EU & Law Update

October 2013

CJEU reaffirms parent company liability for Key Contacts infringement

The Court of Justice of the European Union (CJEU) dismissed an appeal by For further details on Alliance One International on 26 September 2013 of a decision upholding the these articles and other European Commission’s fines against a raw tobacco in Spain, (see Case developments please C-668/11 P Alliance One International Inc. v European Commission.) contact one of the following authors or your In October 2004, the Commission fined (amongst others), the Spanish raw usual Bryan Cave contact: tobacco producer, Agroexpansion EUR 2.59 million, for participation in a raw tobacco cartel concerning the delivery price for tobacco. The parent company Robert Bell of Agroexpansion, Alliance One International Inc. (Alliance), then called Dimon Partner - London Inc., was held jointly and severally responsible for the payment of the fine. Eckart Budelmann Alliance was held responsible on the basis that it exercised a decisive influence Partner – Hamburg over the conduct of Agroexpansion as owner of its entire share capital. Kathie Claret Partner – Paris Alliance appealed this finding to the General Court which rejected the appeal, Anita Esslinger upholding the Commission’s decision that liability should be on a joint and Partner – London several basis between parent and subsidiary. Following this rejection, Alliance further appealed the decision of the General Court to the CJEU. Luigi Zumbo Partner – Milan*

The CJEU’s judgment affirms its continuing desire for parents and their subsidiary companies to be found jointly and severally liable. The CJEU affirmed the dictum from Case C97/08 Akzo Nobel NV and others v Commission that where a parent company owns the entire share capital of another company, there is a rebuttable presumption that the parent exercises decisive influence over the behaviour and actions of that subsidiary, and therefore, should be jointly and severally liable for its actions.

The CJEU stated however, that the presumption can be used in conjunction with evidence to establish such influence. The rebuttable presumption was not necessarily used exclusively to establish whether influence was present between parent and subsidiary. It was and remains possible to judge the relationship both in the context of a rebuttable presumption, but also to allow Bryan Cave's and assess further evidence that the influence exists. alerts/bulletins/briefings are available online.

This Client Bulletin is published for the clients and friends of Bryan Cave LLP. Information contained herein is not to be considered as legal advice. This Client Bulletin may be construed as an advertisement or solicitation. Bryan Cave LLP. All Rights Reserved. *Affiliated Firm.

Bryan Cave LLP America | Europe | Asia www.bryancave.com The relevance of this appeal to companies and future cartel decisions is that it allows the Commission flexibility to use evidence of influence by parent companies. It could be seen as a further evidential hurdle for defendants to overcome as in these cases they won’t simply be trying to rebut the presumption of influence, but may have to actively disprove or counter evidence introduced by the Commission that the parent held a decisive influence over its subsidiary. Company group compliance with competition law, no matter how small and distant the subsidiary, should therefore remain a priority for parent companies following this decision.

Bundeskartellamt fines company for in selective distribution system

I. The case

In a recent decision relating to vertical price fixing practices, the Bundeskartellamt condemned a selective distribution system which violated competition law by enforcing adherence to recommended prices.

On 31 July 2013, the Federal Cartel Office (Bundeskartellamt) imposed fines of approximately EUR 6.5 million on the German company WALA Heilmittel GmbH (“WALA”) because of vertical price fixing practices which included selective distribution contracts which depended on the distributors’ adherence to recommended prices.

The Bundeskartellamt held that the company had put undue pressure on retailers for years, obliging them to comply with WALA’s recommended prices for its natural cosmetic products sold under the brand “Dr. Hauschka”. According to the Bundeskartellamt, ever since 2003, WALA had systematically based its distribution system on strict adherence to stipulated end consumer prices and put unreasonable pressure on retailers to prevent them from undercutting the recommended prices by threatening to deny or actually denying the supply of products.

In 2007, the company introduced a “selective distribution system” which allowed supply only to selected distributors meeting certain criteria. The conclusion and continuation of the contracts with the authorised distributors was made subject to the distributors' adherence to the recommended prices. The contracts also included clauses restricting internet sales. Furthermore, the investigation uncovered evidence that the company had engaged in illegal agreements on end consumer prices for its products with several specialised retailers which are active throughout Germany.

A negotiated settlement was reached between WALA and the Bundeskartellamt, and the German regulator’s investigation was terminated. WALA undertook to phrase and structure its future contracts in such a way as to ensure that (i) the contracts cannot be abused to support price fixing schemes, (ii) distributors will be treated equally and (iii) internet sales will not be restricted.

II. Legal Background and Preventive Measures

This case shows that the Bundeskartellamt is increasingly vigilant over anti-competitive restrictions in vertical agreements.

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Bryan Cave LLP America | Europe | Asia www.bryancave.com Under the German Act Against Restraints of Competition (GWB) and the Treaty on the Functioning of the European Union (TFEU), agreements which have as their object or effect the prevention, restriction or distortion of competition, are prohibited. However, both the GWB and the TFEU allow some exemptions. The “Vertical Block Exemption Regulation” (Commission Regulation (EU) No. 330/2010 of 20 April 2010) exempts restrictions in all vertical agreements which are concluded between companies that have certain limited unless they are hardcore or excluded restrictions. One of these hard-core restrictions stipulates that vertical agreements which, directly or indirectly, in isolation or in combination with other factors under the control of the parties, have as their object the restriction of the buyer's ability to determine its sale price, cannot benefit from the Vertical Block Exemption.

By the above decision, the Bundeskartellamt has shown that all benefits of the block exemption, including the preferential treatment of selective distribution systems, are removed if competition is restricted by way of a hardcore restriction such as resale price maintenance.

When establishing a distribution system, direct, as well as indirect practices to maintain a minimum or fixed resale price are prohibited and must be avoided. This includes threatening to deny the supply of products as well as reducing incentives for companies such as making the grant of rebates or reimbursement of promotional costs by the supplier subject to the observance of a given price level to try to circumvent competition law.

Ryanair condemned by the Court of Milan for abuse of a dominant position; a possible application of the “Essential facility doctrine”?

The Court of Milan, in Decision No. 7825/2013 of 4th June 2013, held that Ryanair abused its dominant position by refusing to grant access to its database and booking procedures to an online travel agency (“OTA”). The Court ordered Ryanair to restore access to its database as a result of the judgment.

OTAs act as an intermediary between air transport companies (like Ryanair) and consumers so that the latter is able to compare fares between airlines on the OTAs’ websites.

Ryanair did not allow OTAs to access its website in order to gather relevant information about booking procedures and fares. Ryanair thus de facto would prevent consumers from comparing their fares to others whilst booking through OTAs.

The Court of Milan found this conduct would violate Article 102 of TFEU and Article 3 of Italian Antitrust Law No. 287 of 1990 since it would impede OTAs access to the market of online booking to the detriment of consumers.

In particular, it seems likely that the Court of Milan bore in mind the case-law of the European Courts on the so-called “Refusal to supply/Essential facilities doctrine”.

In essence, the European Courts (among others: Case T-201/04 Microsoft v Commission [2007] ECR II-3601 at paras 332-3) held that the “refusal to supply” (information or product) is anti- competitive when the following conditions are met:

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Bryan Cave LLP America | Europe | Asia www.bryancave.com a) the refusal relates to a product or service indispensable to the exercise of a particular activity on a neighbouring market; b) the refusal is of such kind as to exclude any effective competition on that neighbouring market; c) the refusal prevents the appearance of a new product for which there is potential consumer demand; and d) the refusal is not objectively justified.

In the present case, there are two different markets: the air transport market and the online booking market. By Ryanair’s denial of access to OTAs, the OTAs run the risk of becoming foreclosed from selling on the air transport market because of the refusal of a dominant undertaking (Ryanair) to provide the relevant information, that information being the booking fares. Moreover, the refusal has not been objectively justified and there is a potential consumer demand for the product as online booking and the price comparison tools of OTAs are widely used by consumers.

This is a significant decision in affirming and applying the refusal to supply/essential facilities doctrine in practice.

OFT in bust up over price maintenance

On 20 September 2013, the (the OFT), the main UK , issued a Statement of Objections to a sports bra manufacturer named DB Apparel UK Limited and leading UK department stores John Lewis, House of Fraser and Debenhams.

The objections relate to alleged anti-competitive agreements between the bra manufacturer and the department stores under which the parties sought to increase the retail price of the Shock Absorber brand of sports bras in the department stores. The alleged practice was anti-competitive and in breach of Chapter I of the Competition Act 1998 (CA 1998). Under Chapter I, any agreements that prevent, restrict or distort competition (such as through re-sale price maintenance) are prohibited. The prohibition in Chapter I mimics the EU prohibition found in Article 101 of the Treaty on the Functioning of the European Union (TFEU).

Re-sale price maintenance is often a complex issue in the context of distribution agreements. There is the desire of brands and manufactures to promote higher prices for their products against the core prohibition in resale price maintenance that agreements cannot seek to impose a minimum price for resale of a product, either in business to business sales or to end users. There is no such prohibition on setting a maximum price as long as it is not in effect a minimum or fixed price.

This prohibition on restricting competition by resale price maintenance is wide and extends to suppliers enforcing or promoting a minimum resale price. This could be through a variety of mechanisms such as a rebate or promotional fee, payable only if the reseller achieves a certain resale price.

An area of common confusion for international suppliers entering the UK market is the desire to enforce recommended retail prices. The rule in the UK is that suppliers can recommend a retail price for their products, but they cannot directly or indirectly take any action to enforce or induce

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Bryan Cave LLP America | Europe | Asia www.bryancave.com that recommended price. As explained above, the prohibition has been interpreted widely so only a recommendation of the retail price is acceptable.

Suppliers should seek legal advice when entering into distribution agreements as the fines and negative publicity upon infringement can be severe. Suppliers should be cautious to only negotiate such agreements on a bilateral basis and to make sure they are not discussing intentions with retailers or acting as a conduit for pricing information between competitors.

The next step is for DB Apparel and the accused department stores to submit written and oral representations to the OFT before the OFT makes a decision on whether to take any further enforcement action.

Italian Competition Authority closes investigation as one competitor completes acquisition of another

On 17th October 2012, the Italian Competition Authority (“ICA”) opened an in-depth investigation into two separate construction companies: Salini Group which was composed of Salini S.p.A. (“Salini”), and Salini Costruzioni S.p.A. (“Salini Costruzioni”) as well as Impregilo S.p.A. (“Impregilo”).

Impregilo, Salini and Salini Costruzioni are specialists in the worldwide construction market.

On 4th October 2012, the companies entered into a strategic agreement (the “Agreement”) whereby they agreed to put in place a specific procedure to be followed in case they should be required to make an invitation to tender.

They could act as a sole economic entity or act separately when making bids in a tender. In the present instance, they avoided acting separately to compete with one another for the same tender.

At first sight, such an Agreement could raise serious issues about its compatibility with European Union competition rules and specifically with Article 101 TFEU. In fact, the Agreement would fall within the provision that impedes undertakings to allocate markets and customers.

Nonetheless, on 7th February 2013, Salini launched a tender offer to acquire Impregilo and at end of the tender offer Salini obtained 92,08% of the shares. In light of the above, the ICA held that the Agreement should be intended as the first part of a procedure that was finalised by the acquisition of Impregilo by Salini. Therefore, after the acquisition, the ICA found that the Agreement should be regarded as an agreement between undertakings that belonged to the same group of companies, so that it cannot be assessed from an competition law perspective.

The ICA thus focused more on the economic independence rather than the legal independence of the companies and stated that two undertakings in order to reach an anti-competitive agreement have to be able to decide their commercial behaviour independently.

In essence, the ICA’s pragmatic decision concludes that to find an agreement anti-competitive it is necessary that the undertakings involved are actual economic competitors in the and not companies with a common owner.

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Bryan Cave LLP America | Europe | Asia www.bryancave.com French Court of Appeal affirms Decision condemning Price Fixing in leisure and tourism sector

The Paris Court of Appeal in its June 6, 2013 Decision1 upheld in its entirety the French Competition Authority Decision n° 12-D-02 of January 12, 2012 fining the Géfil trade association and ten consulting firms in the leisure, culture and tourism engineering sector a total amount of 660,700 euros for having issued, between 2002 and 2010, instructions to the profession to use “fair prices” to avoid “dumping” and “price wars”. These instructions were found to have been used as a benchmark for price quotations filed by consulting firms in response to calls for tenders.

Only the Géfil and Deloitte Conseil appealed the French Competition Authority’s decision.

The Paris Court of Appeal confirmed that the issuance by the trade association of “fair price” instructions was a “per se” object restriction whose purpose was to block competitively-determined prices. The Paris Court of Appeal indicated in addition that the Géfil was involved in a “price watching” policy to ascertain that the prices charged matched those set in the instructions.

The Court confirmed the fines imposed by the French Competition Authority, that is, EUR 15,000 for the Gefil and EUR 510,000 for Deloitte Conseil.

Mobility scooter industry stopped in its tracks! - Further price fixing objections from the OFT

In our September bulletin we reported that Roma Medical Aids Limited, a mobility scooter manufacturer, had breached Chapter I of the Competition Act 1998 by entering into an anti- competitive agreement with several of its retailers. The terms of the resale agreement meant that the retailers were prevented from selling or displaying the prices of the mobility scooters online.

Further to this decision and the 2011 Market Study by the OFT into what it suspected as online restrictions in the mobility aids sector, on September 24 this year, the OFT announced that it had issued a Statement of Objections to another manufacturer of mobility scooters and several retailers who stocked its models. The Statement of Objections alleges that Pride Mobility Products Limited prevented the retailers from displaying online prices below the recommended retail price for certain models of mobility scooter.

It is alleged this activity occurred between 2010 and 2012. The parties have the opportunity to make oral and written submissions to the OFT before a decision and possible penalty is issued. This second enforcement action following the 2011 Market Study is again important as it shows the OFT’s seriousness in drawing enforcement actions from market studies and its desire to combat anti-competitive agreements, particularly vertical agreements between suppliers of a product and sellers.

1 CA Paris (Ch. 5-7), June 6, 2013, n° 2012/02945, Le Géfil e.a.

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Bryan Cave LLP America | Europe | Asia www.bryancave.com French Competition Authority puts down Alsace vet cartel

In its Decision n°13-D-14 dated June 11, 20132, the French Competition Authority fined professional organisations of veterinarians in Alsace, namely the Conseil Régional de l’Ordre des Vétérinaires d’Alsace (EUR 25,000), the syndicat national des Vétérinaires d’exercice libéral - Section du Bas- Rhin (SNVEL 67) (EUR 5,000) and the syndicat national des vétérinaires d’exercice libéral - Section du Haut-Rhin (SNVEL 68) (EUR 1,000) for price-fixing.

The highest fine was levied on the veterinarians’ self-regulatory body, which the Authority found had exceeded the bounds of its statutory tasks and prerogatives.

The French Competition Authority reproached the veterinary professional organisations for having implemented, during 17 years (between 1991 and 2008), a “charter” setting the prices that signatory veterinary surgeons were to invoice the Society for the Prevention of Cruelty to Animals (“SPCA”) in Strasbourg and dividing up the various interventions of the participating veterinarians. The French Competition Authority also found that, as from December 2006, the defendants tried to extend the reach of this charter, from Strasbourg to the rest of Alsace.

In its Decision, the French Competition Authority refused to apply the economic progress exemption referred to in Article L.420-4 I 2° of the French Commercial Code, noting, albeit in terms that far exceeded those of Article L.420-4 I 2° but resemble those of the European Court of Justice, that the organisations involved did not demonstrate that the charter imposing a fixed tariff scheme on signatory veterinarians or a wider diffusion of this charter to the other SPCAs in Alsace would have been essential and indispensable to providing the best quality of care.

Nor was the French Competition Authority persuaded by the argument of the parties to the effect that the charter had no anti-competitive character because the prices fixed were significantly lower than the prices usually proposed by the veterinarians to their private clients.

This Decision echoes and, as far as the fines are concerned, goes beyond a line of cases in which French professional self-regulatory bodies have been fined for issuing fee scales. In several decisions, the Paris Court of Appeal and the French Supreme Court held that the issuance of an indicative fee scale by local French bar associations, even though it was mentioned that the actual fees charged by lawyers may be freely determined notwithstanding the fee scale, had a potentially anti-competitive effect on the local legal services markets since lawyers were likely to fix their fees based on the scale rather than on objective criteria (CA Paris, December 9, 1997; French Supreme Court February 13, 2001 “Marseille Bar”).

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2 http://www.autoritedelaconcurrence.fr/user/standard.php?id_rub=483&id_article=2102

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Bryan Cave LLP America | Europe | Asia www.bryancave.com