchasing obligation which does United Kingdom not meet these conditions may qualify for an individual exemption 2.14 What other defences are available to allegations that a (see question 2.5 above). vertical agreement is anticompetitive? In Calor Gas Ltd v Express Fuels (Scotland) Ltd (2008), the Scottish Court of Sessions was asked to decide whether a five-year exclusive There are no meaningful defences and immunities available, beyond purchasing obligation imposed by Calor Gas on customers breached those discussed above (see in particular questions 1.10, 2.4 and 2.5). competition law. It was clear that the VABER did not apply as Calor Gas’ market share exceeded 30%, and so the Court took into account 2.15 Have the enforcement authorities issued any formal the EU Vertical Guidelines. Eventually the Court decided that the guidelines regarding vertical agreements? obligation was unenforceable, having emphasised “the importance of the twin factors of market power and the duration of the single- The EU Vertical Guidelines of 2010 provide the most authoritative branding obligation”. guidance in this area. In addition, whilst the UK Vertical Guidelines Exclusive supply agreements are generally considered unproblematic of 2004 are older, they may still be taken into account. under the VABER, as long as the parties’ market shares do not exceed 30%. Outside the VABER, the market position of the buyer 2.16 How is resale price maintenance treated under the (that is, the beneficiary of the exclusivity) is key. law? As far as exclusive distribution is concerned, the distinction between active and passive sales is relevant. A supplier may be able RPM is one of the hard core restrictions mentioned in the VABER, to prevent an exclusive distributor from actively selling into other and is considered a “by object” restriction as a matter of UK territories or other customer groups, whereas restrictions on passive and EU competition law (i.e. its anti-competitive effects do not sales are not allowed. need to be proven – see question 2.12 above). Its inclusion in a If a party to a vertical agreement holds a dominant position, vertical agreement will remove the agreement from the VABER exclusivity provisions in the agreement may also be scrutinised safe harbour, and enforcement action by the CMA might result in under the abuse of dominance provisions (see Section 3 below). substantial financial penalties. For example, in 2017 the CMA imposed a £2.76 million fine on a supplier of light fittings in connection with a finding of RPM (Light 2.18 How do enforcers and courts examine tying/ supplementary obligation claims? Fittings). The supplier was granted several penalty reductions, including in recognition of its new staff compliance training programme, as well as cooperation with the investigation. Tying is considered potentially problematic in situations where the company engaging in tying conduct holds a dominant position It is worth noting that recommended resale prices (“RRPs”) and in the market. It could also give rise to concerns in the absence maximum resale prices (“MRPs”) are generally permitted, as long of dominance if it resulted in single branding (see question 2.17 as these prices do not in practice amount to fixed or minimum sale above), depending on the duration of the agreement, and whether prices as a result of pressure or incentives. There may also be a market foreclosure would be likely. residual concern regarding RRPs and MRPs turning into “focal prices” adhered to by retailers, particularly when these are set by a In Socrates Training v The Law Society of England and Wales supplier with market power. (2017), the CAT found that the Law Society had breached both the Chapter I and the Chapter II provisions by engaging in tying The highest individual fine imposed on a single company for conduct. The infringement arose due to the obligation imposed by straightforward RPM conduct in the UK was a £5 million penalty the Law Society on law firms who were members of an accreditation imposed on Hasbro in 2002 (reduced from £9 million on leniency scheme to obtain certain training required for that accreditation grounds). Penalties have tended to be higher in “hub and spoke” exclusively from the Law Society (see also question 3.4 below). cases (discussed in question 2.12 above). For example, in 2011 the OFT imposed a £10.4 million penalty on Tesco in relation to In Punch Taverns (PTL) Ltd v Moses (2006), a pub tenant was under conduct in the dairy and cheese sector (with the fine subsequently a contractual obligation from the pub owner to purchase all his beers reduced to £6.5 million by the CAT in Tesco Stores Limited et al v from the owner’s list of available brewers. The tenant argued that Office of Fair Trading (2012)). Cumulatively, the fines imposed on the obligation was anti-competitive, and therefore unenforceable. the parties involved in that investigation (prior to the reductions on However, the High Court ruled that since the obligation was to appeal) amounted to almost £50 million. purchase from the list rather than from any specific brewer, and the available brewers on the list changed regularly, there was no real It is illustrative for the CMA’s current enforcement priorities that risk of foreclosure of new entrants at the brewer level. 72% of the cases in which the CMA sent warning or advisory letters in 2017 related to suspected RPM practices.

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2.19 How do enforcers and courts examine price 2.23 How are MFNs treated under the law? discrimination claims? Most favoured nation (“MFN”) clauses are sometimes known as Price discrimination is normally seen as problematic conduct for most favoured customer clauses, best price clauses or price parity businesses with a dominant position (see Section 3 below). clauses. MFNs used by internet platforms engender diverging There is a particular sensitivity under EU competition law with views between the various EU National Competition Authorities regards to price discrimination in the form of charging different (“NCAs”) as well as the European Commission. This divergence prices to customers depending on their nationality or location in came to light most prominently in 2015 when the Italian, Swedish the EU. For example, several hotel industry players are currently and French competition authorities accepted commitments in under investigation by the European Commission under Article 101 relation to the use of MFNs by Booking.com, followed by other TFEU due to suspected price discrimination practices of this kind. competition authorities wrapping up investigations and the European

United Kingdom However, it is unlikely that the CMA would take similar enforcement Commission announcing a moratorium on new investigations. steps aimed at avoiding a partitioning of the EU’s internal market, At the heart of the string of investigations lies the difference between particularly with Brexit looming (see question 1.13 above). so-called “wide” MFNs (which oblige hotels to give the platforms the lowest room prices relative to all other sales channels) and 2.20 How do enforcers and courts examine loyalty “narrow” MFNs (which allow hotels to offer lower room prices on discount claims? other platforms and on offline sales channels, but the platforms may still stop the hotels from publishing lower room prices on the hotels’ Loyalty discounts are primarily considered problematic when the own websites) in the platforms’ contracts with hotels. The above- company engaging in the discounting holds a dominant position (see mentioned 2015 commitments package removed wide MFNs but Section 3 below). Outside a dominance context, a loyalty discount left narrow MFNs in place. However, several countries (including granted by a supplier to a retailer in exchange for not discounting Germany, France and Italy) have gone further, and seen legislative below RRPs would be unlawful (see question 2.16 above). and judicial steps banning narrow MFNs. Having worked in this area alongside nine other NCAs and the European Commission, the CMA released a statement in April 2.21 How do enforcers and courts examine multi-product 2017 regarding its ongoing monitoring of pricing practices by hotel or “bundled” discount claims? booking platforms. The CMA concluded that the scrapping of wide MFNs by both Booking.com and Expedia increased competition in Multi-product or “bundled” discounts may be considered the market, and that therefore further investigations would not need problematic in situations where the company engaging in the to be prioritised by the CMA at that stage. discounting holds a dominant position (see Section 3 below). In its final report on the private motor insurance market investigation in 2014, the CMA also concluded that wide MFNs between price 2.22 What other types of vertical restraints are prohibited comparison websites and car insurers would need to be banned. by the applicable laws? It is worth noting that in September 2017 the CMA opened an investigation into the use of MFNs by a price comparison website See question 2.12 above for the main examples of vertical restraints in the insurance sector, potentially in breach of the Chapter I and which are problematic under UK and EU competition law. One area Article 101 TFEU provisions. of practical importance which has not yet been addressed relates to selective distribution. Based on EU case law, it is clear that a selective distribution system will generally fall outside the Chapter 3 Dominant Firms I prohibition if the products are of a kind that need a selective distribution system to be in place (such as technically complex products where after-sales service is important), the distributors 3.1 At a high level, what is the level of concern over, and scrutiny given to, unilateral conduct (e.g., abuse of are selected on the basis of non-discriminatory qualitative criteria, dominance)? those criteria do not go beyond what is necessary and the purpose of the system is pro-competitive. The VABER requires that cross- Abuse of dominance investigations are currently relatively high on supplies between distributors in a selective distribution system are the CMA’s enforcement agenda. For example, the CMA imposed a unrestricted by any contractual arrangements. record fine of £84.2 million on Pfizer in 2016 in relation to an abuse A category of vertical restraints which has recently received attention of dominance finding (although in light of the CAT’s remittal of the concerns internet sales bans. The EU Vertical Guidelines state that matter back to the CMA for further assessment, the fine may well “dealers should be free to sell, both actively and passively, to all end be reduced or annulled – see question 1.15 above). The CMA is users, also with the help of the internet”. In its 2017 decision in also currently investigating Merck Sharp & Dohme (“MSD”) for a Online sales ban in the golf equipment sector (currently on appeal at suspected abuse of MSD’s allegedly dominant position by means of the CAT), the CMA made it clear that retailers should be permitted a discount scheme which is said to have restricted new “biosimilar” to advertise and sell products online, and that an internet sales versions of Remicade in the market. ban imposed on retailers could not be justified by the need for an It is clear that the CMA’s recent enforcement practice in relation assessment to take place in the presence of the end consumer. By to abuse of dominance is mainly focused on the pharmaceutical contrast, in its long-awaited judgment in Coty, the ECJ ruled that sector (see also question 1.14 above). It is expected that dominant suppliers may impose a third party platform (e.g. Amazon, Ebay) businesses will remain under a high level of scrutiny in the sales ban on members of a selective distribution system for luxury foreseeable future. products, if the purpose of the ban is to preserve the products’ luxury image.

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Senior Director of Antitrust Enforcement in relation to the excessive 3.2 What are the laws governing dominant firms? pricing case against Pfizer and Flynn Pharma (Phenytoin Sodium Capsules, see question 1.15 above), when she stated publicly that The CA98 provides that “any conduct on the part of one or more businesses “that hold a dominant position have a special responsibility undertakings which amounts to the abuse of a dominant position in a to ensure that their conduct does not impair genuine competition and market is prohibited if it may affect trade within the United Kingdom”. that their prices are not excessive and unfair”. This is commonly known as the Chapter II prohibition. As with the Chapter I prohibition, the interpretation of the Chapter II prohibition 3.6 What is the role of economic analysis in assessing should be consistent with its EU equivalent, Article 102 TFEU. market dominance?

3.3 What is the analytical framework for defining a market Economic analysis plays an important role in determining both in dominant firm cases? dominance and abuse. In practice, the CMA’s project team United Kingdom investigating a potential infringement tends to include one or more Where the CMA and courts pursue an abuse of dominance case economists. In private litigation, the court will regularly rely on under the Chapter II prohibition, they are also obliged to apply economic expert evidence in abuse of dominance cases. Article 102 TFEU, if there may be an effect on trade between EU Member States. 3.7 What is the role of market share in assessing market The framework for defining the relevant market is the same as in dominance? other competition law cases, including vertical agreements. See question 2.6 above. See question 3.4 above.

3.4 What is the market share threshold for enforcers or a 3.8 What defences are available to allegations that a firm court to consider a firm as dominant or a monopolist? is abusing its dominance or market power?

There is no single market share threshold above which dominance Abuse of dominance allegations may be refuted by establishing that is certain, and no threshold below which dominance can definitively the business has a justification for the conduct in question. This may be ruled out. The CAT, in the appeal from the OFT’s margin squeeze be done by demonstrating that the company’s conduct is objectively decision against pharma company Genzyme, held that “a market necessary or that its conduct produces substantial efficiencies which share of 90% or above, which has continued throughout the period outweigh any anticompetitive effects on consumers. of infringement and is likely to continue for several years, will be The objective justification defence may be argued in all cases, but sufficient, depending on the circumstances, to infer the existence of in practice the CMA adopts a strict approach, setting a high bar for dominance” (Genzyme Limited v The Office of Fair Trading (2004)). a successful defence. Whilst the burden of proof as to the abusive However, lower market shares can also result in a finding of conduct lies with the CMA (or the claimant, in private litigation), it dominance. In its 2016 decision in Paroxetine (see question 1.15), is up to the dominant business to provide evidence of a justification. the CMA cited EU case law that “very large shares (such as a An example of the use of the “objective justification” defence market share of 50%) are, except in exceptional circumstances, in could be seen in a 2010 case, in which the OFT examined alleged themselves evidence of the existence of a dominant position”. predatory pricing by Flybe on the domestic route between Newquay In broad terms, a market share greater than 40% normally requires and London Gatwick airports. The OFT concluded that Flybe had a thorough analysis as to whether dominance arises, whereas a not abused its dominant position, and in particular that there was an lower share is normally unlikely to give rise to dominance. More objective justification for Flybe’s decision to enter this route despite exceptionally, dominance may still exist below 40%, if other relevant projecting and experiencing initial losses. The OFT found that such factors are present which provide strong evidence of dominance. losses on entering a new route were normal commercial practice for Whilst market shares are an important factor in the dominance an airline, and were due to the need to stimulate market demand for assessment, the CMA and courts regularly look beyond them. the route. See question 3.9 below in relation to efficiencies. For example, in Socrates Training v The Law Society of England and Wales (2017) (see question 2.18 above), the CAT attached 3.9 What is the role of efficiencies in analysing dominant importance to the fact that the Law Society’s accreditation scheme firm behaviour? in question had become a “must have” product for law firms, before concluding that the Law Society held a dominant position. As mentioned in response to question 3.8, potentially abusive conduct may be justified if an efficiencies defence is available. 3.5 In general, what are the consequences of being In 2016, Google successfully invoked efficiencies as a defence adjudged “dominant” or a “monopolist”? Is in response to Streetmap’s allegations that Google had abused dominance or monopoly illegal per se (or subject to its dominant position. The High Court accepted that Google had regulation), or are there specific types of conduct that implemented a “technical efficiency” by presenting its own online are prohibited? maps in the search results of geographic queries (Streetmap.eu Limited v Google Inc. et al). It is not unlawful for a business to hold a dominant position. It would, however, be unlawful to engage in conduct which amounts In cases involving price-based exclusionary conduct (e.g. loyalty to an abuse of such a position (in the absence of any objective discounts, predatory pricing) the European Commission has made it justification – see question 3.8 below). clear (in its Guidance on enforcement priorities regarding abuse of dominance) that it will focus on an “equally efficient competitor” of Dominant companies are considered to have a “special responsibility” the dominant business to assess whether that competitor would be according to EU case law. This mantra was repeated by the CMA’s foreclosed from the market. The CMA took a similar approach in 2015

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in a case closure statement regarding a suspected loyalty-inducing Liquid product from the NHS prescription channel after the expiry discount scheme in the pharmaceutical sector. It explained that “where of its patent, but in advance of publication of the product’s generic the structure of the rebate or discount scheme means that the price name. The purpose was to stop doctors writing prescriptions which which a competitor would have to charge to compete for contestable allowed pharmacies to give out generic alternatives to the original sales is below the dominant company’s costs of production, the CMA Gaviscon Liquid product. Reckitt Benckiser was fined £10.2 million is likely to be concerned that a competitor that is equally as efficient as (reduced from £12 million on settlement grounds). the dominant company could be foreclosed from competing for some, or all, of the contestable share of the market”. 3.14 Do enforcers and/or legal tribunals consider “direct effects” evidence of market power? 3.10 Do the governing laws apply to “collective” dominance? Market definition tends to be an integral part of abuse enforcement cases in the UK, and normally the CMA would first want to United Kingdom Yes. The statutory wording of the Chapter II prohibition covers establish that the company in question holds a dominant position “conduct on the part of one or more undertakings”. Conduct by before scrutinising the conduct. The use of shortcuts such as the collectively dominant businesses may therefore be abusive, although “direct effects approach” is rare. However, sometimes a company’s cases are rare in this area. market behaviour is taken into account as one of several factors in the assessment of dominance, as for example the CAT did in a margin squeeze case against pharmaceutical manufacturer Genzyme 3.11 How do the laws in your jurisdiction apply to dominant purchasers? (Genzyme Limited v The Office of Fair Trading (2004)). It is not uncommon in private litigation that, mainly for efficiency The CA98 applies to all businesses, including those that hold a and cost reasons, the scope of the litigation is limited to the question dominant position on a purchasing market. of abuse, and the question of dominance is left open, at least in the first instance. For example, in Arriva The Shires Ltd v London Enforcement action against dominant purchasers is rare in the UK. Luton Airport Operation Limited (2014) the parties agreed on this In BetterCare (2003) the OFT found that the North & West Belfast approach at the outset of the court proceedings. Health & Social Services Trust had not infringed the Chapter II prohibition by purchasing social care services at low rates. In the Groceries market investigation in 2008, the CMA’s 3.15 How is “platform dominance” assessed in your predecessor, the CC, concluded that the grocery retailers’ exercise jurisdiction? of buyer power vis-à-vis suppliers could be anti-competitive. This resulted in 2010 in the creation of the Groceries Supply Code of Most eye-catching platform cases (such as those involving Google, Practice (“GSCOP”) which sets out rules for how retailers with Amazon and Apple) have been or are being handled at the EU level. groceries sales of more than £1 billion are expected to deal fairly The CMA’s recent involvement in the Hotel Bookings case was with their suppliers. GSCOP is enforced by the Groceries Code referred to in question 2.23 above. Adjudicator who has the power to impose fines on groceries retailers In 2014, the CMA closed its investigation in the Service, Maintenance of up to 1% of UK-wide turnover. Currently 10 supermarket groups and Repair Platforms case after it received commitments from an are subject to the GSCOP obligations. allegedly dominant business, Epyx Limited. Epyx operated an online platform for service, maintenance and repair services used by businesses with vehicle fleets, such as leasing and rental companies. 3.12 What counts as abuse of dominance or exclusionary or anticompetitive conduct? The CMA provisionally concluded that Epyx held a dominant position. The potential abuse consisted in the use of restrictive terms in Epyx’s contracts with customers and suppliers, which had an exclusionary Abuse under the Chapter II prohibition may fall in either one of the effect on competitors. Under the commitments Epyx promised not to following categories: include such restrictive terms in its contracts for a period of five years. ■ Exclusionary abuse, such as refusal to supply, predatory pricing, margin squeeze and fidelity-inducing discounts. ■ Exploitative abuse, such as excessive pricing and the 3.16 Under what circumstances are refusals to deal imposition of unfair trading conditions. considered anticompetitive? Over the past two decades most of the enforcement action in the Businesses are generally free to choose with whom they want to UK (as well as at the EU level) has related to the former. However, deal. However, in certain circumstances, a dominant company may the latter category appears to have recently made a comeback, be required to maintain its business dealings with another party or particularly in the pharmaceutical sector where high prices are now to grant access to certain facilities, as a refusal might amount to an being regularly challenged (see questions 1.14 and 1.15 above). abuse of dominance. In the 2011 case of Purple Parking Limited and Meteor Parking 3.13 What is the role of intellectual property in analysing Limited v Heathrow Airport Limited, the High Court found that dominant firm behaviour? Heathrow Airport had abused its dominant position by forcing two independent valet parking operators to move their “meet and greet” Ownership of IP rights does not necessarily create a dominant services from the airport forecourts to the short stay car parks, whilst position. However, dominance may result from such ownership if Heathrow’s own valet parking operation would be permitted to work there are no or limited substitutes for the product, process or work from the forecourts, without any objective justification for doing so. to which the IP relates. The exercise of IP rights may in certain circumstances amount to abuse. In another case involving access to an airport’s forecourt facilities, the High Court determined that the concession agreement between For example, in 2011 the OFT found that Reckitt Benckiser had Luton Airport and National Express granting National Express a abused its dominant position by removing its Gaviscon Original

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seven-year exclusivity period on the Luton-Central London route One other uniquely British aspect relates to the CMA’s power to was abusive, as it seriously distorted competition between coach conduct market investigations. The aim of such investigations is operators who wished to provide bus services from the airport. to examine the workings of markets to identify any competition The court rejected the airport’s defence that it had an objective concerns and to establish whether the markets are working well for justification for its grant of exclusivity (Arriva The Shires Ltd v consumers. If the CMA concludes that markets are not working London Luton Airport Operation Limited (2014)). well, it has far-reaching remedies powers, which may also impact on parties to vertical agreements and operators with a dominant position. 4 Miscellaneous Such market investigations could result in the break-up of businesses. For example, in 2009 the CMA’s predecessor, the CC, identified a 4.1 Please describe and comment on anything unique to number of features of the market for the supply of airport services your jurisdiction (or not covered above) with regards by BAA which gave rise to an adverse effect on competition (BAA to vertical agreements and dominant firms. Airports). In particular, it considered that competition was distorted United Kingdom by BAA’s common ownership of the three largest London airports Two unique features of the current British competition law scene, (Heathrow, Gatwick and Stansted), and Edinburgh and Glasgow Brexit and GSCOP, were already discussed in response to questions airports. The CC decided to require BAA to divest two of its 1.13 and 3.11, respectively. London airports (Gatwick and Stansted) to different purchasers and also to divest either Glasgow or Edinburgh airport (which eventually resulted in the divestment of Edinburgh airport).

Ajal Notowicz Maria Ziprani Dickson Minto Dickson Minto Broadgate Tower Broadgate Tower 20 Primrose Street 20 Primrose Street London, EC2A 2EW London, EC2A 2EW United Kingdom United Kingdom

Tel: +44 20 7628 4455 Tel: +44 20 7628 4455 Email: [email protected] Email: [email protected] URL: www.dicksonminto.com URL: www.dicksonminto.com

Ajal Notowicz joined Dickson Minto in 2008 as Head of the EU and UK Maria Ziprani joined the competition practice at Dickson Minto in 2016 Competition Group. He provides advice to clients in relation to national from CMS Cameron McKenna. She has experience advising on a and cross-border merger notifications, behavioural competition law wide range of competition law matters, and was previously seconded and compliance matters. The Legal 500 recently praised him for to an international oil & gas company. Maria studied EU and UK being a “very clear communicator with a phenomenal grasp of his competition law during her LL.B. at King’s College London and her subject”, whilst Chambers described him as “technically excellent and LL.M. at University College London. She is bilingual in English and commercial”. He is currently admitted as a “solicitor” in England and Italian and has a working knowledge of French. Wales as well as an “advocaat” in the Netherlands. From 2004 until 2008, Ajal worked in Allen & Overy’s competition department in London. In 2004 Ajal was seconded for six months to Ofcom’s Competition & Markets group. He worked at Fox Kids Europe as legal counsel in 2002 and 2003. Ajal trained at the Amsterdam- based top-tier firm Kennedy Van der Laan. Prior to that, he worked for six months as a stagiaire at the European Commission in D-G Competition. Ajal is a bilingual English and Dutch speaker, and has a working knowledge of German and French.

Dickson Minto is a boutique law firm that specialises in corporate and commercial law matters. The firm is known for developing long-term client relationships by providing clear, concise and commercial advice. Dickson Minto places a high value on its partner-led quality of service, its agility, its integrity, its discretion and value to clients. The firm is a trusted advisor for the long haul. Dickson Minto’s competition law practice assists clients on a wide range of competition law matters, including competition investigations by the UK’s Competition and Markets Authority, the European Commission and other competition authorities across the world. The competition law practice’s client base includes many major international private equity houses as well as listed and private corporates. In addition, many overseas law firms regularly call on Dickson Minto’s experience in handling EU and UK merger filings and behavioural antitrust investigations. The Legal 500 recently described Dickson Minto’s competition law team as “very responsive” and “practical”.

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USA Charles F. (Rick) Rule

Paul, Weiss, Rifkind, Wharton & Garrison LLP Andrew J. Forman

1 General 1.3 Describe the steps in the process from the opening of an investigation to its resolution.

1.1 What authorities or agencies investigate and enforce the laws governing vertical agreements and dominant The antitrust agencies frequently open an investigation in response to firm conduct? a complaint by a party claiming to be injured by the conduct at issue or another interested party. The agencies may also initiate investigations Two separate federal agencies investigate and enforce the laws based on information obtained from press reports, foreign antitrust governing vertical agreements and dominant firm conduct: the authorities, Congressional oversight committees, or other information. Antitrust Division of the Department of Justice (DOJ); and the The agencies often begin an investigation with a voluntary request for Federal Trade Commission (FTC). State attorneys general and information, but they may also use subpoenas and civil investigative private plaintiffs may also bring actions under federal antitrust laws demands to obtain information and conduct investigational hearings or state equivalents. or depositions. DOJ’s Antitrust Division is led by an Assistant Attorney General If the agency staff believes there is sufficient evidence to prove a appointed by the President and confirmed by the Senate. Division violation after reviewing the investigation materials, the staff issues staff are assigned to various civil sections: Healthcare and a recommendation to the decision-maker at the agency. At the FTC, Consumer Products; Defense, Industrials, and Aerospace; Media, final decisions are taken by the five commissioners, who vote on Entertainment, and Professional Services; Technology and Financial whether or not to bring an enforcement action. At the DOJ, the Services; Telecommunications and Broadband; and Transportation, Assistant Attorney General in charge of the Antitrust Division Energy, and Agriculture. There are also several criminal sections generally makes final enforcement decisions. and an economic analysis group. Settlement is a common outcome of federal investigations, but the The FTC is led by a five-member commission, with each agencies also have the power to prosecute claims through litigation. commissioner appointed by the President and confirmed by Both agencies can file an enforcement action in the federal district the Senate to a staggered seven-year term. No more than three court, but the FTC also has the option of filing for administrative commissioners may be from the same political party. The President adjudication before an administrative law judge (ALJ). also designates the Chairman of the Commission. The FTC’s Bureau of Competition has several enforcement divisions: Mergers I, II, 1.4 What remedies (e.g., fines, damages, injunctions, etc.) III, and IV; Health Care Products & Services; and Anticompetitive are available to enforcers? Practices. The FTC also has consumer protection and economics bureaus. United States antitrust enforcement authorities can seek equitable relief in the form of injunctions against anticompetitive conduct, 1.2 What investigative powers do the responsible restitution for parties injured, or disgorgement of ill-gotten gains. competition authorities have? Under the Sherman Act, the DOJ may also recover treble damages for injuries suffered by the United States as a consumer. Both The DOJ and FTC both have the power to issue subpoenas and civil agencies may seek fines or civil penalties for violations of existing investigative demands (CIDs) for documents and testimony prior consent decrees or orders. The DOJ has the power to prosecute to filing a complaint. The agencies may seek information from criminal violations under the antitrust laws, but vertical violations both targets and third parties. In addition to the use of compulsory are not considered pernicious enough to warrant criminal treatment. process, the agencies frequently request information on a voluntary The remedies available to State Attorneys General are similar, but in basis. some cases may exceed those available to federal authorities. Within the Department of Justice, a CID must be approved by the Assistant Attorney General in charge of the Antitrust Division. At 1.5 How are those remedies determined and/or the FTC, the Commission must first vote to approve the compulsory calculated? process to investigate a matter. Individual CIDs and subpoenas must be signed by a commissioner assigned to review such requests. Injunctive, behavioural, or structural relief is devised so as to This duty rotates among the commissioners. directly address the alleged harm. For example, an agreement found

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to be anticompetitive may be invalidated. If a firm is found to be act as judges and conduct a de novo review of the facts and the law. abusing monopoly power, it may be forced to divest assets or divide A company can appeal the Commission’s final decision to a federal its business. court of appeals within 60 days of the issuance of the order. The Monetary damages are determined after calculating an estimate of standard of review for the Commission’s decision is more deferential the harm caused by the agreement or conduct. Various measures than that applied to district court judgments. The Commission’s may be used; overpayment by consumers, ill-gotten profits by the facts are reviewed under the lenient “substantial evidence” standard, defendant, etc. Under the Sherman Act, these amounts can then be whereby findings are conclusive if supported by “such relevant trebled. evidence as a reasonable mind might accept as adequate to support a conclusion”. Universal Camera Corp. v. N.L.R.B., 340 U.S. 474,

477, 71 S. Ct. 456, 459, 95 L. Ed. 456 (1951). The commission’s USA 1.6 Describe the process of negotiating commitments or conclusions of law are generally reviewed de novo, but are given other forms of voluntary resolution. deference to the extent the agency is interpreting a statute the agency administers, such as the FTC Act. At any point during an investigation or enforcement action, the company under investigation can propose a settlement with the agency staff. The staff will evaluate whether the settlement addresses 1.9 Are private rights of action available and, if so, how the competitive concerns and the final decision is made either by the do they differ from government enforcement actions? five commissioners at the FTC or the Assistant Attorney General at the DOJ. Settlements with the DOJ are often through the issuance Private rights of action for violations of the federal antitrust laws of a consent decree, whereas settlements with the FTC are referred are available under the Clayton Act Section 4, which states that any to as consent orders. DOJ consent decrees must be reviewed and person injured by reason of a violation of the antitrust laws may approved by a federal court and are subject to a 60-day comment file a lawsuit in a federal court. The Clayton Act allows successful period. The FTC is not required to seek approval from a federal private plaintiffs to recover treble damages, including costs and court, but a proposed order must receive preliminary approval by attorney’s fees. A private plaintiff may also seek injunctive relief for the Commission and then be published for a public comment period threatened loss or damage caused by violation of the antitrust laws. of at least 30 days before the Commission grants final approval. Plaintiffs must show antitrust injury, meaning injury of the type the antitrust laws were intended to prevent. Under Illinois Brick, only Settlements vary based on the alleged conduct, but vertical direct purchasers have standing to recover antitrust damages in a settlements can include: a cease and desist order; fencing-in federal court, but indirect purchasers may be able to seek equitable provisions to prevent a recurrence of the conduct; monitoring or relief. reporting requirements; and potentially divestments. The agencies view a well-drafted settlement as an avenue to maintain or restore State Attorneys General enforce state antitrust laws, but they may competition without using the time and resources required for also bring what are essentially private actions under the federal litigation. antitrust laws to seek injunctive relief or money damages. Private parties often bring claims under state antitrust laws in addition to the federal statutes. State standing law often differs from federal 1.7 Does the enforcer have to defend its claims in front antitrust law, most notably in that a majority of states expressly of a legal tribunal or in other judicial proceedings? If permit indirect purchasers to recover damages. so, what is the legal standard that applies to justify an enforcement action? 1.10 Describe any immunities, exemptions, or safe harbors Yes. Both the Department of Justice and the Federal Trade that apply. Commission must prove their allegations before a judge. The Department of Justice may file charges in any federal district court of There are no explicit immunities, exemptions, or safe harbours that appropriate jurisdiction. The Federal Trade Commission may bring apply, but courts generally uphold vertical agreements that foreclose charges in either a federal district court or before an administrative less than 20% of the market. law judge. Notably, administrative suits brought by the FTC are limited to only injunctive relief. 1.11 Does enforcement vary between industries or In order to file a complaint, staff in the Antitrust Division must get businesses? approval from the Assistant Attorney General. FTC staff submit recommendations to the Commission, which then takes a formal As noted above, the Department of Justice and Federal Trade vote on whether to file a complaint. When an agency brings claims Commission share enforcement of the antitrust laws in the U.S. in the federal district court, it must prove its case by a preponderance To coordinate their overlapping jurisdiction, the two agencies have of the evidence. For FTC administrative trials, the agency must agreed upon a “clearance” process, by which each agency seeks prove that their claims are supported by substantial evidence. clearance from the other before opening a new investigation. In addition, in order to facilitate the development of industry expertise 1.8 What is the appeals process? and speed up the clearance process, the agencies have informally agreed upon a division of industries. The appropriate appeals process depends on where the enforcement Occasionally, a merger or conduct investigation arises in which it is action was filed. Actions filed in the federal district court are not immediately apparent which agency is best suited to handle the appealable to the appropriate court of appeals under the federal rules. matter. In these cases, the back-and-forth between the agencies for The district court’s findings of fact are reviewed under a clearly clearance can drag on. erroneous standard, and conclusions of law are reviewed de novo. While it is uncommon for FTC and DOJ to have significant In the case of an FTC action in front of an ALJ, the decision is disagreements over enforcement policy, variations in emphasis, appealable to the full Commission. In this role, the commissioners priorities, and remedies sought may arise, especially as political administrations change. The enforcement priorities of the Department

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of Justice may change more rapidly because it is headed by a single presidential appointee that can change immediately with each election. 1.14 What are the current enforcement trends and priorities in your jurisdiction? Nonetheless, the two agencies frequently collaborate on antitrust policy guidance and agreements with foreign jurisdictions. It remains to be seen what the enforcement priorities of the Trump administration will be. Some early signs, such as the Antitrust 1.12 How do enforcers and courts take into consideration Division’s decision shortly after Delrahim took over to sue to block an industry’s regulatory context when assessing AT&T’s proposed acquisition of Time Warner, indicate a potentially competition concerns? more aggressive enforcement posture.

USA There is also likely to be continued focus by antitrust enforcers on The regulatory environment informs antitrust enforcement in the tech, media, and healthcare industries. High-tech and media an industry in two ways. First, the incentives, restrictions, and companies have faced growing concerns over so-called “platform requirements imposed by regulations play an important role in dominance”, including most recently from Delrahim. Regardless how the agencies understand the competitive dynamics of the of how the new administration views these concerns, the central market. Whether or not a given course of conduct or agreement is economic importance of these businesses is likely to invite exclusionary or anticompetitive will in large part depend on whether continued vigilance over their industries. Similarly, a heavy focus regulations require or amplify the effects of the act in question. For on the healthcare industry is likely to remain. At the DOJ, Delrahim example, in the pharmaceutical industry, legal challenges to “reverse has indicated a strong preference for structural remedies versus payment” agreements are heavily informed by the regulatory behavioural remedies. framework put in place by the Hatch-Waxman Act. At the same time, there is a generally recognised principle that competition policy and regulation should be complementary. 1.15 Describe any notable case law developments in the past year. Where regulations attempt to govern the competitive dynamics of an industry, antitrust enforcers and courts will be more reticent to add competition oversight on top of this. See, for example, Verizon In the most anticipated antitrust trial of the year, the Department Communications Inc. v. Law Offices of Curtis V. Trinko, 540 U.S. of Justice challenged a vertical merger between AT&T and Time 398 (2004). Warner in United States v. AT&T Inc., No. CV 17-2511 (RJL) (D.D.C. June 12, 2018). Judge Leon, ruling against the DOJ, found that the government had not proven that the combination would 1.13 Describe how your jurisdiction’s political environment harm competition. The DOJ alleged that AT&T could use Time may or may not affect antitrust enforcement. Warner’s valuable sports and live news television channels like TBS and CNN from its competitors, other distributors, to extract The political dimension of U.S. competition enforcement policy higher prices. Judge Leon found that the DOJ failed to show the remains a topic of discussion and speculation in 2018, in no small anticompetitive harm would outweigh likely efficiencies that would part because the enforcement agencies have seen nearly complete be passed on to AT&T and Time Warner customers. turnover in their leadership over the past year. In September 2017, Makan Delrahim was confirmed as the new Assistant Attorney General for the Antitrust Division at the U.S. Department of Justice. 2 Vertical Agreements Delrahim is a former lobbyist, and previously served as Chief Counsel to Sen. Orrin Hatch (R-UT), a Deputy Assistant Attorney General in the Antitrust Division during the Bush administration, 2.1 At a high level, what is the level of concern over, and scrutiny given to, vertical agreements? and a member of the Antitrust Modernization Commission. Immediately prior to his nomination, Delrahim worked in the White Vertical agreements raise fewer antitrust concerns than horizontal House as Deputy Counsel to the President, where he advised on agreements. The federal antitrust agencies acknowledge that judicial nominations. generally vertical agreements often enhance competition. Absent In April 2018, the Senate confirmed a full slate of five new FTC significant market power, a strong likelihood of anticompetitive commissioners. Joe Simons, a former Paul, Weiss partner and effects, or strong intent of anticompetitive conduct, the agencies are previously Director of the FTC’s Bureau of Competition under the unlikely to challenge a vertical agreement. This is a stark contrast Bush administration, is now the Chairman of the agency. Noah from horizontal agreements, where a finding of an agreement itself Phillips, formerly Chief Counsel to Sen. John Cornyn, has filled may be unlawful per se. State antitrust enforcers or private plaintiffs one of the vacant Republican seats. Two Democratic seats have may take a more aggressive posture in certain circumstances. been filled by Rohit Chopra, a former Assistant Director atthe Consumer Financial Protection Bureau, and Rebecca Slaughter, former Chief Counsel to Sen. Chuck Schumer. Christine Wilson, 2.2 What is the analysis to determine (a) whether there former Chief of Staff to FTC Chairman Tim Muris and in-house is an agreement, and (b) whether that agreement is vertical? counsel for Delta, was also appointed to the third Republican seat, and will be sworn in after Commissioner Maureen Ohlhausen steps down later this year. Evidence of an express agreement is helpful, although not necessary in analysing whether an agreement exists. The Supreme Court Apart from any changes that may accompany the new leadership, established the modern formula for evaluating whether there is an and despite the respective reputations of the two parties, antitrust agreement in Monsanto Co. v. Spray-Rite Service Corp., stating “the enforcement in the U.S. has traditionally been fairly consistent correct standard is that there must be evidence that tends to exclude across Democratic and Republican administrations. Variations in the possibility of independent action”. An agreement is vertical if enforcement actions have largely been at the margins. it involves different levels in the chain of distribution. Vertically

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related firms are often in contact and therefore the existence of the agreement itself in vertical cases can be of less importance than 2.7 How are vertical agreements analysed when one of agreement in horizontal cases. the parties is vertically integrated into the same level as the other party (so called “dual distribution”)? Are these treated as vertical or horizontal agreements? 2.3 What are the laws governing vertical agreements? The modern trend is for courts to view agreements between Vertical agreements are generally analysed under Section 1 of the distributors and manufacturers operating as distributors in Sherman Act, 15 USC § 1, which declares illegal any contract, competition with their distributors as vertical agreements, subject to rule of reason analysis.

combination or conspiracy in restraint of trade. A violation of USA Section 1 requires proof of three elements: (1) the existence of a contract, combination, or conspiracy among two or more separate 2.8 What is the role of market share in reviewing a vertical entities; that (2) unreasonably restrains trade; and (3) affects agreement? interstate or foreign commerce. Section 2 of the Sherman Act, 15 USC § 2, may also apply to vertical As with other Sherman Act claims, market share is a proxy for agreements involving distribution. Section 2 applies to unilateral inferring market power, and thus harm to competition from conduct and makes illegal the acquisition and maintenance of exclusionary conduct. In addition, market shares can provide an monopoly power by anticompetitive conduct. Section 2 applies indication of the potential for foreclosure resulting from a vertical where the defendant has monopoly power or near-monopoly power agreement. and engages in vertical conduct (often tying, bundling, or exclusive dealing) with the intention of foreclosing competition. 2.9 What is the role of economic analysis in assessing Plaintiffs may also bring a case involving exclusive dealing or tying vertical agreements? under Section 3 of the Clayton Act, 15 USC § 14. Section 3 of the Clayton Act makes it illegal to condition any sale on the purchaser Economic analysis is central to any analysis of a vertical agreement. not dealing with a competitor if the effect may be to substantially Through economic analysis, the court, the enforcer, and the firms lessen competition. must determine whether the agreement has or likely will create The FTC may also bring a case under Section 5 of the FTC Act, 15 or increase market power of the firms involved, whether this USC § 45, to challenge vertical agreements. will cause anti-competitive harm, and whether the agreement is reasonably necessary to achieve pro-competitive results. Each step 2.4 Are there any type of vertical agreements or restraints along the way in this process, and the final balancing of potential that are absolutely (“per se”) protected? anticompetitive harm against potential pro-competitive results, requires economic analysis of a variety of factors. There are no vertical agreements that are per se protected. 2.10 What is the role of efficiencies in analysing vertical agreements? 2.5 What is the analytical framework for assessing vertical agreements? The Supreme Court has recognised that certain non-price Vertical agreements are typically analysed under the rule of reason. restrictions may “promote interbrand competition by allowing Unlike horizontal agreements, the agreement itself receives little the manufacturer to achieve certain efficiencies in the distribution attention. The rule of reason analysis focuses on whether the of his products” (GTE Sylvania, 433 U.S. 36, 54 (1977)) and the party seeking to impose the restriction has market power. If there “market impact of vertical restrictions is complex because of their is market power, the court will then evaluate whether competition potential for a simultaneous reduction of intrabrand competition has been harmed. The court may examine the nature and extent of and stimulation of interbrand competition”. (Id. at 51–52 (1977).) possible foreclosure, the duration of the agreement, the importance Thus, the Supreme Court and lower courts have considered and of the input, the impact on entry, evidence of actual effects, the upheld various vertical restraints, including territorial restrictions, extent of other similar agreements, and any other relevant evidence exclusive distributorships, location requirements, and other non- of harm. This evidence is then balanced against any procompetitive price restrictions. benefits, efficiencies, or other mitigating factors. In the caseof vertical agreements, the procompetitive benefits and efficiencies are 2.11 Are there any special rules for vertical agreements typically found to be quite substantial. Certain states may analyse relating to intellectual property and, if so, how does certain types of vertical agreements as per se violations. the analysis of such rules differ?

Intellectual property licensing arrangements often have a vertical 2.6 What is the analytical framework for defining a market in vertical agreement cases? component and, as such, will be analysed accordingly. Although no special rules apply in such situations, the DOJ and FTC have jointly issued Antitrust Guidelines for the Licensing of Intellectual The relevant product and geographic markets for vertical agreements Property. The most recent update, in January 2017, reaffirmed the are defined in the same manner as for other agreements or conduct. enforcers’ general position that “intellectual property licensing They are fact-specific inquiries that depend on substitutability allows firms to combine complementary factors of production and of other products or geographies. Because parties to vertical is generally procompetitive”. The update reflects changes and agreements, as the name implies, operate at different levels within development in antitrust law that have occurred in the two decades commerce, there will be different product markets for each firm. since the guidelines were originally published. The guidelines are available at: https://www.justice.gov/atr/IPguidelines/download.

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2.12 Does the enforcer have to demonstrate 2.18 How do enforcers and courts examine tying/ anticompetitive effects? supplementary obligation claims?

Yes. The enforcer must establish that the vertical agreement violates Tying claims are also generally evaluated under the rule of reason’s the antitrust laws. balancing test. Regulators and courts will assess whether the firm offering the “tied” product has market power in the “tying” product. If so, the arrangement may violate the antitrust laws if 2.13 Will enforcers or legal tribunals weigh the harm against potential benefits or efficiencies? anticompetitive effects can be established. On the procompetitive

USA side, tying can reduce costs and increase convenience for consumers. Yes. Courts employing the rule of reason will balance the anticompetitive effect of a restraint against the procompetitive 2.19 How do enforcers and courts examine price benefits and efficiencies of the same restraint and consider the discrimination claims? net impact on competition in the relevant market. A restraint or agreement will only be held to violate the antitrust laws if its harm Price discrimination claims typically are reviewed under the to competition outweighs the benefits and efficiencies. Robinson-Patman Act. Robinson-Patman is an older statute that has specific requirements and several exemptions. For example, Robinson-Patman applies to commodities of like grade and quality. 2.14 What other defences are available to allegations that a vertical agreement is anticompetitive? Price discrimination conduct may be excused for several reasons, including where the difference in price can be accounted for by different costs in manufacturing, sales, or distribution, and where a Firms have successfully defended vertical agreements on the price concession was given in good faith to match that of a competitor. basis of business justifications including: promoting efficiencies, responding to customer dissatisfaction; preventing confusion, fraud, and deception; ensuring that the product provided to the consumer 2.20 How do enforcers and courts examine loyalty meets consumer expectations; and ensuring quality. In addition, discount claims? legal defences, such as lack of proof of a relevant market or market power can be used. Courts, however, have rejected protection of Enforcers and courts analyse loyalty discount claims under a goodwill and quality control, when there is a less restrictive way of rule of reason type analysis. Loyalty discounts resemble volume ensuring quality, as business justifications. discounts and offer similar benefits, and can lead to lower prices for consumers. They theoretically can also pose similar threats to competition: that a firm with market power will use the discounts to 2.15 Have the enforcement authorities issued any formal guidelines regarding vertical agreements? price below cost and drive out smaller competitors.

Both agencies have issued vertical merger guidelines. As discussed 2.21 How do enforcers and courts examine multi-product above, the DOJ and the FTC recently updated their guidelines or “bundled” discount claims? related to licensing intellectual property. The FTC has issued informal guidance on vertical arrangements on their website: https:// As with the each of the previous forms of unilateral conduct, www.ftc.gov/tips-advice/competition-guidance/guide-antitrust- bundled discounts are evaluated under the rule of reason. There are laws/dealings-supply-chain. often procompetitive benefits for these provisions, as with loyalty discounts. A key factual inquiry is whether the discounted price of the bundle of goods or services exceeds the aggregate cost of the 2.16 How is resale price maintenance treated under the law? goods or services in the bundle. If not, there is a greater risk it could be viewed as a pretext for driving rival firms from the market. Since the Supreme Court’s decision in Leegin, resale price maintenance has been evaluated under the rule of reason under the federal antitrust 2.22 What other types of vertical restraints are prohibited laws rather than being considered per se illegal. Rule of reason by the applicable laws? analysis for RPM cases focuses on the possible relationship between minimum prices and the provision of ancillary services that assist Vertical restraints can take any number of forms, including customers, improve quality, or achieve any of the benefits listed above. permutations and combinations of those discussed above. However, some states have passed “Leegin repealer” laws to ensure Regardless of the form, the restraints will typically be assessed per se liability for RPM agreements under the state’s antitrust laws. under the rule of reason, weighing anticompetitive harm against any procompetitive benefits and efficiencies.

2.17 How do enforcers and courts examine exclusive dealing claims? 2.23 How are MFNs treated under the law?

Exclusive dealing arrangements are generally analysed under Although MFNs can have procompetitive benefits, they have come the rule of reason, balancing any harm to competition with the under greater scrutiny in recent years. The price-fixing allegations agreement’s procompetitive benefits. This analysis often comes out successfully brought against Apple by the Department of Justice and in favour of the agreement, as exclusive dealing is often a vehicle for several states centered around the alleged use of MFNs to ensure substantial efficiencies, including economies of scale and support uniform pricing for e-books among five different publishers. services for the manufacturer’s brand. However, exclusive dealing The debate over MFNs is ongoing, and legal risk depends on the contracts can be anticompetitive when used by a firm with market specific facts and circumstances. power to prevent competition from smaller firms.

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3 Dominant Firms 3.7 What is the role of market share in assessing market dominance?

3.1 At a high level, what is the level of concern over, and scrutiny given to, unilateral conduct (e.g., abuse of Market share is the most common means of drawing an inference of dominance)? monopoly power. As discussed above, typically anything over 70% may be considered monopolistic. Courts and regulators have found that many forms of allegedly harmful unilateral conduct are justified by their economic 3.8 What defences are available to allegations that a firm efficiencies and other benefits. However, there are instances of is abusing its dominance or market power? USA unilateral conduct enforcement and practitioners are constantly evaluating whether such enforcement is increasing. These are very Apart from contesting the facts, firms facing allegations of abuse fact-specific inquiries. of market dominance can argue several things, including that they do not hold market power, that there has been no antitrust injury, 3.2 What are the laws governing dominant firms? that any competitive harm from their conduct is outweighed by procompetitive benefits and/or efficiencies, or that the conduct is excused by some other legal principle (e.g., no duty to deal with Dominant firm behaviour is governed by Section 2 of the Sherman competitors). Act, discussed above, which makes it illegal to “monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize” any market, and Section 5 of the 3.9 What is the role of efficiencies in analysing dominant FTC Act, which prohibits “unfair methods of competition”. firm behaviour?

Efficiencies are a fundamental part of the balancing test under the 3.3 What is the analytical framework for defining a market in dominant firm cases? rule of reason and essential to almost every defence put forth by antitrust defendants. They can take the form of arguments such as consumers will benefit from lower prices, higher quality, or greater The analysis is substantively similar to the “rule of reason” analysis, selection, or they may take the form of improved innovation or other such as that outlined in response to question 2.6. synergies that lead to greater competition in an industry.

3.4 What is the market share threshold for enforcers or a court to consider a firm as dominant or a monopolist? 3.10 Do the governing laws apply to “collective” dominance? There is no precise threshold as to whether a firm is dominant No. Collective dominance is not covered by the antitrust laws in or a monopolist. Rather, the question of whether or not a firm is the United States. dominant in a given market is an intensively fact-specific inquiry. That said, while there is no bright line, it is generally understood that as a firm’s market share approaches 70% the firm is increasingly 3.11 How do the laws in your jurisdiction apply to likely to be considered to have monopoly power. dominant purchasers?

Monopsony cases, though less common than monopoly ones, are 3.5 In general, what are the consequences of being adjudged “dominant” or a “monopolist”? Is evaluated under an analogous framework as other dominant firm dominance or monopoly illegal per se (or subject to cases. regulation), or are there specific types of conduct that are prohibited? 3.12 What counts as abuse of dominance or exclusionary or anticompetitive conduct? Under U.S. antitrust law, it is not illegal to be a monopolist, only to acquire or maintain a monopoly through exclusionary means. Generally speaking, an abuse of dominance or anticompetitive Whether a company has monopoly power or has engaged in conduct is conduct other than competition on the merits. Courts exclusionary conduct is a fact-specific inquiry. applying the U.S. antitrust laws seek to protect “competition, not competitors”, meaning they are more concerned with harm to the 3.6 What is the role of economic analysis in assessing competitive process than the success or failure of individual firms. market dominance? Anticompetitive conduct leads to one or more of higher prices, lower quality, reduced innovation, and fewer choices for consumers. Economic analysis can be impactful to antitrust analysis, both with respect to assessing the competitive effects of a course of conduct 3.13 What is the role of intellectual property in analysing and in determining whether a firm possesses market power. It can dominant firm behaviour? inform every stage of antitrust investigations and litigation, from the decision to prosecute to the calculation of damages. Courts and competition authorities view intellectual property as a key incentive to innovate and compete, driving much of the development in most markets. As a government-granted monopoly, however, patents can raise competition concerns depending on the specific facts.

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Recent litigation over “reverse payment” pharmaceutical patent States, 410 U.S. 366 (1973); Aspen Skiing Co. v. Aspen Highlands litigation settlements highlights the issue: possession of a lawful Skiing Corp., 427 U.S. 585 (1985); and Verizon Communications monopoly in the form of a patent does not permit patent-holders Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004). to foreclose competition to their patented product (e.g., by paying In Otter Tail and Aspen Skiing, the court held that the defendant a potential competitor not to challenge the patent holder’s patent). had violated the Sherman Act by refusing to deal with a competitor, while in Trinko it held that the bar had not been met. Comparing the holdings of the three cases identifies some elements that were 3.14 Do enforcers and/or legal tribunals consider “direct effects” evidence of market power? satisfied inOtter Tail and Aspen Skiing, but not Trinko: 1) the parties ended a prior course of dealing that implied doing business together

USA had been profitable for the monopolist; 2) the monopolist showed a Yes, courts and enforcers will consider direct effects evidence of willingness to forego short-term profit in the hope of obtaining long- market power. These can include internal business plans describing term gain; and 3) the monopolist refused to sell something it was exclusionary behaviour, past or contemplated, evidence of already in the business of selling. This kind of difficult-to-establish supracompetitive prices, and complaints from customers. standard means refusal to deal cases are, while possible, very rare and extremely challenging. 3.15 How is “platform dominance” assessed in your jurisdiction? 4 Miscellaneous The question of “platform dominance” is an emerging and unsettled issue in U.S. antitrust law. The question of how to balance the 4.1 Please describe and comment on anything unique to efficiencies and benefits created by platforms with the power held by your jurisdiction (or not covered above) with regards their creators over competitors within the platform is a developing to vertical agreements and dominant firms. issue in antitrust jurisprudence. This is not applicable. 3.16 Under what circumstances are refusals to deal considered anticompetitive? Acknowledgment Unilateral refusals to deal can violate the Sherman Act, but are Rick and Andy thank Paul, Weiss associates Mark Meador and considered to be at the “outer boundary” of Section 2. Three cases Patrick Greco for their invaluable assistance in preparing this have helped outline the claim: Otter Tail Power Co. v. United chapter.

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Charles F. (Rick) Rule Andrew J. Forman Paul, Weiss, Rifkind, Wharton & Garrison LLP Paul, Weiss, Rifkind, Wharton & Garrison LLP 2001 K Street 2001 K Street NW Washington, D.C. 20006-1047 NW Washington, D.C. 20006-1047 USA USA

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A partner and co-chair of the Antitrust Group, Rick Rule provides A partner in the Antitrust Group, Andy Forman focuses his practice on antitrust advice to major international corporations on “bet-the- counseling clients in a wide range of antitrust matters, with an emphasis company” matters, including M&A, criminal and civil investigations by on mergers and acquisitions, joint ventures and investigations by the the FTC and DOJ, and trial and appellate litigations. Over the last 30 U.S. Department of Justice and U.S. Federal Trade Commission. years, Rick has advised on a number of the highest-profile antitrust Throughout his career, Andy has represented numerous leading matters, including representing Exxon in its merger with Mobil, leading companies including Cigna, Eli Lilly & Company, Goodyear Tire and the team for Microsoft that settled its antitrust case with the DOJ, and Rubber Co., Microsoft Corporation, Pfizer Inc., Salix Pharmaceuticals, representing US Airways in its merger with American Airlines. Ltd. and US Airways Inc. Rick began his career in the Antitrust Division of the DOJ, becoming, in Andy previously worked for the FTC’s Bureau of Competition (Mergers 1986, the youngest person ever confirmed as the head of the Division. I), where he helped lead antitrust investigations in large mergers Rick left the DOJ in 1989 and has since been a partner and head of and acquisitions in the pharmaceutical, medical device, consumer antitrust practices at several leading New York and D.C. firms. Rick products, industrial products and aircraft components industries. He received a J.D. from the University of Chicago Law School and a B.A. has been recognised by The Legal 500, Benchmark Litigation and from Vanderbilt University. The Best Lawyers in America. Andy received a J.D. from Georgetown University Law Center and a B.A. from Washington University. He has worked on multiple matters that won the Global Competition Review’s antitrust matter of the year.

Paul, Weiss, Rifkind, Wharton & Garrison LLP is a firm of more than 900 lawyers with diverse backgrounds, personalities, ideas and interests who collaboratively provide innovative solutions to our clients’ most critical and complex legal and business challenges. We represent the largest publicly and privately held corporations and investors in the world as well as clients in need of pro bono assistance. Our firm is headquartered in New York City with offices in Washington, D.C., Wilmington, London, Tokyo, Hong Kong, Beijing and Toronto. We have long maintained a commitment to diversity and public service and our efforts to recruit and retain a diverse workforce have been recognised through rankings at the top of surveys addressing the hiring and retention of minority lawyers. Paul, Weiss is known for an unwavering dedication to representing those in need. From helping individuals facing injustice to championing a precedent-setting Supreme Court decision, our lawyers’ pro bono work has contributed to significant outcomes that have improved the lives of many in our community and our nation.

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