(1) Significant changes to the Polish Competition Law are on the way.

One could probably not imagine a better case for a debut in this blog. The Polish Competition Authority, or PCA (the President of the Office for Protection of Competition and Consumers), revealed last week details of the awaited proposal of far-reaching changes to the Polish competition law. A review of this document leaves the reader with mixed feelings. Most of the proposals are definitely a step (or even a few steps) in the right direction, some may not work as desired if implemented in their proposed form, and at least one should cause a deep concern among businesses. See below for first impressions on key changes.

(2) Merger control – two-staged procedure at last.

It looks like Poland will finally have a two-staged merger review procedure, something that has been desired since the first competition legislation was adopted in 1990. As soon as the new rules come into force, all non-problematic concentrations will be cleared in a simplified procedure that should last one month (except that PCA can stop the clock each time it asks questions or requires new data or documents to be provided in the course of the proceedings). Cases that can cause competition concerns will go to a second phase review, which means a four months’ extension of the process (here, too, the clock stops when a question is asked). The PCA expects that approximately 80% of cases will qualify for the simplified procedure, meaning that the stand-still period should be shorter for most transactions. The criteria for qualification of cases to the two-staged procedure have not been made known to the public so far.

(3) Settlements & Leniency Plus – new tools in the toolbox.

Effective enforcement is a key success factor for any competition authority, so it comes as no surprise that the PCA intends to add new tools to its already well-equipped toolbox. They might prove to be an interesting option, subject however to a few important alterations.
The proposed amendment offers settlement with the PCA in exchange for a 10% reduction in the financial penalty. This is good, in principle, but the devil is in the details – I truly believe that this instrument will not work well if implemented in its presented form. Firstly, the PCA expects that it will not issue a “statement of objections” until after the parties’ initial acceptance of the settlement. This is a wrong order. The undertakings should be aware of the risks before they make the decision to settle and not when this decision is already made. Secondly, the proposal requires undertakings to issue a formal settlement statement under which they are obliged, inter alia, to assume liability for breach of competition law; at the same time, the PCA will be able to withdraw from the settlement at any time, including after the statement has been issued. This seems to pose too much risk on the parties to make the whole thing work. Finally, a 10% reduction might not be enough to induce wrongdoers to admit the quilt and waive the right to appeal, especially as the settlement (and the decision issued on its basis) may later be relied upon to pursue damages claims.
In addition, the proposal suggests that the PCA will operate a Leniency Plus program available for those undertakings who do not qualify for full leniency (100% reduction of the fine). Such undertakings, if they provide information about other, unknown competition infringements, will qualify for an additional 30% reduction in the original case and for a 100% reduction in the new case, which may be a good deal. The proposal suggests fine tuning of the leniency regime and this is the real key to success (current rules are sometimes ambiguous and there is no room for ambiguity when leniency applications come into play).

(4) Legal Professional Privilege – long awaited but is it enough?

What may come as a surprise for many readers, it is only with the changes of the law that Legal Professional Privilege (“LPP”) will be officially recognized in Poland. This is good news. The personal scope of the rule, which will cover also in-house lawyers (as long as they are admitted to practice in Poland as advocates (adwokat) or legal counsels (radca prawny)), is not bad news, either. The rest is definitely less bright, as the only advice covered will be that rendered in course of the PCA proceedings for the purpose of the defense. No other legal advice will qualify for protection, so such protection is rather illusory. The scope of LPP should definitely be broader.

(5) Fines for individuals – a bridge too far.

Last but not least, the “trendy” part – financial penalties for individuals. According to the proposal, a fine may be imposed on key managers of any undertaking which breaches competition law. This possibility is not limited to cartels, it will also cover vertical agreements and even cases of abuse of a dominant position. The fines will be imposed in one decision, at the end of the proceedings. They can be relatively high, as the cap is set at the level of 500,000 EUR. The key questions is: are we ready for this? In my opinion, we are not. Just one example: at the moment Polish courts refuse to resolve cases of alleged procedural violations during PCA proceedings. Can you imagine fines being imposed on individuals in a procedure whose formal elements are outside jurisdiction of the courts? I think the rights of individuals should be protected even more than those of companies, which means that the whole system of appeal would require a large change to adapt to this new eventuality. Without radical changes, the new law may leave us with some bitter taste in our mouths.

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On 19 May 2012, China’s Ministry of Commerce (‘MOFCOM’) announced its conditional clearance decision on the acquisition of Motorola Mobility by Google, which removed the last hurdle for the USD12.5 billion vertical deal. The MOFCOM is the only antitrust authority to impose remedies on its clearance of the transaction. The US Department of Justice, the European Commission, the Korea’s Fair Trade Commission, and other relevant antitrust authorities have unconditionally approved the transaction.

Review Process

The MOFCOM received the parties’ notification of the transaction on 30 September 2011 but found that the filing documents were incomplete. The MOFCOM formally accepted the notification on 21 November 2011 after it was satisfied with the parties’ supplemental materials. During the preliminary (phase I) review, the MOFCOM found that the transaction will have the effect of eliminating or restricting competition in the market for smart mobile device operating systems (‘OSs’) in China and initiated further (phase II) review on 21 December 2011. On 20 March 2012, the MOFCOM decided to further extend the phase II review after the notifying parties agreed with the extension.

During the review, the MOFCOM solicited opinions from the relevant government agencies, trade associations and downstream business operators and consulted experts on technical issues of the transaction.

Market Definition and Competitive Assessment

Pursuant to China’s Anti-Monopoly Law (‘AML’) and the relevant AML implementing regulations, the MOFCOM comprehensively reviewed and assessed market conditions, concerns related to the free, open-source Android mobile OS, Google’s fair treatment of original equipment manufacturers (‘OEMs’) as well as patent licensing of Motorola Mobility, market entry, and the effects of the transaction on competition of the relevant markets.

(1) Relevant Markets

The MOFCOM defined the relevant product markets as (1) smart mobile devices, and (2) smart mobile device OSs. The MOFCOM noted that the geographic scope of the markets for smart mobile devices and smart mobile device OSs is worldwide but it focused its review on the Chinese market.

The MOFCOM found that the competitive landscapes of smart mobile devices and smart mobile device OSs are significantly different. The market for smart mobile devices is fragmented, highly competitive, innovative and fast changing. OEMs are facing strong competitive pressures and Motorola Mobility is not at an obvious advantageous position vis-à-vis other OEMs.

On the other hand, the market for smart mobile device OSs is highly concentrated. In the fourth quarter of 2011, Google’s Android, Nokia’s Symbian, and Apple’s iOS held 73.99%, 12.53%, and 10.67% share, respectively, in the Chinese market for smart mobile device OSs.

Given the high market share of Android, OEMs’ dependence on Android, Google’s robust financing and R&D capacities, and the significant entry barriers, the MOFCOM found that Android holds a dominant position in the market for smart mobile device OSs. In addition, given that Nokia has given up on Symbian, Apple’s iPhones are sold at much higher prices than smartphones running on Android, Microsoft’s Windows Phone is at a nascent stage, the MOFCOM held that the dominant position of Android is expected to be maintained and strengthened for a relatively long period of time in the future.

(2) Free and Open-source Android Mobile OS

The MOFCOM found that Android achieved its dominant position mainly because of its free and open-source strategy. OEMs, software developers and end users highly depend on the Android ecosystem. Post transaction, whether Android will continue to be free and open-source is vital important for the relevant parties’ reasonable expectations and interest.

(3) Google’s Fair Treatment of OEMs

The MOFCOM found that, given Android’ dominant position in the market for smart mobile device OSs, Google would have incentives and abilities to favour Motorola Mobility following the transaction. For example, Google could choose Motorola Mobility as the lead device manufacturer for each new version of Android. Such discriminatory treatment of OEMs would distort competition on the market for the smart mobile devices.

(4) Motorola Mobility’s Patent Licensing

The MOFCOM noted that Motorola Mobility has a large number of patents for mobile devices and many of them are essential patents. The rationale for the transaction resides in the acquisition of Motorola Mobility’s patents. Subsequent to the transaction, Google would have incentives and abilities to impose unreasonable licensing terms and conditions, impeding competition and eventually harming the consumer interest.

(5) Market Entry

The MOFCOM noted that the barriers to entry into the market for smart mobile device OSs is significantly high and new entries would not be able to remove or reduce the identified competition concerns in the foreseeable future.

Remedies

The MOFCOM and Google had several rounds of consultation regarding how to address the identified competition concerns. MOFCOM assessed Google’s final commitments submitted on 15 May 2012 and was satisfied that the commitments would be able to reduce the adverse effects of the transaction’s on competition.

Three obligations were imposed. First, Google must continue its current business practice of keeping Android platform free of charge and open. This obligation does not prejudice Google’s rights to maintain software relevant to the Android platform close-sourced and Google’s rights to seek payment and other considerations.

Second, Google must treat all OEMs in a non-discriminatory manner. This obligation only applies to OEMs who agree not to divide or derivate the Android platform and does not apply to the supply, licensing or distribution of products and services related to the Android platform.

Third, Google must honour Motorola Mobility’s existing commitment to license its patents on fair, reasonable and non-discriminatory (‘FRAND’) terms.

The first and the second obligations are valid for five years from the date of the issuance of the MOFCOM decision, and Google may apply to the MOFCOM for modification or discharge of the obligations should the market conditions or competition conditions change.

Google must appoint an independent monitoring trustee to supervise its performance of the above obligations and must report to the MOFCOM and the monitoring trustee every six months regarding its performance of the obligations in the next five years.

Comments

The Google/Motorola Mobility decision is the MOFCOM’s 13th conditional clearance decision since the AML came into effect. Similar to the MOFCOM’s previous practice, the Google/Motorola Mobility decision is relatively light on reasoning. For example, it is unclear how the MOFCOM reached the conclusion that Google would have incentives to favour Motorola Mobility (at the cost of damaging Google’s relationship with other Android OEMs and jeopardizing Google’s mobile search and advertising revenues).

Regarding the concerns on patent-licensing, a FRAND commitment does not mean that an essential patent holder must impose the same terms on every party seeking licences and cannot be considered as a guarantee that the patent holder will not abuse its market power. The exercise of determining the excessiveness of royalties implies complexity and uncertainty and thus challenges the MOFCOM’s ability to monitor Google’s performance of obligations.

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Everybody at America Movil (”AM”) – and especially its owner, Mr.Carlos Slim – should have welcomed with a sense of relief the (somehow unexpected) turn in the saga which started last year when the Mexican Federal Competition Commission (“CFC”) hit AM’ mobile telephony unit Telcel with the largest fine in the history of Mexico: almost 1 billion USD.

The facts of this case are clear. Telcel has a share of 70% of the mobile telephony market in Mexico, lower only to its share on the land lines market, which is of 80% (!).  From this position Telcel charged overpriced tariffs for interconnection with other land-line and mobile telephony operators. Telcel benefited twice from this situation – it raised additional revenues from this service, estimated at 6 billion USD/year (according to the estimated savings mentioned in the press release of CFC) and it succeeded in maintaining its large market share without innovating and investing too much in its infrastructure (quality of the phone services in Mexico is rather poor and the penetration rate is low – for details regarding the Mexican market see http://www.oecd.org/dataoecd/39/63/43628914.pdf).  The second advantage is, perhaps, even more important as it helped Telcel to preserve its “super-dominant” position on the Mexican market.  The benefits attached to its larger customer base might exceed even the direct benefits derived from the charges applied to its competitors. 

The tariffs applied by phone operators (both fix and mobile) for interconnection (in fact, for terminating the calls in its network) are very important for the development of competing operators.  If these levels are high, the interconnection tariffs will function as a significant monetary barrier between different networks – customers will be motivated to make calls mostly within the home network, where their cost will be lower, rather than to customers belonging to other networks and to join or not depart from this network (the so-called “club effect”).  Equally, the customers of the smaller networks will not be too much incentivized to make calls to the larger network (say Telcel, in this case) because the level of the interconnection tariffs will be reflected in the price they will pay on that occasion, as long as the principle “caller party pays (CPP)” applies.  Hence, these customers will pay more for making phone calls.

As a consequence, the boundary between the networks, that is inherent for technical reasons, becomes a high fence and affects both the development of smaller networks (including new entrants) and the customers belonging to both the large and the small networks.

In order to counter the market share of the large phone operators, regulators and competition agencies throughout the world made significant efforts in the recent years in order to reduce the level of the interconnection tariffs.  This process was based on the idea that phone operators should not charge more than the cost incurred for terminating the call in their network and that the cost should include only those expenditures and investment needed in order to complete the call, not the investments made for the functioning of the network as such.  Some jurisdictions admit the existence of a reasonable mark-up.  The reduction of the tariffs is in an advanced stage in the Unites States of America and is making good progress in Europe, where the European Commission threw its weight into the process in order to overcome the slow speed of some national regulators and the reluctance of the mobile phone operators. 

Coming back to the current situation in Mexico, having commitments instead of a fine is not a bad idea as long as fines should not be regarded as a purpose but as an instrument for an effective improvement of the competition conditions.  “Effective” would mean that the effects are quick and tangible for consumers of telecom services in Mexico. It would also mean that life for Telcel would change from what it used to be before the COFECO decision and that completion will heat up, at least with the passion the Mexicans put in their music. 

As it results from publicly available information, the levels proposed as commitments by Telcel – 2.4 cents USD in 2014 – are not too far from the levels estimated by the European Commission and the European telecom regulators and accepted (“bon gré, mal gré”, as the French say) by the European mobile operators.  Still, the tariff is quite high, if we take into account that the tariffs calculated by some EU regulators will be at almost half of the figure indicated by Telcel (for instance, the tariffs in Italy will be capped at maximum 0,98 Euro cents ~ 1,25 cents USD as of  July 1, 2013).  Regarding the correct level of the tariff, the Mexican telecom regulator should undertake a proper calculation of the likely tariff, based on the LRIC (Long Run Incremental Cost) model and applied by a hypothetical efficient operators, as it happened in Europe (I understand that the Mexican telecoms regulator does have a cost model but it is not clear on what is based).  Without a proper calculation model, the commitments made by Telcel to apply similar amounts for on-net calls and off-net calls would be inapplicable, as long as the on-net tariffs (prices applied for calls originated and terminated in the same network) are not easy to asses when the operator offers packages of services including, alongside phone calls, other services, such as messaging (SMS) or internet access.  In addition, I do not fully understand why Telcel should be allowed to wait until 2014 before getting down to 2.4 cents USD ?  I do understand that Telcel wanted to have an “easy slope” downhill, but it is important to note that the negative effects on competition and on consumers will continue until the reductions fully come in force, going even below the 2.4 cents level.  If the 2,4 cents USD will continue to apply and to be much higher than the effective costs, the negative effects on consumers and on the Mexican market will continue to accumulate.

Taking into account the large market shares of Telcel, the commitments should have included also measures aimed at facilitating competition and the development of the small competitors, such as national roaming (the possibility for the smaller operators to use the network of Telcel until they reach coverage similar to Telcel).

Another apparent failure for these commitments is the fact they do not cover the compensation of the victims of the abuse committed by Telcel.  There is no abuse without victims and without damages – they are at the core of any case of this nature, beyond and above nice words such as “the public interest” and “welfare”. CFC itself stated that the damages produced by the high interconnection fees amount to 6 billion USD per year, as a reason to accept commitments aimed at “securing immediate benefits for consumers”.  This statement speaks about the (shinny) future. But what about the past ? What about the victims of the abuse committed by Telcel ? No successful ending of an antitrust case may be considered without the reinstatement of the status ante, i.e. the payment of the damages produced to the victims. 

The crucial fact in this respect is whether or not the findings of CFC regarding the behavior of Telcel will remain valid, as long as the legal action against these findings should be abandoned.  On the other hand, Telcel keeps denying that it was involved in any anti-competitive behavior at all.  The outcome of this saga will definitely not help the injured parties (other telecom companies) or final consumers to start follow-on legal proceedings. Their position, already made difficult by the hurdles of a private enforcement in an antitrust matter – gathering a large number of affected consumers, having access to the evidence, calculating the level of the effective damage etc. – will become close to impossible in the above circumstances.  This is not, for sure, good news for the private enforcement is antitrust in Mexico.  According to “The International Handbook of Private Enforcement of Competition Law”, edited by Albert A.Foer and Jonathan W.Cuneo (Edward Elgar Publishing, in association with American Antitrust Institute, 2010) there is no private enforcement of an antitrust case in Mexico so far.  If a case of the magnitude of the abuse of dominance of Telcel (America Movil) cannot stand as a basis for such legal actions, than the record noted by the above mentioned book is likely to stay for years.  If this happens, the concessions made by Telcel in order to annul the fine may prove to be insignificant and this operator will continue to rule the Mexican market.

Therefore, in order to conclude: that the end of the story may be celebrated by some, but not by most.

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The feud between the Chinese Internet companies Qihoo 360 Technology Co., Ltd. (‘Qihoo 360’) and Tencent Inc. (‘Tencent’) has been simmering for nearly two years. This article spotlights the facts and major issues of the dispute.

The Facts

Tencent runs QQ, the most popular instant messaging (‘IM’) service in the mainland China with over 700 million active users by the end of 2011. Tencent also provides information security products, search engine, online media, gaming, interactive entertainment, e-commerce, etc. Qihoo 360 is China’s leading Internet security product and service provider and had over 400 million active users by the end of 2011.

Tencent and Qihoo 360 offer rival security software for QQ users. The dispute began in September 2010 when Tencent encouraged QQ users to download an upgraded version of Tencent security software. Qihoo 360 responded by accusing Tencent of scanning its users’ computers for private data and then released new security software, claiming that the new software could speed up QQ and protect QQ users’ privacy. In response, Tencent warned its users that Qihoo 360 software had caused QQ to malfunction and requested its users to uninstall Qihoo 360 software, otherwise Tencent would cease to provide QQ software service.

In November 2010, Tencent and Qihoo 360 issued an apology to their users after China’s Ministry of Industry and Information Technology (‘MIIT’) ordered the two parties to stop mutual accusations and to restore interoperability. The MIIT criticized that the unfair competition between the companies had harmed users and caused adverse social consequences.

The Court Proceedings

The two companies are no strangers in the courtroom over the disputed behaviour.

In December 2010, Tencent sued Qihoo 360 in Beijing for unfair competition. Tencent won the lawsuit in April 2011 and Qihoo 360 was ordered to compensate Tencent CNY 400,000.

In October 2011, Qihoo 360 filed a complaint with the High People’s Court of Guangdong Province (‘Guangdong Court’) under China’s Anti-Monopoly Law (‘AML’) against Tencent’s two wholly-owned subsidiaries, Tencent Technology (Shenzhen) Co., Ltd. and Tencent Computer System Co., Ltd. (‘Qihoo 360 v. Tencent’). Qihoo 360 is seeking a court order to stop Tencent’s alleged abusive behaviour and claiming damages of CNY 150 million. On 18 April 2012, the Guangdong Court held a public hearing. The hearing attracted an audience of over 300 people, lasted for over seven hours, and was widely covered by the media. The Guangdong Court has yet to render judgment.

Concurrently, Tencent also filed a suit with the Guangdong Court in October 2011, charging that Qihoo 360 had engaged in unfair competitive conduct by damaging the integration and security of Tencent’s products and causing it to lose income from value-added businesses and advertising services. Tencent claimed damages of CNY 125 million. Qihoo 360 had unsuccessfully challenged the Guangdong Court’s jurisdiction. The jurisdictional matter is currently on appeal at China’s Supreme People’s Court.

Defining the Relevant Market

In Qihoo 360 v. Tencent, Qihoo 360 considered the relevant product market to be instant messaging software and the related services (‘IM services’). Qihoo 360 argued that ‘instant messaging software’ provides system services for real-time communications over the Internet and allows multiple users to simultaneously communicate messages, files, and voice and video contents. Because of the unique pricing and profit mechanisms of IM services, there are no substitutability between IM services and other communications services, such as emails, telephony communications, and mobile text messaging. Qihoo 360 noted that there are different types of IM services, including comprehensive IM services (e.g. QQ and MSN), cross-platform IM services (e.g. Fetion), and cross-network IM services (e.g. Skype). However, there is no need to further segment the market for IM services because the different types IM services are substitutable from both the supply and the demand sides. Qihoo 360 argued that the relevant geographic market is mainland China given that the unique Chinese language, Chinese users’ preference, Internet infrastructure and the relevant Internet regulations of the Chinese market are significantly differentiated from those of the foreign market.

Tencent argued that the market definition proposed by Qihoo 360 was too narrow and thus incorrect. It argued that the relevant product market should include IM services and other real-time communications tools, such as emails, microblog and social networking services. In addition, there are demand-side substitution between IM services and other communications services, such as mobile text messaging and mobile and landline telephony. Moreover, Tencent stated that QQ users come from inside and outside of China, and, because of the openness and interoperability of the Internet, the relevant geographic market should not be limited to the mainland China.

Establishing Dominance

Qihoo 360 submitted a number of third-party reports on Tencent’s market shares, market penetration rate, and number of users. Qihoo 360 claimed that these proxies indicated that Tencent’s market share significantly exceeds 50% and, pursuant to the AML, Tencent can be presumed to hold a dominant position in the relevant market. Qihoo 360 also alleged that Tencent has a strong financial and technical status and is able to use cross-subsidies and patent strategies to impede competitors’ entry and expansion in the relevant market. In addition, the network effects of IM services enable Tencent to control trading parties and create significant entry barriers in the relevant market.

Tencent denied that it holds a dominant position in the relevant market and argued that the data submitted by Qihoo 360 was not convincing. In particular, one user may create multiple accounts and the number of users cannot be equal to market shares. Moreover, Tencent argued that it has no pricing power over IM services. A third-party survey submitted by Tencent revealed that IM users are highly price-sensitive and 81.71% of QQ users would cease to use QQ if Tencent started charging for use of QQ software.

The Alleged Abusive Behaviour: Exclusive Dealing and Bundling

Qihoo 360 alleged that Tencent, through requesting QQ users to uninstall Qihoo 360 software and denying users of 360 browser access to QQ, had engaged in exclusive dealing. In addition, through bundling its security software with QQ, Tencent had leveraged its dominance in IM services into the market for security software. Thus, Tencent had infringed Article 17 (4) and (5) of the AML that prohibits dominant business operators from exclusive dealing and tying and bundling without justifications.

Tencent rejected the allegations and argued that its conduct was legitimate, justifiable, and conforming to the industry practices. One of Tencent’s main arguments was that its non-interoperability measures were taken in self-defence against Qihoo 360’s infringing software that defamed and damaged Tencent’s products and services. Tencent stated that installing its security software is not a precondition for using QQ. Both products are free of charge and users may easily uninstall them. Moreover, Tencent informs its users when an upgrade is available and the upgrade will only be performed after obtaining user consent.

The Role of Expert Witnesses*

The Guangdong Court is conducting a pilot implementation of the expert witness system. It encourages parties to engage expert witnesses in complicated cases and allows cross-examinations between expert witnesses to assist the court in clarifying technical facts. In Qihoo 360 v. Tencent, both parties engaged expert witnesses to testify before the court. Qihoo 360 engaged David Stallibrass, Special Consultant of RBB Economics LLP. Tencent engaged Jiang Qiping, Professor of the Chinese Academy of Social Sciences, and Wu Tao, Associate Professor of the Central University of Finance and Economics (Beijing). Presiding Judge Zhang Xuejun stated that although engaged by and on behalf of the parties, expert witnesses are obliged to truthfully express expert opinions based on their knowledge and experience.

Going Forward

Qihoo 360 v. Tencent is part of an ongoing, tit for tat litigation and media war.

The Guangdong Court’s public hearing and use of expert witnesses have demonstrated steadily improved transparency and sophistication of China’s judiciary. The trial is expected to set precedent for private antitrust litigation in China. However, defining the relevant market and testing the legality of business conduct in the fast changing Internet sector are daunting tasks. In particular if one considers the consumers’ preference of using multiple communications services on multiple platforms and the trend of integration from the supply side.

* China introduced an expert witness system in 2002 through Article 61 of the Supreme People’s Court Evidence Rules on Civil Procedure. Article 12 of the Provisions on Issues Concerning the Application of Law in the Trial of Monopoly Civil Dispute Cases, issued by the Supreme People’s Court on 8 May 2012, stipulate that the parties may apply to the court for engaging one or two experts to appear in the court and to explain specialized matter involved in the case.

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Unlike in most countries, in the United Kingdom, the notification of mergers is voluntary and there is no waiting period that must expire before a merger can be completed. Therefore, many mergers are completed without waiting for merger clearance from the Office of Fair Trading (“OFT”) or, if there is a full ‘Phase II’ investigation, the Competition Commission (“CC”). However, the OFT routinely investigates completed mergers and, each year, several are subject to an in-depth investigation by the CC, particularly those which satisfy the ‘share of supply’ test (creation or strengthening of a market share of 25% or more), but not the turnover test.

A recent CC decision, Stericycle/Ecowaste Southwest, in which it prohibited a completed merger and required the divestment of the acquired business, is a salutary reminder to companies that do not wait for merger clearance before completing their transaction. It is important that companies fully understand and assess the competition risks that may arise from their transaction, before agreeing to complete before clearance is obtained. This is particularly important in smaller mergers, in which the ‘share of supply’ test may be met: this test is very flexible and does not require the definition of an ‘antitrust’ market. Care must also be taken when a merger takes place in concentrated and localised markets, where the parties are or may be close competitors; in such markets, merging parties cannot comfort themselves by relying on the fact that customers procure goods or services using tenders. As the CC found, the use of tenders does not automatically mean that there will remain effective competition. Parties should also assess whether remedies that they may propose would be acceptable to the CC: its decision confirms that it remains focused on ensuring that remedies are effective in restoring competition as quickly as possible.

The facts

Stericycle and Ecowaste both provided services to treat and dispose of healthcare waste in the west of England, centred on the cities of Bristol and Bath. Customers, which are mainly hospitals and public health authorities, periodically tender long-term contracts for these services.
The CC found that, in the west of England, the merging parties were particularly close competitors when bidding for contracts; it did so by reference to a number of factors including the location of suppliers’ waste treatment plants, levels of spare capacity and an assessment of recent tenders. In particular, Stericycle’s plant at Frome was the closest to Ecowaste’s plant in Avonmouth.

The finding of an SLC

The CC went on to find that the merger would substantially lessen competition, because other suppliers were not able to exercise a strong competitive constraint on the merging parties. This was due to their more distant location and/or (unlike the merging parties, particularly Ecowaste) a lack of spare capacity. Therefore, the CC considered that, even though customers used a tender process, the market was not a ‘bidding market’, such that two remaining bidders would not have been ‘enough’ to ensure effective competition. As a result, customers did not have sufficient alternatives to be able to exercise any buyer power that they might have had, even if the contracts were of significant value and a buyer was larger than its suppliers. Finally, market entry was unlikely to occur and be viable unless a new entrant could win sufficient contracts; this would only be the case if prices were to rise considerably above the competitive level.

CC rejects remedy proposals

The CC rejected two remedy proposals made by Stericycle.

Stericycle’s first proposal was to provide competitors with a proportion of the capacity at Ecowaste’s Avonmouth plant, equal to Ecowaste’s historic average annual throughput. In rejecting this remedy, the CC observed that this ‘access‘ remedy was a behavioural remedy that did not create an effective and independent new competitor.

The CC also rejected Stericycle’s second proposal, to divest the Avonmouth plant , with a guaranteed volume of waste to be provided by Stericycle for five years; this proposal was later expanded to include contracts with two large hospitals in Bristol and Bath. The CC considered that this remedy proposal would not have restored effective competition, as contracts are long-term and with only two contracts the Avonmouth plant would not have been a viable and effective competitor: there was no certainty that it would win new contracts and if it would have lost the two retained contracts when they are next retendered, it would have been ‘locked out’ of the market completely for three to five years. In addition, the volume guarantee given by Stericycle would have created a structural link with the Avonmouth plant, so reducing its independence.

Prohibition, divestiture requirement and appeal

The CC therefore prohibited the merger. It required Stericycle to sell, as a going concern, Ecowaste Southwest to an approved purchaser. This will include the Avonmouth plant , all other assets and all customer contracts. As a number of key contracts (which account for a significant proportion of Ecowaste’s business) will be retendered in 2012 and 2013, the CC has required that the divestment be completed on a short timetable to ensure that Ecowaste is able to bid independently for these contracts. Stericycle is also prevented from competing with Ecowaste for these contracts until the divestment is completed, notwithstanding that a Monitoring Trustee will be appointed.

Stericycle has appealed the CC decision to the Competition Appeal Tribunal, challenging the remedy imposed by the CC. In order to ensure that competition is restored as quickly as possible, the appeal will be heard by the CAT on 16 May.

Comment

The CC has clearly taken a strict approach with Stericycle, including preventing it from bidding for new contracts until the divestment is completed.

This decision provides a clear warning to purchasers. Indeed, the recent referral to the CC of three other completed mergers has reconfirmed that the OFT and CC will continue to focus on the assessment of completed mergers, at both a national and a local level: VPS Holdings/SITEX Orbis (merger of the two largest suppliers of vacant property security services), DCC Energy/Rontec/Total Butler (possible 3 to 2 merger in the distribution of oil products) and McGill’s Bus Services/Arriva Scotland West (merger of two largest bus operators in Renfrewshire, to the west of Glasgow). In each case, the purchasers were required to give interim ‘hold separate’ undertakings whilst in VPS/Sitex Orbis, the CC has required VPS to appoint a monitoring trustee to supervise compliance with its undertakings.
In its recently announced reforms of the UK competition regime, the Government confirmed that the voluntary nature of merger control in the UK would remain. However, the investigation of completed mergers would continue, irrespective of whether a notification is made to the new Competition and Markets Authority (“CMA”). In addition, the CMA will gain new powers to prevent the integration of the merging parties’ business pending completion of its investigation, with the ability to require the reversal of integration steps already taken, including during a Phase I investigation. The CMA will also be given the power to impose financial penalties for non-compliance with directions to cease or reverse integration, and will also be able to seek court orders to restrain pre-emptive integration.
It is therefore clear that purchasers will need to continue to consider carefully whether to complete a merger before it is approved by OFT, CC or CMA and, if so, whether to commence integrating the businesses before receiving such approval.

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The discussion on the merit and feasibility of a possible application of Behavioural Economics in Competition Law and Policy has been fierce, particularly so in the context of US Antitrust Law. The fundamental assumption of Behavioural Economics lies in the recognition that human decision making is vulnerable and subject to biases. So-called neo-classical economic models that have hitherto informed competition law and policy (Chicago School, post-Chicago School, Harvard School) have relied on the existence of a ‘homo economicus’ i.e an ‘[economically] rational’ market participant (be it consumer or firm) who is driven by the goal of constant profit maximisation, appropriates all available information and processes it rationally, as well as exhibits perfect willpower and self-interest.

Behavioural Economics (BE) in an effort to provide a more realistic depiction of human [economic] conduct, introduces the concepts of heuristics (shortcuts) and biases. The latter include e.g. ‘bounded rationality’ (people do not continuously collect and assess relevant information and do not always rely upon it when deciding), bounded ‘willpower’ (knowledge that certain behaviour may run contrary to one’s self-interest does not always affect decision-making) and bounded ‘self-interest’ (profit maximisation does not always prevail over every other social goal(s)). Moreover, BE claims to both be able to detect the competition law-relevant limitations in human decision-making, and to take into account those biases that deviate from perfect rationality in a systematic and predictable manner. This happens through recourse to ‘libertarian paternalism’ (cf. e.g. R. Thaler & C. Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (2008); D. Kahneman, Thinking: Fast and Slow (2011)), advocating an arguably possibly more interventionist approach. Identified biases include e.g. inertia, the overconfidence bias, the ‘endowment effect’, the loss and risk aversion effect, the availability bias, the default bias.

Behavioural Economics has been at the root of much controversy. Genuine or solely apparent dividing lines juxtapose BE on the one side and neo-classical economic models on the other side. It has namely been argued that BE seeks to fully supplant neo-classical models of economic theory; BE is too amorphous and yet in need of a central organising principle so as to be of real use; its suitability to inform Competition Law and policy relates to whether it is applied in a common law rather than a civil law context; there is a connection between an enhanced application of BE and the adoption of a rule of law rather than a rule of reason standard; there is a particular link between the goals of competition law and the application of BE.

In view of the above, it is not surprising that the discussion about BE and competition law has been considered to be of lesser relevance in an EU law context, as the latter would seem to embrace/tolerate BE insights far more than would have been the case on the other side of the Atlantic (cf. N. Petit & N. Neyrinck, ‘Behavioral Economics and Abuse of Dominance: A proposed Alternative Reading of the Article 102 TFEU Case-law’, GCLC Working Paper, 2010).

The most evident examples originate from tying/bundling cases involving exclusionary abuses from dominant undertakings (Art. 102 TFEU):

In the Microsoft (Case COMP/C-3/37.792) case the European Commission departed from the findings to be expected from orthodox economic models. Microsoft had allegedly unlawfully bundled the Windows operating system with a further software application, the Windows Media Player. Requirements to be met for tying/bundling to constitute an abuse violating Art. 102 TFEU, include foreclosure of an equally efficient competitor (the ‘as efficient competitor’ test) as set down in the Commission’s Enforcement Guidelines (paras. 59 et seq.) and coercion (either of a physical nature or of an economic one, i.e. a rebate on the combined price of the products) applied upon the demand-side to buy the tied product (in this case the Windows Media Player).

In Microsoft neither a physical nor an economical coercion was given. The Windows Media Player had been installed free of charge as the default media player in PCs running Windows OS, and purchasers had access to rival media players that could all be subsequently installed and used on the same computer (thus excluding the possibility of a stricto sensu physical coercion). Nevertheless, the Commission (as well as the CFI) affirmed the existence of coercion on behalf of Microsoft. Though the approach is at odds with rational economic thinking – and possibly with the approach the Commission seeks to crystallise in its Guidance on Art. 102 TFEU as well – there is no denying the echoes of behavioural thinking, in this specific context of the purchasers’ inertia bias. The decision referred to the low likelihood of end-users ‘in general’ to use alternative media players given the availability of a similar product coming with the Windows OS.

Further influence by Behavioural Economics can be detected in yet another Microsoft case (COMP/39.530) regarding remedies in a tying/bundling context. In this case the Commission was unhappy with Microsoft tying its internet browser internet Explorer to its Windows OS. The remedy which Microsoft offered involved the appearance of a ‘choice screen’ once the OS first connected to the internet and downloaded updates. The screen presented in random order different choices of browsers, amongst which the Internet Explorer too, for the end-user to choose from. Libertarian paternalism advocated by Behavioural Economics scholars is evident in this context, as the end-user is expected to realise that the OS and the browser are two different products that need not be tied together, but is subsequently presented with a choice to make on their own.

The difference between this approach and the one adopted in the case of the Windows Media Player is striking. The Commission had sought in the latter instance to address the perceived abuse through ‘orthodox’ antitrust means, i.e. by constraining Microsoft to offer a version of its OS stripped of the media player in question. As stated above, Microsoft had not charged for its media player (competing media players available could be downloaded free of charge), hence unsurprisingly PC manufacturers chose to install a version of Windows that included the Windows Media Player – the media player-free version of Windows performed particularly badly commercially thus failing to tackle the issue of disconnecting the two products from each other. It would be of great interest to see whether the Commission will be making use of similar tools within its selection and design of remedies, beyond the specificities/particularities of both cases in question; particularly so with regard to the limitations of the effectiveness of providing more information to consumers as a basis for informed choice. BE research has indicated that a surplus of information may prove detrimental at times, as it can be processed according to biases (or even barely processed at all); the importance of both the amount and the framing of the information provided could be of the essence (cf. OFT, ‘What Does Behavioural Economics mean for Competition Policy?’, March 2010, p. 37) – and so would probably caution.

It has been argued (cf. N. Petit & N. Neyrinck, op. cit., p. 14) that BE buttresses a more expansive interpretation of Refusal to Deal cases in the context of EU law compared to its US counterpart, in conjunction with the handling of the ex ante (dis)incentives of firms to invest into innovation. Explanatory analysis refers to the ‘endowment effect’, i.e. the tendency to demand a higher price for a good in one’s ownership rather than the price one would pay to purchase a similar good. As a consequence regulatory intervention would be warranted by BE, as in the case of essential facilities the holders thereof tend to overestimate its value and hence the magnitude of a possible disincentive, should they be ordered to provide access/deal, while demanding disproportionately high prices from their access seeking competitors. Whilst BE has dealt with supply-side irrationality as well, and biased behaviour may well manifest itself at firm (manager, CEO) level as well, it seems at present uncertain whether it would be possible to generalise a cross-case reading of (dis)incentives in Refusal to Deal cases in EU law by recourse to BE.

Concluding, EU Competition Law substantive assessment framework as well as selected case-law from the Commission’s decisional practice and the Courts’ jurisprudence seem to have [occasionally] embraced a point of view akin to the insights of Behavioural Economics in the context of Art. 102 TFEU and resorted to analysis going beyond the neo-classical economic paradigm.

Limitations [should] apply however:

The primary research [in the area of antitrust analysis] is still at a developing/nascent stage. It is not clear whether substantive assessment – if not intuitive (cf. V. Rose, ‘The Role of Behavioral Economics in Competition Law: A Judicial Perspective’, CPI, Spring 2010, Vol. 6 (1)) at least without mentioning it expressis verbis – deviating from neo-classical thought and inspired by BE would extend to further cases: mirroring recurring criticism regarding shortcomings of BE theory in the context of antitrust law, this could be a punctual rather than overall approach (cf. criticism regarding the lack of an organising principle similar to the economic models inspired by the rational decision-making theories – industrial organisation). After all both BE proponents and their counterpart admit that BE has as yet to deal with what has been perceived – and accordingly criticised – as dependence on market specificity. The argument that contrary to popular misconception BE does not challenge nor seek to supplant orthodox economic thought in toto but rather provides insights where appropriate, may be salient and valid, but does not necessarily – as yet – provide full answers as to whether the debate is of the identical pertinence/significance in the context of EU as in US law.

Furthermore, as at this stage the available ‘arsenal’ provided by BE research has not yet fully been deployed, it is unclear which further topics/areas could be covered/addressed more appropriately by applying BE (cf. C. Camerer et. al., ‘Regulation for Conservatives: Behavioral Economics and the case for “Asymmetric Paternalism”’, Un.Penn.L.Rev. 151 (2003), 1211, 1216, claiming that research in BE has gone beyond an initial stage (which was according to critics ‘just a laundry list of departures from rational choice’) towards ‘scientific consolidation’).

Last but not least, as EU competition law needs to come to terms with the new approach to Art. 102 TFEU, it is still open in which further constellations/scenarios BE may become of relevance. Whether this may still be done in accordance to the current Guidance and the developing case-law remains to be seen.

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The bigger they are, the harder they fall and the sounds of the crash get louder as the legal controls get weaker.

Take, for instance, the recent £807.2m sale of Edinburgh airport to Global Infrastructure Partners. This is the latest disposal following the original recommendation by the UK Competition Commission (CC) that BAA’s airport operating empire should be broken up. Before approving the Edinburgh deal, the CC reviewed potential buyers to ensure that they met its criteria on things such as expertise, financial resources and independence from BAA. The CC will now consult on draft undertakings provided by GIP that prevent any resale of the airport within five years unless the new purchaser satisfies the CC’s criteria.

So far, so normal. A monopolistic behemoth is slowly being cut down to size against a background of high-profile and bitter courtroom battles. Some lawyers may possibly raise half an eyebrow at the fact that Global Infrastructure Partners now own Edinburgh, Gatwick and London City airports and might therefore look a tad overdominant themselves. But that’s a fight for another day and everything here is being run in an orderly manner according to competition rules.

Move up the food chain, however, and the level of legal control isn’t quite so all-encompassing. Last December, the European Commission launched an investigation into whether Apple and a bunch of publishers have behaved anticompetitively over the sales of ebooks. More recently, the US Department of Justice announced that it is suing Apple along with the publishers for allegedly fixing the price of ebooks.

At the time of writing, Apple and most of the publishers are said to be trying to settle in Europe. The competition commissioner Joaquin Almunia has revealed that he has received settlement offers from Apple and all the publishers except Penguin. Back in the States, however, Apple together with publishers Macmillan and Penguin are fighting the DoJ. Apple argues that it is a hero for breaking Amazon’s “monopolistic grip” on the ebook market and that the price-fixing charges are “simply not true”; Macmillan says the DoJ’s terms are too onerous; and Penguin insists that it has done nothing wrong. In contrast, Hachette, Harper Collins, and Simon and Schuster have settled with the regulator.

At one level, this is just another legal row that the companies involved will eventually sort out. But at another, many people are wondering if this is another indication that the Apple iceberg is finally cracking, even if the fissures are on the far side of the imposing mountain of ice looming up in front of us.

The danger signs have been there for some time: the protracted intellectual property battles with Samsung and others draining corporate attention away from what’s happening in the world; the irresistible rise of the Google Android system; Steve Jobs’s death and the loss of corporate cool; the tardy response to the Flashback virus outbreak and the continuing PR disaster over deaths and sweatshop working conditions at Foxconn where iPads and iPhones are made ; and (perhaps most fatally of all) changing fashion. Apple is starting to look old.

Lawyers will say (with some justification) that most of these things have nothing to do with them. But if the iceberg really does start to crack, there is likely to be a period of considerable commercial upheaval worldwide that temporarily at least overpowers the protections afforded by competition law structures. This is because, in a crisis, market forces will always trump legal rules, leaving the legal professionals to clear up the mess afterwards.

Finally, you get to the point where legal controls disappear altogether. The most spectacular example is the News Corp/ BSkyB disaster and the culture secretary Jeremy Hunt. Events are currently moving so fast that even a snapshot of the present position is impossible. But the key point is this. Sixteen months ago, the European Commission cleared the competition aspects of the News Corp/BSkyB merger. The only thing left was the vaguely defined UK media plurality test.

Passing this would be a shoo-in, the lawyers said.  All the rules have been met, they said, high-fiving one another in gleeful anticipation of a shining new dawn on the horizon. Then, as the world knows, the deal collapsed spectacularly for reasons that had nothing to do with law. And right now, the culture secretary, who had a quasi-judicial role in the assessment of the transaction, is being widely denounced for allegedly passing confidential information to News Corp during its bid for BSkyB. Whatever happens next will be very noisy and have nothing to do with competition law because, at this level, politics (like market forces) beats the rules. As Dirty Harry so memorably observed in Magnum Force, a man’s got to know his limitations. The same goes for competition lawyers.

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Legal change sometimes takes unpredictable paths: mid-April, something important happened for European law in Luxembourg, but this did not come from the European Court of Justice (the “ECJ”).

Not every reader of this blog is necessarily aware that the ECJ has a sister European Court in Luxembourg, which is called the EFTA Court. This Court has jurisdiction with regard to the EFTA States that are parties to the EEA Agreement (at present Iceland, Liechtenstein and Norway). It delivers only a limited number of judgments every year, but they often are interesting reads. Since EEA law very much mirrors EU law, these judgments constitute a significant source of inspiration for EU law itself. In fact, the ECJ’s Advocate Generals often refer to EFTA Court judgments in their opinions (See e.g., the recent opinion of Advocate Mengozzi in Case C-49/11 Content Services, paragraph 39).

The Posten Norge judgment, which the EFTA Court delivered on 18 April 2012, has all it takes to become a very influential judgment, or at least to foster intense debate within the ECJ, for at least two reasons: firstly, it deals with a very important issue, i.e., the scope of review performed on administrative decisions applying European competition law; secondly, it opts for a courageous outcome, since it assertively refuses to limit the review of complex economic assessments made by the EFTA Surveillance Authority (the counterpart of the European Commission) to a “manifest error” standard.

As most readers are aware, a major legal issue of these last few years has been whether the limited review that the EU Courts perform on the Commission’s complex economic appreciations is compatible with the right to a fair trial enshrined in Article 6 ECHR (for previous posts of this blog on this issue, see here and here). Almost everybody now agrees that competition law qualifies as criminal law within the meaning of article 6 ECHR. This was confirmed by the European Court of Human Rights itself in its Menarini judgment of September 2011 (European Court of Human Rights, Menarini Diagnostics v. Italy, No 43509/08, paragraphs 38-42). However, in its Jussila judgment, the European Court of Human Rights found that the guarantees of criminal law do not in all cases apply with their full stringency (23 November 2006, Jussila v. Finland, No 73053/01, paragraph 43). The crux of the issue has therefore become whether competition law qualifies as hardcore criminal law, which triggers the full application of the guarantees of Article 6 ECHR, or whether it is soft criminal law, in which case those guarantees may be adapted. And if it is not hardcore, where does it lie on the spectrum, and what type of judicial review does it imply?

The Menarini judgment was not crystal clear on this last issue: while the European Court of Human Rights suggested that some limitations to the review of competition law decisions were acceptable, it nonetheless found it important that the court reviewing the matter was entitled to assess whether the administrative authority had “made an appropriate use of its powers”, which literally implies the existence of powers going beyond a mere control of legality (see paragraphs 61 and 64). The ECJ judgments of December 2011 in KME and Chalkor also came as a relative disappointment on this point: on the one hand, the ECJ found it sufficient that the EU Courts review both the law and the facts, and have the power to assess evidence, to annul the contested decision and to alter the amount of a fine (Case C-389/10 P KME Germany and Others v Commission, paragraph 133). Yet, on the other hand, the Court held that the EU Courts cannot use the Commission’s margin of discretion as a basis for dispensing with the conduct of an in-depth review of the law and of the facts (Ibid., paragraph 129). This may well be interpreted as an invitation to restrict limited review to the bare minimum, or even to leave it aside.

In its Posten Norge judgment, the EFTA Court did not shy away from directly confronting the issue. This resulted in a sophisticated, convincing analysis, which hopefully will encourage the rethinking of the judicial review of administrative decisions.

The case concerns an interesting decision of the EFTA Surveillance Authority sanctioning Norgen Poste for an abuse of a dominant position and imposing a fine of EUR 12.89 million. In its judgment the EFTA Court accepted that Article 6 ECHR does not in all cases apply with its full stringency and that the scope of the guarantees applied in a given case must be determined with regard to the weight of the criminal charge at issue (paragraph 89). Yet, in the case at hand, having regard to the nature and the severity of the charge at hand, the matter could “not be considered to concern a criminal charge of minor weight”. In the Court’s view, the amount of the charge in this case is “substantial” and, moreover, “the stigma attached to being held accountable for an abuse of a dominant position is not negligible”. Thus, while the form of administrative review may influence, with regard to several aspects, the way in which the guarantees provided by the criminal head of Article 6 ECHR are applied, “this cannot detract from the necessity to respect these guarantees in substance” (paragraph 90, referring to Menarini Diagnostics v. Italy, paragraph 62). Criminal penalties of the kind at issue may be imposed by an administrative body which does not itself comply with the requirements of Article 6 ECHR, provided that the decision of that body is subject to subsequent control by a judicial body that has full jurisdiction and does in fact comply with those requirements (paragraph 91).

As far as complex economic appreciations are concerned, the Court held that it is precluded from annulling the contested decision “if there can be no legal objection to the assessment […], even if it is not the one which the Court would consider to be preferable” (paragraph 98). As under EU law, the Court must nonetheless establish whether the evidence relied on is factually accurate, reliable and consistent, but also whether that evidence contains all the information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from” (paragraph 99). This is in substance the standard already applied by the EU Courts (Case C-12/03 P Commission v Tetra Laval [2005] ECR I-987, paragraph 39).

More importantly, the EFTA Court ruled that “when imposing fines for infringement of the competition rules, [the EFTA Surveillance Authority] cannot be regarded to have any margin of discretion in the assessment of complex economic matters which goes beyond the leeway that necessarily flows from the limitations inherent in the system of legality review” (paragraph 100). Moreover, the Court recalled that in a criminal case, “the question whether the evidence is capable of substantiating the conclusions drawn from it by the competition authority must be answered having regard to the presumption of innocence”. As a consequence, although the Court may not replace the authority’s assessment by its own and, accordingly, the legality of the assessment is not affected if the Court merely disagrees with the weighing of individual factors in a complex assessment of economic evidence, “the Court must nonetheless be convinced that the conclusions drawn by [the authority] are supported by the facts” (paragraph 101).

In other words, the Court itself must be convinced of the merits of the case, a requirement that sounds perfectly natural since, as noted by the ECJ in Tetra Laval, “the essential function of evidence […] is to establish convincingly the merits of an argument or […] of a decision” (Case C-12/03 P Commission v Tetra Laval [2005] ECR I-987, paragraph 41). The EFTA Court nonetheless comes to a blunt conclusion that the ECJ never expressed so clearly, as it concludes that “the submission that the Court may intervene only if it considers a complex economic assessment to be manifestly wrong must be rejected” (paragraph 102).

It is hoped that this judgment will significantly influence the EU Courts thinking on their judicial review of the Commission’s decisions. While in certain cases they perform a thorough judicial review (think of Tetra Laval for instance), this has not been true in all cases. In addition, on average their review seems more stringent in merger cases, i.e., purely administrative matters, than in quasi-criminal cases (including, like in the present case, when a decision finding an abuse of a dominant position is at stake). This asymmetry cannot be reconciled with the sliding scale of judicial review which, according to the European Court of Human Rights, is embodied in Article 6 ECHR. Furthermore, in certain cases the EU Courts’ limited review has spilled over into certain factual issues that did not involve complex appreciations. For instance, in 2011 the General Court applied twice the standard of the manifest error of appreciation to the question of whether an undertaking had contested the facts on which the Commission based its allegations (Case T-33/05 Cetarsa v Commission, paragraph 271; Case T-37/05 World Wide Tobacco España v Commission, paragraph 197). Why did this factual finding require the kind of complex appreciation that normally justifies limited review? Hopefully the Posten Norge judgment will help drive the tumultuous river of limited review back into a much narrower channel.

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The Institute of European and International Business Law from the University of St.Gallen, Switzerland is pleased to invite you to the 19th St.Gallen International Competition Law Forum ICF on June 7th and 8th 2012. Once again, leading experts in national, European and international competition law will come together to discuss and share their ideas on the latest trends and developments in the field and their practical implications.

The St.Gallen International Competition Law Forum ICF prides itself on being one of the most established events of its kind in Europe. It attracts influential policy shapers, this year, for example, Joaquín Almunia (European Commissioner for Competition), Andreas Mundt (President of the German Competition Authority) or William Kovacic (Former Commissioner of the U.S. Federal Trade Commission ) as well as internationally renowned academic experts and leading business practitioners.

You will find all information on the conference in the programme flyer and under http://www.sg-icf.ch. As places are limited, we encourage early registration!

If you have further questions, please do not hesitate to contact the Institute of European and International Business Law (europarecht@unisg.ch).

We very much look forward to seeing you this summer in St.Gallen!

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At the end of March, the European Commission fined Czech energy companies Energetický a průmyslový and EP Investment Advisors EUR2.5 million for obstructing a dawn raid which European Commission officials carried out as part of an antitrust investigation.

This is the first time that the European Commission has fined a company for the specific violation of obstructing IT searches during a dawn raid.

What happened?
The European Commission raided the companies’ premises in Prague in November 2009. On arrival, the inspectors asked that the email account of certain key individuals be blocked until further notice. This is the European Commission’s standard dawn raid procedure, and is aimed to ensure that modifications are not made to email accounts. During the course of the inspection, the inspectors discovered firstly that the password for one account had been modified which allowed an employee to access the account, and secondly that one employee had requested the IT department to divert all emails arriving in certain blocked accounts away from these accounts to a server. This enabled incoming emails not to be visible to the inspectors and compromised the overall integrity of the European Commission’s search.

Increasingly tough approach
This is the first time that the European Commission has fined a company for the specific violation of obstructing IT searches during a dawn raid. Fines in the past have been for breaching seals that have been imposed overnight during inspections to prevent entry into rooms and other areas where the inspectors have left documents and equipment overnight. For example, the European Commission fined E.ON EUR38 million and Suez Environnement and Lyonnaise des Eaux EUR8 million for breaching seals. The European Commission has also in the past penalised companies where company representatives have refused to answer questions and shredded documents during an inspection. Sony, for instance, had its antitrust fine increased by 30% for this violation.

But this is just the landscape at the European Commission level. National competition authorities have been busy fining for obstruction of their national raids. Last year, Spain’s Competition Commission fined ferry operator Trasmediterránea EUR2 million for the obstruction of access to information and senior executives. The Polish competition authority (UOKiK) also fined PoIkomtel EUR32 million for failure to provide access to a hard disc and for delaying the beginning of the investigation.

With the current zero-tolerance policy toward obstruction, there is a clear need for all companies to ensure that all relevant staff, including IT staff, are properly trained in dawn raid defence procedure.

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