Update: competition

European Commission publishes enforcement priorities in abuse of dominance cases

The European Commission has published a paper setting out guidance on its enforcement priorities in applying EC Treaty rules to abuse of a dominant market position. This guidance is intended to provide the framework to deal with abuses of a dominant position while at the same time protecting consumers' interests and promoting innovation.

The paper confirms that when assessing whether a company is in a dominant position the Commission will consider whether a firm holds substantial market power over a significant period of time. However the paper does state that the Commission is unlikely to view a company as dominant if it has a market share of less than 40 per cent.

The paper describes the analytical framework that the Commission will apply when deciding whether or not to investigate a suspected infringement. In the first instance the Commission will assess how the allegedly abusive conduct could restrict competition by looking at market conditions including relevant barriers to entry, the market position of competitors, evidence of actual foreclosure and any implementation of a targeted exclusionary strategy. The paper confirms that the focus of the Commission's enforcement policy is on conduct that harms the competitive process rather than individual competitors. As a result, when looking at pricing conduct the Commission will examine whether the conduct is likely to prevent competitors that are as efficient as the dominant undertaking from expanding on or entering the market.

Once the Commission has completed its assessment, the firm suspected of dominance may rebut any finding of detrimental consumer harm by showing that the conduct is likely to create efficiencies which benefit consumers. As such, the paper suggests that the conditions for exemption of otherwise anti-competitive agreements under Article 81(3) can also be used by companies to justify conduct which is covered by Article 82, relating to the abuse of a dominant position.

Having set out the general principles that will be applied when assessing allegedly abusive conduct the paper goes on to examine specific abuses including exclusive dealing and rebates, tying and bundling, predatory pricing and refusal to supply.

The paper is an attempt to establish a more economics-based approach to assessing abusive behaviour by dominant companies. It is hoped that that the guidance and these targeted enforcement priorities will help dominant companies to comply with the comp- etition rules without the fear of unnecessary investigation.

European block exemptions remain under the spotlight

As reported in our November competition update (Solicitors Journal 152/44, 18 November 2008), the Commission is in the process of reviewing sector block exemption regulations dealing with liner shipping consortia, motor vehicle agreements and the insurance sector, all of which are due to expire in 2010. At the beginning of 2009 the European Commission took the reviews of the motor vehicle and insurance block exemption a stage further.

On 9 February 2009 the Commission held a public hearing to discuss the effectiveness of the motor vehicle block exemption. The public hearing considered the extent to which the block exemption regulation has helped to prevent foreclosure of competing manufacturers and promote intra-brand competition between dealers. It also considered whether the block exemption regulation was necessary to allow independent repairers access to the relevant technical information to allow them to compete on a level playing field with manufacturers' authorised repairers. The Commission indicated at the end of the hearing that it was still considering whether or not to renew the block exemption regulation and how best to design rules which would be appropriate for the sector, especially taking into account the current economic downturn.

On 24 March 2009, the Commission published its preliminary views on functioning of the insurance sector block exemption regulation. It has considered whether the activities that are currently covered by the block exemption are unique to the insurance sector and, if so, whether they still warrant a block exemption. The Commission has acknowledged that joint calculation and joint studies of risks are unique to the insurance sector and are necessary to enable insurance companies to price insurance products. As such the Commission has indicated there are good reasons for these activities to be covered by a block exemption. Similarly, the Commission also concludes that it may be appropriate to keep an exemption for co(re)insurance pools but in a redrafted format to ensure consistency with other general and sector specific block exemptions. However, the Commission has indicated that standard policy conditions and agreements relating to standards for security devices are not unique to the insurance sector and should not therefore benefit from the block exemption. These preliminary views will be debated at a public hearing on 2 June 2009.

While the Commission has, in the past, indicated that it may consider removing sectoral block exemption regulations, its current views indicate that it will keep sectoral block exemption regulations where it considers that they are still needed. It is keeping an open mind with regard to the future of the motor vehicle block exemption and has indicated that certain insurance activities should still benefit from a block exemption. It is therefore possible that together with the liner shipping consortia block exemption (which is currently in draft form '“ see our November Update), the motor vehicle and insurance block exemption regulations may be renewed in 2010, albeit with amended provisions.

State aid measures continue to respond to the financial crisis

As the global financial crisis deepens, so the European Commission continues to review member states' aid packages to the banking sector. As of 16 February 2009, the Commission had adopted 42 decisions relating to state aid to the financial sector and a further 11 are currently being assessed.

As a backdrop to these decisions, the Commission has published guidance on how the state aid rules can be applied in this difficult economic climate. On 5 December the Commission published guidance on how member states can recapitalise banks in line with EU state aid rules in order to stabilise financial markets without distorting competition. The guidance builds on that adopted in October 2008 and takes into account the effects of the global financial crisis on the real economy. The new guidance states that appropriate safeguards need to be put in place to ensure public money is used to stimulate lending to the real economy. Beneficiaries of such aid must not use it to put them at a commercial advantage over competitors who have not received similar aid.

The guidance also reiterates that state intervention in the financial sector should only exist for as long as there is a crisis in the financial markets.

On 17 December 2008 the Commission adopted a temporary framework allowing Member States to take temporary measures to address the exceptional difficulties faced by companies trying to obtain finance in the current economic crisis. Under this framework member states do not need to notify certain types of aid including: subsidised loans, loan guarantees at a reduced premium, risk capital of up to ‚¬2.5 million for SMEs (when at least 30% of investment costs come from private investors) and direct aids of up to ‚¬500,000 per company. Under the framework the member states can grant these types of aid subject to conditions until the end of 2010.

More generally, the Commission published guidelines to assist member states' courts in applying EU state aid rules on 25 February 2009. These guidelines are aimed at supporting national courts and potential claimants in relation to domestic state aid challenges, in particular concerning the recovery of illegal aid from the beneficiary, interim relief or possible damages actions. The guidelines also explain how national judges can ask the Commission for information or opinions on the application of the state aid rules.

OFT revises its leniency guidance

In 11 December 2008, the Office of Fair Trading (OFT) published revised guidance on leniency applications made under the UK Competition Act 1998 and no action applications made in relation to the cartel offence under the Enterprise Act 2002. This final guidance expands on draft guidance which was published in 2006 and provides background to the type of information required to perfect a "marker" in leniency/ immunity applications when the applicant is the first to make an application and there is already a pre-existing civil/ criminal investigation. The guidance also examines the circumstances in which the OFT might consider initiating a criminal investigation. In particular it states that the OFT will only consider criminal investigations if there is likely to be evidence that an individual had acted dishonestly to the detriment of the consumer. The guidance looks at a range of procedural issues including use of information provided by leniency applicants, the conduct of internal investigations by companies, disclosure and transfer of information and the consequences of a leniency applicant acting in bad faith.

In particular the guidance distinguishes between four types of immunity/ leniency.

• Type A immunity where a company is granted automatic civil immunity and all of its current and former employees and directors who co-operate with the OFT are granted automatic criminal immunity for cartel activity. This type of immunity is available when the company is the first to apply and there is no existing civil and/ or criminal investigation.
• Type B immunity where a company is granted discretionary civil immunity and all of its current and former employees and directors who co-operate with the OFT are granted discretionary criminal immunity for cartel activity. This type of immunity will be available when the undertaking is the first to apply but there was already a pre-existing civil and/or criminal investigation.
• Type B leniency where a company is granted a reduction of, but not immunity from, a financial penalty imposed under the Competition Act. This type of leniency is available where the undertaking was the first to apply but there was already a pre-existing civil and/or criminal investigation into the relevant cartel activity.
• Type C leniency where a company is granted a reduction of up to 50 per cent of the level of a financial penalty imposed under the Competition Act. This type of leniency is available where the undertaking was not the first to apply, whether or not there was already a pre-existing civil and/or criminal investigation into the relevant cartel activity.

The guidance confirms that informal guidance is available on a no-names basis when requested in 'hypothetical' cases. Legal advisers are also able to determine what type of immunity or leniency is available for their client before the client's identity is revealed to the OFT. The guidance also confirms that oral application for immunity/ leniency can be made when it is considered appropriate. The annex to the guidance contains a pro-forma corporate leniency agreement and a pro-forma individual no-action letter.