EU/UK Competition Law Newsletter – June 2013

New UK Competition Law Legislation Aims at Increasing Criminal Cartel Convictions

On 25 April 2013, the UK Enterprise and Regulatory Reform Act 2013 passed into law. The most high-profile competition law change is the establishment of the new Competition and Markets Authority (CMA). The CMA will bring together the competition functions of the Office of Fair Trading (OFT) and the Competition Commission, which will both be abolished. The CMA will be the UK’s lead competition authority, with wide-ranging powers to tackle anti-competitive behaviour.

The Act also makes various procedural changes to the enforcement of competition law, including in relation to the “cartel offence” (under which there is personal criminal liability in the UK for involvement in certain cartel behaviour, including price-fixing, limitation of supply or production, market-sharing and bid-rigging). The OFT is keen to make greater use of the cartel offence provisions, which to date have been rather a disappointment in terms of the number of convictions. In a recent speech a senior OFT official commented that “the OFT is increasingly thinking and behaving like a mainstream criminal enforcement agency” and that “[these] changes to the law should mean more cases get to the prosecution stage”.

Companies would be well advised to refresh compliance messages and training in the light of the changes.

Commission (Again) Concerned with SEP Injunctions

On 6 May 2013, the European Commission (EC) indicated that its preliminary view is that Motorola Mobility has abused a dominant position by seeking and enforcing an injunction against Apple in Germany on the basis of its GPRS mobile phone standard-essential patents (SEPs). While recourse to injunctions is a perfectly legal remedy for patent infringements, such conduct may, in the EC’s view, be considered abusive where SEPs are concerned and the potential licensee is willing to negotiate a licence on fair, reasonable and non-discriminatory (so-called FRAND) terms.

This case follows a very similar case started by the EC against Samsung in December 2012, which concerns that company seeking injunctions against Apple in various EU countries.

As in the Samsung/Apple case, the EC’s concern in the Motorola Mobility case is that, since injunctions generally involve a prohibition on the sale of the product infringing the patent, recourse to an injunction in this situation (where there is a willing licensee) risks excluding products from the market without justification and may distort licensing negotiations unduly in the SEP-holder’s favour. The EC is careful to point out, however, that its concerns in the present case relate to the specific circumstances of the action by Motorola Mobility against Apple (where there was a previous commitment to license SEPs on FRAND terms (by Motorola Mobility to the standard setting body) and Apple had agreed to accept a binding determination by a third party of the terms of a FRAND licence for SEPs). The EC does not question the availability of injunctive relief for SEP holders where, for example, a third party is unwilling to take a licence, an “unwilling licensee”.

This case and the Samsung/Apple case are highly important in the context of the application of abuse of dominance rules in the EU to licensing conduct and litigation strategy concerning SEPs generally (not just where smartphones are concerned). There is to date no precedent (and limited guidance) and, if a decision is ultimately taken in either case, it will therefore be the first to establish when injunctions in SEP-related patent litigation are allowed under EU and national competition law. Any company involved in licensing SEPs in any sector in the EU should watch developments carefully.

Following an antitrust investigation launched in November 2010 into alleged abuse of dominance by Google, on 25 April 2013 the EC announced that the company had offered “commitments” (a type of settlement) aimed at getting the EC to close the case. This announcement started a public consultation period on the settlement proposals, which finishes at the end of this month.

Google’s commitments would alter how it operates its own specialised search services and, in addition, the company would no longer be permitted to: include in its agreements with publishers any written or unwritten obligations that would require them to source online search advertisements exclusively from Google; or impose obligations that would prevent advertisers from managing search advertising campaigns across competing advertising platforms. On 28 May 2013, EU antitrust head Joaquín Almunia said that the EC was very likely to ask Google to “improve these proposals”.

Given that Google accounts for more than 90% of general web searches and also has a very high market share in search advertising in most EU countries, it is inevitable that the proposals will impact a significant proportion of businesses in the EU.

On 8 May 2013, in a case involving Italian company Eni, the Court of Justice of the European Union (ECJ) confirmed the well-established concept that under EU competition law the conduct of a subsidiary (such as cartel behaviour) may be imputed to its parent.

This is the case where, although having separate legal personality, that subsidiary does not autonomously determine its conduct on the market but mostly applies the instructions given to it by the parent company. Where a parent company holds all or almost all the capital in a subsidiary, there is a rebuttable presumption that the parent company does control the subsidiary in this way.

In the Eni case, the company had held, directly or indirectly, at least 99.97% of the capital in certain companies within its group, which had been active in cartels in chemicals markets. In this situation, the presumption applied. To rebut it, Eni would have had to show that the subsidiaries could act with complete autonomy not only at the operational level but also at the financial level. It failed to do this and was therefore responsible for their activities and the related cartel fine, which had been imposed by the EC in 2006.

The case provides yet another reminder that a competition compliance programme in the EU must take account of potential liability for the actions of subsidiaries. Even if the subsidiary is genuinely independently run, it is virtually impossible to rebut the presumption that the parent is not responsible for its actions under EU competition law.

Additional EU/UK competition law news coverage can be found in our news section.

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