The last six months of 2012 saw a number of interesting European competition law developments. In this article we summarise those which appear to us to stand out as raising issues of substance or procedure that will affect the application of competition law in the future. In summarising these key developments, we distinguish between developments in relation to non-cartel cases, cartel enforcement and merger control respectively.
DEVELOPMENTS IN NON-CARTEL CASES
The e-book settlement
On 13 December 2012, the Commission formally settled its investigation into the marketing of e-books by accepting commitments from Apple and four international publishers, with a fifth publisher also seeking a settlement.
The Commission found that, in late 2009, Apple and the publishers apparently met to discuss Apple’s entry into the e-books market, with the aim of limiting retail price competition. They did this by agreeing to switch from a wholesale model to an agency model so that e-book prices could be determined by the publishers rather than by retailers.
The switch was achieved by all participants on the same key terms and on a global basis. One key term that the Commission considered particularly problematic was a ‘most favoured customer’ (MFC) clause for retail prices. This clause stipulated that if any retailer sold an e-book at a lower price than that on Apple’s iBookstore, publishers would have to lower the price of the e-book sold through Apple, so that the price matched that charged by other retailers. The MFC obligation meant that there was little incentive for the publisher to allow any retailer to lower prices, as to do so would result in price reductions with Apple as well. The incentives of publishers were thereby aligned, and they could face other retailers, including Amazon, as a group. As such, it is alleged that Amazon and other retailers were faced with a concerted and co-ordinated demand from the publishers to switch to an agency model, and were put under pressure by threats that e-books would no longer be supplied to them.
The Commission considered this co-ordination between publishers to be anti-competitive. However, to avoid a long investigation which, according to the Commission, would likely have resulted in fines, it considered that accepting commitments from Apple and the publishers would be a preferable resolution, particularly given the nascent and fast-moving nature of the market. The commitments accepted provide that: Apple and the four publishers are to terminate the existing agency agreements; for a period of two years (subject to certain conditions) publishers cannot hamper e-book retailers from setting their own prices and/or discounts; and for a period of five years the parties cannot conclude agreements concerning e-books with retail price MFC clauses. Although the focus of concern appears to have been on the MFCs, this case should not be viewed as necessarily condemning such provisions. The complexity of the arrangements in question, the use of MFCs in agency agreements and the fact that these agreements were prevalent across the market were clearly important contributing factors in the decision.
During the second half of 2012, the Commission continued its probe into Google. These stemmed from complaints made early in 2010.
A number of allegations are being pursued. First, it is alleged that Google’s search ranking algorithm anti-competitively promotes its own products over those of its competitors. It is also claimed that, as a result of Google’s search criteria (which involves ‘quality scores’), competing search sites that have not paid for advertising are artificially moved down the search results or will be placed lower than Google’s own search products. Secondly, Google is challenged over its ‘scraping’ of content from competing search engines’ websites. Thirdly, complainants allege that Google’s advertising agreements impose exclusivity restrictions that prevent advertising partners from placing competing adverts on their websites, as well as restrictions on the portability of advertising data to competing online platforms.
The European Commissioner for competition, Joaquin Almunia, met with the chairman of the US Federal Trade Commission (FTC) at the end of last year to discuss their parallel investigations into Google’s conduct. Despite this, the views of the two agencies appear to diverge. The FTC announced at the start of January 2013 that it had concluded that Google had not violated US antitrust laws, subject to the acceptance of undertakings by Google that it would end the practice of scraping data from competing websites for its own products and to allow advertisers to export data to independently evaluate advertising campaigns. Google also promised to improve access to essential Motorola patents.
In contrast, the European Commission announced on 16 December that it had given Google a month to come up with proposals to resolve the Commission’s concerns. It will be interesting to see to what extent Google will be required to go beyond what has been accepted in the US to allay EU concerns.
Access to standard-essential patents
The FTC’s extraction of promises from Google in relation to its standard-essential Motorola patents is interesting in the context of investigations currently ongoing in this area at an EU level. Standard-essential patents (SEPs) are patents over technology that is required in order to manufacture a product in accordance with an industry standard. The owners of SEPs commit to licensing those patents to technology manufacturers on fair, reasonable and non-discriminatory (FRAND) terms. However, when parties cannot agree over the licensing rates, the SEP owners often seek an injunction restricting other parties’ use of the SEP. This may raise competition concerns where it raises barriers due to the SEP owners’ proposed royalty rates being too high (ie not on FRAND terms), or because injunctions keep competitors out of the market.
Over the last year, the Commission has investigated Samsung and Motorola Mobility (now owned by Google) over their commitments to license on FRAND terms, following litigation against Apple and Microsoft respectively.
On 21 December 2012, the Commission issued a Statement of Objections (SO) against Samsung, formally setting outs its competition concerns, despite Samsung having agreed to withdraw its SEP injunctions against Apple in the preceding week. In short, the Commission alleges that Samsung has abused its dominant position by seeking injunctions in relation to 3G telephony patents. Conversely, Samsung holds that it has only sought injunctions against Apple because Apple was an unwilling licensee that refused to enter into good-faith negotiations.
Commentators suggest that the Samsung SO seeks to set a precedent for the conditions under which SEP holders can apply for injunctions. However, some would regard restrictions on the availability of injunctions as inappropriately limiting access to court to seek remedies for patent infringement.
DEVELOPMENTS IN CARTELS
Highest-ever cartel fines
At the end of 2012, after a five-year investigation, the Commission fined seven groups of companies – Samsung, Philips, LG Electronics, Technicolor, Panasonic and Toshiba – a total of €1.47bn for participating in either one or both of two distinct cartels involving cathode ray tubes (CRTs) used in the production of computer screens and TVs. The fines related to a ten-year period during which the companies fixed prices, shared markets, allocated customers between themselves and restricted output. The cartels were described by Commissioner Almunia as textbook cartels involving the most harmful kinds of anti-competitive behaviour. The cartels were highly organised and it was apparent that the companies knew that they were breaking the law. One document uncovered during the Commission’s investigation warned that: ‘… everybody is requested to keep it as secret as it would be serious damage [sic] if it is open to customers or European Commission’.
The aggregate fine imposed by the Commission in this case is the largest fine it has ever imposed in a cartel case. Philips and LG Electronics received fines of approximately €705m and €687m respectively. These are the largest fines imposed on individual companies for cartel infringements after the fine imposed in Saint Gobain in 2008 in relation to the car glass cartel1.
Inability to pay as a way of reducing fines
An aspect of the application of the Commission’s 2006 Fining Guidelines2 that has been subject to challenge relates to the Commission’s discretion to reduce the fine based on the inability of a cartelist to pay the fine (the ITP provisions). Under paragraph 35, the Commission may, upon request, reduce a company’s fines in exceptional cases, taking into account social and economic circumstances. Such a decision must be made solely on the basis of objective evidence that the imposition of the fine would irretrievably jeopardise the economic viability of the undertaking concerned and cause all its assets to lose their value. The Commission’s approach to the application of these provisions was supported by the General Court in December 2012. The Court upheld the Commission’s decision not to apply the ITP provisions to reduce the fines of companies involved in the calcium carbide price-fixing cartel3. The Court held that the mere fact that the fine may result in the bankruptcy of a company is not a sufficient basis on which to find that ITP provisions should be invoked.
Decisions on ITP are often not particularly transparent, as much of the detail of the basis on which a fine is reduced is confidential to the company concerned. It is interesting to note that in the CRT case, one company, rumoured to be Technicolor, received a reduction in its fine of approximately 85% as a result of the Commission applying the ITP provisions.
Access to documents in damages cases
Finally, questions continue to be raised regarding the extent to which claimants seeking damages from cartel participants may access documents provided to the European Commission in the context of cartel proceedings. In Pfleiderer v Bundeskartellamt (Competition)  the Court ruled that EU law does not prohibit access to leniency documents by third parties seeking damages. Access should be determined according to national law, which must weigh the interests arguing in favour and against a disclosure of documents received under leniency applications. Earlier this year, in a claim for damages brought by the National Grid, the English High Court was asked to apply the Pfleiderer judgment to consider whether to order disclosure of certain documents containing leniency materials belonging to companies, including Alstrom, who had been members of the gas insulated switchgear cartel. Applying the principles in Pfleiderer, the English High Court made an order for disclosure. The decision of the Commission to comply with that request has been challenged by Alstrom before the EU General Court on the grounds that, inter alia, the disclosure of the requested documents would infringe the obligation of professional secrecy contained in Article 339 of the Treaty on the Functioning of the European Union. In November 2012, the General Court granted an injunction to Alstrom preventing disclosure of the confidential version of documents to the English High Court, pending the General Court’s ruling on the action for annulment in the main proceedings.
DEVELOPMENTS IN MERGER CONTROL
Hutchison 3G/Orange Austria
In 2012, the European Commission initiated eight Phase II merger investigations. We have chosen to highlight the Phase II clearance decision in Hutchison 3G/Orange Austria  concerning mobile telecommunications because this is a sector where consolidation seems likely in the near future. The decision in this case highlights the difficulties that attempts at consolidation may face in view of the strong concerns expressed by Commissioner Almunia.
In December 2012, the Commission cleared the merger subject to conditions. In doing so it said that the proposed merger would bring together two of the four mobile network operators in Austria, and the merged entity would face competition only from Telecom Austria with its mobile telephony brand A1 and from T-Mobile as primary physical network operators. It noted that the Austrian market is characterised by high barriers to entry for competitors, and that consumers have little bargaining power when it comes to negotiating contracts with operators. According to the Commission, the economic analysis it conducted, taking into account the parties’ particular strengths in the private customer and data market segments, has shown that the market power of the merging parties would have been higher than their market shares suggested. However the Commission cleared the deal, after the parties offered to divest radio spectrum and additional rights to a new entrant in the Austrian mobile telecommunications market and to provide additional access to its network for mobile virtual network operators.
This has been a controversial deal. Hutchison 3G argued that the Austrian market is too small to support four network operators and that this transaction would allow it to accelerate its entry into the market, allow for an earlier roll out of 4G LTE and enable it to continue its aggressive pricing strategy. This is consistent with the views of other mobile operators in Europe who see consolidation as necessary to fund future technological investments. However, the decision and, in particular, the extensive nature of the commitments required to secure clearance of the transaction, is a reflection of Commissioner Almunia’s strong concern over future consolidation in mobile phone markets in Europe and signals that future attempts at consolidation are likely to face serious scrutiny by the EU regulator.
Appeals of clearance decisions
On 1 August 2012, Virgin Airways commenced appeal proceedings in relation to the Commission’s decision to clear the acquisition, by IAG/British Airways, of BMI from Lufthansa4. The bulk of the claims revolve around the Commission’s failure to take account of relevant information on competition in the absence of, and after the acquisition. The challenge also concerns procedural points regarding the Commission’s failure to initiate a Phase II investigation and its acceptance of inadequate commitments. Appeals of clearance decisions are relatively rare. Cisco is in the process of challenging the Commission’s clearance of the acquisition by Microsoft of Skype. There has been one successful appeal to the General Court of a clearance decision by the Commission, although that decision was subsequently overturned by the European Court of Justice5. Since then, the Commission has put in place various checks and balances to ensure the robustness of its decision-making processes in merger cases. These cases will test those improved procedures. More importantly, if either case results in a clearance decision being overturned, they will raise the thorny issue of how to remedy the error and potentially unravel either of the transactions concerned.
As mentioned in the introduction, we have picked out just a few of the most interesting developments from the last six months of 2012. Next year promises to be an interesting year for European competition law. We will see the continuation and possible resolution of some of the cases mentioned above; legislation is promised to reform some aspects of the merger control procedure; and the publication of the long-awaited proposals on damages actions is keenly anticipated.
- Currently under appeal, Saint-Gobain Glass France v Commission 
- (2006/C 210/02)
- Joined cases T-352/09, T-400/09 and T-410/09
- Virgin Atlantic Airways v Commission