antitrust complying with and using competition law

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1 antitrust complying with and using competition law

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3 antitrust complying with and using competition law

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5 Table of contents Introduction 5 I. The risks of not complying with competition law 6 II. Ensuring compliance with competition law 7 III. Culture to implement within a company in order to ensure compliance 8 IV. Opportunities created by competition law 9 Appendix 10 Chart 1 - Horizontal cooperation agreements between undertakings 10 Chart 2 - Vertical cooperation agreements between undertakings 11 Chart 3 - Abuse of dominance 12 EU & Competition Law at Arendt & Medernach 14 About Arendt & Medernach 16 Contact Arendt & Medernach EU & Competition Law 16 Authors: Philippe-Emmanuel Partsch and Thomas Evans Disclaimer: the following brochure does not constitute legal advice and is merely intended to raise awareness of issues relating to competition law. Arendt & Medernach shall not incur liability of any kind should this document be used as a basis for responding to legal questions.

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7 Introduction Compliance with competition law is extremely important for companies with commercial operations in Luxembourg. The authority in charge of the enforcement of competition law in Luxembourg, the Conseil de la concurrence, has become very active over recent years, investigating competition law infringements across a broad spectrum of sectors and not hesitating to use its powers: State-owned as well as private companies fined. Big and small economic operators investigated (national and multinational companies as well as architects, engineers and funeral services). Regulated sectors also investigated (telecommunications and energy markets). Fines running into the millions. Behavioural commitments imposed on companies. The European Commission also investigates the activities of companies liable to affect trade in the EU. Given the number of companies active in Luxembourg which are part of groups also active in other countries (particularly the Benelux, France and Germany), the Commission s enforcement of competition rules must also be taken into account (as shown by its decisions against the cartels involving Luxembourg companies in the brewery, lift and airfreight cartels). This publication aims to not only provide some preliminary guidance on what a company should and should not do in order to comply with competition law but also explain how competition law can be used to a company s advantage. Competition law in the headlines Truckmakers Get Record $3.23 Billion EU Fine for Cartel Bloomberg, July 2016 Brussels hits Microsoft with 899m antitrust fine Financial Times, February 2008 Google Faces Fines, Search Constraints as EU Decision Approaches Bloomberg, April 2015 Bruxelles inflige une lourde amende à 11 compagnies pour entente illicite sur le fret RFI, November 2011 Conseil de la concurrence : sanction de sept entreprises de carrelage PaperJam, March

8 I. The risks of not complying with competition law A breach of competition law in Luxembourg can result in fines as well as obligations being imposed upon companies. In certain limited circumstances, the involvement in cartels can also lead to criminal sanctions in Luxembourg as well as in certain other EU member states against the individuals involved. The types of behaviour to avoid: Anticompetitive agreement or practice with another company, either a competitor (e.g. price fixing, allocating markets, exchange of strategic information or bid rigging), supplier or distributor (e.g. setting fixed or minimum resale prices). Abuse of dominance excluding actual or potential competitors (e.g. offering loyalty rebates or predatory pricing) or exploiting customers (e.g. excessive pricing). European Court of Justice, Luxembourg Kirchberg G. Fessy CJEU

9 II. Ensuring compliance with competition law Avoiding anticompetitive agreements with other companies and abuses of dominance A. Agreements with other companies Your company must not engage in the following conduct with its competitors or distributors/retailers: Fixing prices or imposing resale prices, including minimum resale prices. Exchanging confidential information which is strategic, such as future pricing intentions. Allocation of markets and customers between competitors. Limiting production. Other agreements between companies with high market shares* (e.g. above 15-20% for agreements between competitors and above 30% for vertical agreements between, for instance, a supplier and a distributor) may also pose competition problems where the agreement reduces the competition between companies or their incentive to compete and may have or has a significant impact on prices, output, product quality, product variety or innovation. However, there are many agreements between competitors or with distributors/retailers, or suppliers which will not raise any competition law issues. See charts 1 and 2 in the Appendix for further details on the dos and don ts of agreements with other companies. B. Unilateral conduct Companies are generally free to pursue whatever sales policy they choose. Competition law only intervenes as regards unilateral conduct where a company with dominance on a market adopts a form of conduct with the potential of driving competitors out of the market or exploiting customers. A company with dominance on a market means one which can behave to an appreciable extent independently of its competitors, customers and ultimately consumers. Such a position is often demonstrated by high market shares (e.g. 40% or more of the relevant geographic market for the product or service concerned)**. Therefore, if a company has high market shares, it may be in a dominant position and it must be careful to not engage in conduct which has the potential to exclude competitors or exploit customers. Such conduct can include: Predatory pricing (i.e. selling at below cost without any objective justification). Loyalty obligations or rebates (i.e. forcing or encouraging customers to source all or the majority of their supplies from the same company). Tying/bundling (using dominance on one market to sell more products on another market by making the sale of one product conditional on the purchase of another product). Refusal to supply of, or margin squeeze on, a necessary input for competitors on a downstream market. Acquisition of a competitor which reinforces a pre-existing dominant position to such an extent that competition on a market is substantially reduced. 7 See chart 3 in the Appendix for further details. * Market share means the percentage of sales on the market for products/services regarded as interchangeable by the consumer in the geographic area where the companies concerned are active and the conditions of competition are homogenous. ** Please note that even a small or medium-sized enterprise can be dominant depending on the definition of the market in which it operates.

10 III. Culture to implement within a company in order to ensure compliance To avoid infringing competition law rules, it is recommended to instill a competition law culture within your company. There are numerous ways to do this: Provide competition law compliance training to staff. Conduct a competition law audit in order to uncover any potential infringements. Review agreements with suppliers, distributors and customers and any forms of cooperation with companies active on the same market(s) to ensure terms are compliant with competition law. Monitor market position regularly to make sure no market shares high enough to render certain forms of conduct or cooperation with other companies potentially anticompetitive. Make available dawn raid guidelines to tell staff what to do in case of an inspection of business premises by the Conseil de la concurrence or European Commission. Should your company find out that it has engaged in potential anticompetitive conduct, we suggest one or several of the following actions: Request independent legal advice to determine whether any anticompetitive conduct has taken place and what actions to take to avoid any competition law liability. If advisor confirms that the conduct is likely to be anticompetitive, cease such conduct as soon as possible (e.g. by amending the terms of the agreement or terminating the agreement or practice if necessary). If involved in cartel activity, consider making an immunity or leniency application to the appropriate competition authority in order to avoid a future fine. 8

11 IV. Opportunities created by competition law Competition law is not merely a regulatory burden with which your company must comply: it can also provide your company with opportunities. Importantly, competition law can be used to expand a company s operations into existing or new markets by protecting it from anticompetitive behaviour by competitors, suppliers or distributors with market power. For instance, if a company is victim of such behaviour, it can complain to the Conseil de la concurrence or European Commission (or other competition authority depending on the geographic area concerned). The Conseil de la concurrence or European Commission is able to protect a company by: Ordering the suspension of the alleged competition law infringement during the investigation if the latter harms a company in a serious manner. Following an investigation, ordering the termination of the competition law infringement and fining the infringing company for its violation of competition law. Such a decision gives the right to a follow-on damages claim (private enforcement). A company may also bring an action before the Luxembourg courts for annulment of a contract contrary to competition law or for damages compensation for the loss caused to it by a competition law infringement. It can also challenge decisions by the Conseil de la concurrence where it can show an interest in the decision taken by the authority. As regards specifically damages actions, if the Conseil de la concurrence or European Commission has already adopted a decision finding the existence of a competition law infringement, to get damages a claimant will only need to prove that it has suffered loss directly as a result of the infringement and quantify that loss. It will not be required to prove the existence of an infringement of competition law as would be the case absent such a decision. Legislation laying down specific rules for damages actions before the civil courts in Luxembourg is expected to come into effect on 1 January

12 Appendix Chart 1 - Horizontal cooperation agreements between companies (undertakings) Content Cooperation between two or more companies active on the same market (or potentially so). Problem only arises if the cooperation has as its object or effect the restriction of competition. Cooperation between competitors: Can encompass agreements, concerted practices and decisions of professional associations. Their nature is irrelevant: written or oral, explicit or tacit, active or passive, arising out of a professional or informal setting. At a horizontal level, e.g. Supplier Supplier Manufacturer Manufacturer Retailer Retailer Dos Certain horizontal agreements or forms of cooperation with other companies operating in the same market are perfectly lawful. For instance, the following do not raise competition law issues: Specific types of cooperation agreement where no anti-competitive effect can be showed (expressly exempted by EU Regulations: agreements concerning research and development, production, purchasing, commercialisation and product standardisation). Cooperation agreements where parties have low market shares (10%-25% - depending on the type of agreement) so long as no hardcore restrictions of competition included (see below). Exchange of non-sensitive information (such as general views of market, common market reports, legal problems related to the sector and studies and historic prices). Overall pro-competitive agreements: cooperation containing certain restrictions of competition but where: (i) contributes to improving the production or distribution of goods or to promoting technical or economic progress (i.e. efficiency gains), (ii) consumers benefit from the agreement, (iii) the restriction of competition is indispensable and proportionate to the attainment to the agreement s main objective and (iv) competition is not eliminated on the markets concerned. Agreements containing potentially anti-competitive clauses where they are necessary for and proportionate to legitimate commercial transactions with no anticompetitive aim. 10 Don ts Agreements and concerted practices between competitors featuring, for instance, the following restrictions are prohibited (unless they are ancillary to and necessary for the attainment of legitimate business objective which is not anticompetitive): Fixing prices or any other trading condition Agreements with competitors fixing: - Prices (including rebates, discounts and price discrimination); or - Others terms and conditions with effect of limiting price competition. Information exchanges Exchanging sensitive or strategic information which is not publicly available with competitors, such as: - Actual or future prices (including rebates and discounts); - Sales figures and marketing plans; - Data concerning clients or suppliers; - Data on production (including costs and plans). Limiting production Agreements between competitors to limit production: - Quota agreements with sales forecasts and objectives; - Agreeing on which products to sell and quality of products to sell. Sharing markets and costumers Agreements with competitors allocating or boycotting certain: - Clients, including bid-rigging; - Geographical areas; - Suppliers.

13 Chart 2 - Vertical cooperation agreements between companies (undertakings) Content Agreements entered into between two or more undertakings each of which operates at a different level of the production or distribution chain, relating to the conditions under which the parties may purchase, sell or resell certain goods or services. Nature and form of the cooperation: (Flexible: see chart 1) Key concepts Active sales: actively soliciting certain customers (e.g. direct mail or targeted adverts). Passive sales: responding to unsolicited requests from individual customers. Selective distribution: network restricting the number of authorised distributors and defining where or to whom sales can be made. At a vertical level, e.g. Supplier Manufacturer Retailer Dos Certain vertical agreements or forms of cooperation do not raise any competition law issues, including: Agreements where each party has a market share below 30% and no hardcore restrictions (see below). Overall pro-competitive agreements: cooperation containing certain restrictions of competition but where: (i) contributes to improving the production or distribution of goods or to promoting technical or economic progress (i.e. efficiency gains), (ii) consumers benefit from the agreement, (iii) the restriction of competition is indispensable and proportionate to the attainment to the agreement s main objective, and (iv) competition on the markets concerned is not eliminated. Agreements fixing a maximum resale price or recommending a resale price. Non-compete/exclusive supply obligations of less than five years during the term of a contract or of no more than one year after its termination. Territorial restrictions of active sales by a distributor into an exclusive territory or to an exclusive customer group reserved to another distributor. Agreements obliging a member of a selective distribution system to operate from a particular place of establishment. Agreements restricting wholesalers from selling to consumers. Restrictions on the resale of components to customers who would use them to manufacture products competing with the supplier s products. Don ts Agreements and concerted practices between undertakings operating at different levels in the supply chain featuring the following restrictions, for instance, are prohibited (unless they are ancillary to and necessary for the attainment of legitimate business objective which is not anticompetitive): Resale price maintenance Includes: - Imposing a fixed or a minimum resale price; - Fixing maximum levels of discounts or prohibiting them; - Fixing of distribution margins; - Any other restriction limiting the distributor s freedom to decide the sales price of products or services. Territorial distribution - Restricting passive sales by a distributor into a territory or to a customer group of another distributor (in particular through internet sales). Exclusive distribution - Restricting passive sales by an appointed distributor into an exclusive territory or to an exclusive customer group reserved to another appointed distributor. Selective distribution - Limiting the consumers to whom selected distributors may sell (banning internet sales may only be justified under very limited circumstances). - Restricting cross-supplies between distributors within a selective distribution system. - Stopping distributors in a selective distribution system from selling the brands of competing suppliers. Supply of spare parts - Agreements between a manufacturer of spare parts and a buyer incorporating parts into its own products which prevent or restrict sales by the manufacturer of the spare parts to end users, independent repairers or service providers. 11

14 Chart 3 - Abuse of dominance The offence - An undertaking (company) must be in a dominant position meaning that it has such economic strength that it can behave independently of its competitors, its customers and consumers; - There must be an abuse of that dominant position such that effective competition in a given market is threatened or consumers exploited. The unlawful conduct may be unilateral (single undertaking) or collective (oligopoly). Objective justification can prevent the conduct from being defined as abusive in certain circumstances. Dominant Undertaking Supplier Competitors Retailers/ Consumers Assessment of dominant position The following criteria are used to assess whether an undertaking is dominant or not: Market position - Market shares provide a first indication. - Market shares above 50%: presumption of dominant position. Generally no dominant position below 40% but dependent on market conditions. Expansion or entry An assessment of the competitive constraints on an undertaking will be based not only on the existing market situation but also on the potential impact of expansion by actual competitors or possible entry on the market by other undertakings. Countervailing buyer power Customers with strong bargaining power may also provide a competitive constraint on an undertaking s market power. Such countervailing buying power may result from the customers size and their commercial significance for the dominant undertaking. Don ts If the undertaking is in a dominant position, the following sales practices can amount, amongst others, to an abuse: Predatory Pricing Setting prices below cost. This could foreclose actual or potential competitors where below (i) variable costs or (ii) total costs and also part of a foreclosure strategy. Price Discrimination Applying dissimilar conditions to equivalent transactions with other parties, thereby placing certain clients at a competitive disadvantage or exploiting certain customers. Rebate schemes - Fidelity rebates: granting substantial rebates to customers in return for them purchasing all or almost all products from the dominant undertaking. - Quantity rebates: granting rebates solely on the volume of purchases from the dominant undertaking. Tying and bundling Making the sale of a product for which an undertaking is dominant conditional on the purchase of another product. Exploitative Prices Charging prices which are excessive, i.e. where the price has no reasonable relationship with the economic value of the product supplied (rare in practice). Refusal to supply Refusal to supply competitors with a necessary input needed to manufacture a product or provide a service (including refusal to supply products to existing or new customers, license intellectual property rights or grant access to an essential facility or a network). 12

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16 EU & Competition Law at Arendt & Medernach Arendt & Medernach s EU and Competition Law team has experience in assisting with all aspects of competition law. Our track record includes: Providing advice on co-operation and supply/distribution agreements, sales practices and merger control. Representing clients in investigations by the Luxembourg Conseil de la concurrence and European Commission. Acting before the courts in actions for private enforcement and appeals against decisions of the Conseil de la concurrence. Advising clients across different sectors (including regulated sectors such as the transport, banking, insurance, telecommunications and energy markets). Providing training sessions and tailored guidelines to companies. Conducting competition law audits. Numerous articles and publications on EU and Luxembourg competition law. In addition, we also regularly advise on State aid matters as well as on legislation governing certain regulated markets. We are also able to call upon the expertise of the other teams within Arendt & Medernach who are able to provide expertise in different areas (e.g. administrative law, banking and intellectual property teams) and, in case foreign legal advice is required, we benefit from having a privileged relationship with law firms in all major jurisdictions across the world. 14

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18 About Arendt & Medernach Arendt & Medernach is the leading independent business law firm in Luxembourg. The firm s international team of more than 300 legal professionals represents Luxembourg and foreign clients in all areas of Luxembourg business law from our head office in Luxembourg and our representative offices in Dubai, Hong Kong, London, Moscow, New York and Paris. We strive for excellence in order to achieve the best results for our clients and we always look for creative solutions. Our specialised practice areas allow us to offer a complete range of Luxembourg legal and tax services tailored to the client s individual needs across all areas of business law. Contact Arendt & Medernach EU & Competition Law Philippe-Emmanuel Partsch, Partner philippe-emmanuel.partsch@arendt.com Tel: Arendt & Medernach 2016

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