EU & Competition Law Update

June 2014 For further details on these articles and other No single market in telecoms? European Commission developments please assess Hutchinson-O2 Ireland merger on a national basis contact one of the On 28 May 2014, the European Commission conditionally approved the following authors or your acquisition of Telefonica (which operates under the “O2” brand) by Hutchinson usual Bryan Cave contact: 3G Ireland (which operates under the “3” brand). The merger is of note not only because the Commission has allowed the reduction of major competitors on the Robert Bell Partner - London Irish market from four to three but also due to the way the effect of the merger was assessed. Eckart Budelmann Partner – Hamburg The Commission (and the national Irish telecoms regulator who allegedly does Kathie Claret not support the proposed commitments) had several concerns regarding the Partner – Paris merger. These were: Anita Esslinger Partner – London &  O2 Ireland is currently the second largest major network provider in Ireland Washington D.C. whilst Hutchinson is the fourth largest. Their merger is creating the joint Luigi Zumbo largest provider with 40% alongside Vodafone, whilst Eircom has around a Partner – Milan* 20% market share. Bryan Cave's  That the removal of one of the major operators would further concentrate alerts/bulletins/briefings are available online. an already concentrated market with high barriers to entry.

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 Given these concerns, the Commission referred the merger for a thorough Phase II investigation on 6 November 2013. This investigation has now concluded and has conditionally approved the merger on the grounds that certain commitments are fulfilled by Hutchinson. The two main commitments are:

1. Hutchinson must sell 30% of it’s capacity in voice and data capacity to allow the entry of two new mobile virtual network operators. To show it’s commitment to a competitive market, Hutchinson must approve a five year deal with at least one of these new competitors before the O2 merger may complete. Furthermore, the Commission must approve the new entrant to ensure that they will carry out the commitments and provide genuine competition to the merged entity and other operators as a new market entrant. At the time of writing, these new entrants are rumoured to be Liberty Global and the Carphone Warehouse Group. Interestingly for those companies that operate in the telecoms industry, the Commission was keen to allocate these new entrants a fixed capacity from the merged entity rather than a pay as you use approach depending how much voice and data traffic their subscribers had used. Presumably this is to give the entrants certainty and establish a sizeable competitor from the outset.

2. Hutchinson has committed to continue network sharing with Eircom on improved terms. This was especially important given that network sharing agreement sustains one of both O2’s and Hutchinson’s major rivals.

This merger is of note for two reasons. Not only has the Commission allowed a merger that to many consumers will initially appear to be a concentration of an already concentrated market but also in the way the Commission has assessed the market for telecoms. The Commission acknowledges that any assessment of the merger and its effect can only be done on a national basis, even though the merger is of a size to trigger EU merger control thresholds. By doing so the Commission acknowledges the reality that there is no single market for telecoms. The existence of a national regulator for every Member State allocating capacity and creating differing regulation will mean that in effect the telecoms market is still 28 national markets.

The other question is what the effect of these approved commitments will be on other Member State markets. For instance, O2 and 3 both operate on the UK market. Given their success in Ireland, will the two now look to merge and argue in front of the Commission that it must accept similar commitments to the ones it has agreed to in Ireland? Irish consumers may also be sceptical as to whether a merger of rivals approved on the basis of the creation of new smaller rivals will get them a fair deal. If anything, many facing mobile phone and other telecoms costs each month would argue that operators would be better broken up with forced divestments to create more operators rather then permitting two of four rivals to merge. The success of this merger and the effect of the commitments on the Irish market will no doubt be studied closely by regulators and operators alike including the proposed merger of Telefonica Germany and Royal KPN NV’s E-Plus.

Bryan Cave LLP America | Europe | Asia www.bryancave.com French competition and consumer frauds authorities take aim at on-line Key Contacts travel agencies’ parity clauses and unfair conditions

Facing pressure from certain hotel owners and consumers, France has taken action in response to certain marketing policies and practices that on-line travel agencies (OTAs) are imposing.

Last week, the French Minister of Economy Arnaud de Montebourg, revealed that a lawsuit has been filed in February 2014 before the Paris Commercial Court against the OTA Booking.com for alleged abusive clauses in its standard contracts with hotels. The main clause in contention was the parity clause whereby the hotel undertakes to provide the OTA with prices equal or better than any prices charged directly by the hotel to consumers or to other OTAs. The Booking case, based largely on investigations carried out by the consumer frauds authority (DGCCRF), follows a similar action against Expedia, which was sued by the French Government in November 2013. Both the Booking.com and Expedia cases follow an earlier action when the Paris Commercial Court in 2011 ordered Expedia, Tripadvisor and Hotels.com to pay several thousands of euros in damages to the Union of Hotel Professionals (Syndicat National des Hôteliers, Restaurateurs, Cafetiers et Traiteurs) for deceptive and misleading commercial practices (leading consumers to believe that no room were available at hotels which refused to contract with these OTAs).

The French Competition Authority (FCA) is closely looking at these practices as well.

In July 2013, the Confederation of Independent Hotel Professionals (Confédération des professionnels indépendants de l’hôtellerie or CPIH) and the Hotel industry professionals union (Union des Métiers et des Industries de l’Hôtellerie or UMIH) complained to the FCA about the parity clause and other allegedly restrictive practices (including extremely large commissions) implemented by Booking.com, Expedia and HRS. They claimed that the latter appear to have violated:

(i) Articles L. 420-1 of the French Commercial Code and Article 101.1 of the Treaty on the functioning of the European Union (TFEU) (the prohibition of anti-competitive agreements) by imposing parity clauses; and

(ii) Articles L. 420-2 of the French Commercial Code and Article 102 of the TFEU (the prohibition against abuse of a dominant position) by abusing their collective dominant position to impose unfair conditions on the hotels with which they contract.

On 16 September 2013, the French Commercial Practices Commission (Commission d’examen des pratiques commerciales or “CEPC”) published an advisory opinion to the effect that parity clauses imposing an automatic alignment of the conditions offered to competitors were against the law and should be considered null and void.

It remains to be seen what the actual decision of the FCA will be. The FCA decision is expected by the end of 2014.

This French case follows similar regulatory concerns and actions across the EU including the UK, as reported here: http://www.eu-competitionlaw.com/on-line-hotel-bookings-commitments-offered/

Bryan Cave LLP America | Europe | Asia www.bryancave.com MyFerrylink: the saga continues as French and English competition authorities reach differing views

In 2012, the French company SeaFrance SAS (SeaFrance), formerly engaged in the maritime transport of passengers and freight transportation between France and England, was subject to a French liquidation procedure. After having examined several purchase offers, the Paris Commercial Court designated the Eurotunnel SA Group (Eurotunnel), a Franco-British company concessionaire of the Channel tunnel, as the buyer of SeaFrance’s assets (including 3 ferries) and in August of 2012, Eurotunnel created a cross-Channel ferry service called MyFerryLink. The French Competition Authority (FCA) was consulted as the acquisition could have an impact on competition in the passengers and freight France/England transport market.

In its investigation, the FCA found that the operation could raise competition issues notably if Eurotunnel were to use its strong position on the market to offer tickets combining ferry and train to favour MyFerryLink over ferry only competitors.

As a result, Eurotunnel undertook, for a period of five years, not to grant any discount on its train transportation offer tied to the customers’ use of its maritime offer and notably not to take into account MyFerrylink’s freight volume in the course of its annual train transportation tariff. Eurotunnel committed to enter into separate contracts for its maritime and train offers which were to be managed by distinct commercial teams.

The FCA found that the commitments offered constituted sufficient remedies and cleared the acquisition of certain SeaFrance SAS assets by Eurotunnel (FCA’s decision 12DCC-154 dated November 7, 2012).

However, the considerations and findings differed on the other side of the Channel.

Indeed, in June 2013, the UK Competition Commission (now the Commission and Markets Authority or “CMA”) considered that allowing Eurotunnel to buy SeaFrance’s assets (3 ferries) and to run a ferry service would give it a majority of the local cross-Channel market and would lead to an increase of prices. The CMA continues to fear that profits from the tunnel would be used to unfairly subsidise the ferry business. The Competition Commission ruled that as a result, it was likely that certain competitors such as DFDS and P&O could be forced to exit the market, leaving Eurotunnel as the sole operator of both the rail link and one of only two ferry services between Dover and Calais.

Eurotunnel appealed the decision and submitted that a material change of market had occurred, based upon the 12% growth since SeaFrance ceased its operations. However, in May 2014, the CMA provisionally considered that there had not been a material change of circumstances since the June 2013 decision on the Eurotunnel/SeaFrance merger. The final decision is expected in a fortnight.

This case illustrates the issues which may be encountered when two countries are involved and when the European Commission does not rule on a matter as a one stop shop for competition regulation. At the beginning of this year, the FCA filed a report to the French Government containing ten recommendations to prevent conflicts between competition authorities. The FCA suggests that competition authorities should be able to refer and transfer cases to the European

Bryan Cave LLP America | Europe | Asia www.bryancave.com Commission when two countries are involved (instead of three, as presently required) and to unify the basic concepts of national merger legislations (implementing a unified maximum time period to rule on a cross-border mergers and to harmonize the merger control thresholds).

It remains to be seen whether the MyFerryLink case will contribute to the general debate about the reform of the EU Merger Regulation to prevent such conflicts in the future. A White Paper on the reform of the EU Merger Regulation is expected this summer.

Once again competition rules force “software interoperability”

On 9th April 2014, the Italian Competition Authority (ICA) opened an in-depth investigation into two Italian companies operating in the school management software market for infringements of Article 101 TFEU, the prohibition against anticompetitive agreements.

The companies are Argo Software S.r.l. (Argo) and Axios Italia Service S.r.l. (Axios) manufacture management software for schools which is used in the vast majority of Italian schools.

This software normally interoperates with other software for the so-called “electronic school register” which allows schools to communicate information about students to their families via e- mail or electronic devices.

As of the academic year 2012-13, all Italian schools must adopt the “electronic school register” and as a result, many different software of such a kind have been created by several software companies.

In this scenario, the ICA alleged that Argo and Axios agreed to make it difficult for electronic school register software created by other companies to interoperate with their management software. In particular, only the “electronic school register” software created by Argo and Axios could access the school management software database.

In essence, the ICA held that Argo and Axios were trying to foreclose competition on the market of electronic school register software (downstream market) by exploiting their strong economic position in the upstream market of school management software. This alleged strategy would aim at reaching a strong economic position also in the new market of electronic school register software.

Argo and Axios argued as defence that the access to the databases was limited to protect their intellectual property rights (copyright) on the management software.

In our view, the decision at issue resembles the Microsoft case (Case T-201/04 Microsoft v Commission [2007] ECR II-3601). In that case, Microsoft enjoyed a dominant position in operating systems and refused to render adequate interface information (protected by copyright) that would have allowed its competitors on the work group server operating market to offer alternative work group server operating systems.

Bryan Cave LLP America | Europe | Asia www.bryancave.com The European Commission and the Court of First Instance applied the principles set out in the precedent case-law and found that the refusal to grant a licence to use the interface information impeded competing companies to interoperate with the Window PC operating system so as to hinder the development of competing products on the subordinate market.

Microsoft, by leveraging its dominant position in the upstream market (operating systems), would have gained the same dominance in the downstream market too. Thus, Microsoft was obliged to license its competitors.

In light of these cases, companies should be warned that the use of intellectual property rights (as copyright on software) cannot go beyond certain limits which European Union and national antitrust authorities have been constantly monitoring in recent years. Indeed, one of the mentioned limits is “software interoperability” if it is indispensable to foster products innovation on other and necessary linked markets.

Therefore, undertakings should assess very carefully whether “software interoperability” can be considered as an “essential facility” to develop new connected products in downstream market before denying that.

Competition law knocks down permitted use restriction in real estate transaction

In one of the first rulings of its kind since real estate agreements became subject to the full scrutiny of UK competition law in 2011, the Central London County Court has held that a use restriction in a lease infringed the Chapter I prohibition of the Competition Act 1998 and did not meet the criteria for exemption under Article 9(1) of the Competition Act. This ruling could have widespread potential implications for commercial landlords and the real estate industry as a whole if the County Court’s approach is followed by the High Court.

In this case, Martin Retail Group Limited (MRG), an existing tenant of retail premises on a parade of shops in a housing estate, sought to extend the permitted use of retail premises to enable it to sell groceries. On expiry of MRG’s lease, a dispute arose as to the terms of the user clause in the new lease. The landlord, Crawley Borough Council (the Council), proposed that MRG give a covenant limiting use of the shop premises to the “business of newsagent, tobacconist, sweet confectioner, stationer, bookseller and for the sale of toys, CDs, fancy goods, greeting cards and the installation and use of an ATM and Lottery sales terminal” (“the proposed user clause”). However, MRG wanted to use the shop as a convenience store, selling groceries, spirits and household goods and sought an extension of the proposed user clause accordingly.

The dispute was referred to the County Court for resolution under the Landlord and Tenant Act 1954. In these proceedings, MRG claimed that the proposed user clause breached the Chapter I prohibition of the Competition Act 1998. The Court tried the legality of the proposed user clause as a preliminary issue. The Council opposed the amendment of the user restrictions on the basis that each of the shops in the parade should have a different use and there already was a grocery store on the parade.

Bryan Cave LLP America | Europe | Asia www.bryancave.com In argument the Council conceded to the Court that the use restriction, in the context of the Council’s letting scheme, could have the effect of restricting competition in the sale of convenience goods on the parade contrary to Chapter I of the Competition Act 1998. Therefore the Court did not specifically rule on the application of the Chapter I prohibition due to this concession. Instead the Court limited itself to the possible application of Section 9 of the Competition Act 1998 in relation to the grant of an individual exemption and assessing whether the appropriate criteria for the grant of an exemption was satisfied. As a consequence, the judgment does not contain any detailed findings of the anti-competitive effect of the restriction or the letting scheme as a whole.

However, the considerations taken into account by the Court in analysing whether it was appropriate to grant an individual exemption do give an interesting insight into how such clauses will be analysed by the Courts in future. The judge did not believe that, as a matter of fact, the distribution of goods was improved or economic progress was promoted through the existence of a number of different retailers rather than via a supermarket or a number of similar retailers. Nor did consumers share in the economic benefit produced by the agreement. The judge did not accept that the community would benefit from the restrictions contained in the proposed user clause and letting scheme.

In assessing whether the agreement had the effect of eliminating competition in respect of a substantial part of the products in question the Court approached the subject of market definition. The Council had argued for a wider market definition but did concede that there could be an anti- competitive restriction in relation to the sale of convenience goods within a narrow catchment area of the shops which predominantly served a particular residential estate in Crawley. Of particular importance in this case seems to have been that this parade of shops were the only retail premises within the estate. The nearest rival convenience stores were a Tesco Express about 1000 metres away and two convenience stores on a neighbouring estate (about 1200 and 1500 metres away). Therefore, when approaching the subject of market definition the judge was influenced by the reluctance of customers to walk further than a short distance to buy consumer items (such as milk, eggs or washing powder). He therefore held that a narrow approach to market definition was appropriate. The judge concluded that the proposed user clause, as part of the letting scheme, clearly provided a means of eliminating competition in convenience goods on the parade and within a relatively short walking distance.

However, the judge did recognise that if the relevant geographic market had been bigger so that various other convenience stores (within 1000 to 1500 metres) fell within its catchment area then there would be no such possibility of elimination.

It remains to be seen whether the eminently sensible reasoning of the County Court in this judgment will be followed by the High Court to create general precedents on hyper-local market definitions and holding that usage clauses needn’t confer local monopolies to meet their aim of creating a good spread of different types of retailer. (See Case: Martin Retail Group Limited v Crawley Borough Council).

Bryan Cave LLP America | Europe | Asia www.bryancave.com Italian Competition Authority opens an in-depth investigation into price increase for banking bill payment services

On 19th February 2014, the Italian Competition Authority (ICA) opened an in-depth investigation in order to assess whether the decision of the “Bancomat Consortium” to apply a commission for bills payment services may constitute an infringement of Article 101 TFEU, the prohibition of anticompetitive agreements.

“Consortium Bancomat” is composed of Italian Bank Association, Italian banks, financial consultants, payment institutes and other undertakings authorised by Italian and European Union Laws to operate in the payment services sector.

The “Consortium Bancomat” decided to apply a Euro 0.10 commission to all bills and invoices payment made through a “PagoBancomat” debit card as of 3rd January 2014.

The ICA held that the commission decided by the “Bancomat Consortium” would constitute the consideration for the banks and the other undertakings operating within the “PagoBancomat” service network.

In essence, the mechanism is that the bank enters into an agreement with the issuer of the relevant bill or invoice (“the acquirer”) and pays the commission for each payment made by the debtor (business or consumer), through the “PagoBancomat” card, to the undertaking of the network which issued the relevant card (“the issuer”).

Therefore, the Commission would constitute a cost for the acquirer and a profit for the issuer.

In light of the above, the ICA found that the commission may raise anti-competitive concerns because it represents a minimum fixed cost for the acquirer and thus may impede competition in the bill payment services sector to the detriment of businesses and consumers.

As previously mentioned in our November 2013 newsletter, the ICA’s interest in the banking services sector has been growing.

Standard fees for electronic cash card payment system abandoned

In a similar move to the Italian Competition Authority decision above, on 8 April 2014, the Bundeskartellamt (BKartA) adopted a decision which declares binding the commitments of the leading banking associations in Germany to abandon their agreement on standard fees payable by retailers when using the electronic cash card payment system.

The electronic cash card payment system is a national debit card scheme used for non-cash payments at the point of sale by means of a Girocard. It is by far the leading card payment system in Germany, with an annual transaction volume of € 128 000 000 000. The principal alternative to the electronic cash system for retailers is the electronic direct debit system (ELV), where certain data on the Girocard is used to generate a direct debit.

Bryan Cave LLP America | Europe | Asia www.bryancave.com According to the electronic cash framework (which was jointly established by the leading bank associations), retailers had to pay a standard fee for every electronic cash transaction to the bank that issued the Girocard. This charge amounted to 0.3% of the transaction value with a minimum of € 0.08. Large retail chains and petrol stations had already managed to negotiate discounts with the banks for transactions at their cash tills.

In the BKartA’s preliminary view, the jointly set standard fee constitutes an unjustified restraint of competition. Such a standard fee is not objectively necessary for the operation of the electronic cash-system. An in-depth examination of the market situation confirmed that individual negotiations between the market participants, i.e. the retailers and card issuing banks, are possible. Pressure on the price will be exercised, in particular, by the competing ELV system.

The commitments to abandon the agreement therefore meet the BKartA’s concerns. However, the BKartA will monitor future market developments closely.

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