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EU & Competition Law Update EU & Competition Law Update October 2013 CJEU reaffirms parent company liability for competition law 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 cartel 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 price fixing 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. 2 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 market power 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: 3 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
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