Brexit Withdrawal Bill Published by UK Government

Selective distribution in the French judicial spotlight again

Ofcom Places Restrictions On Allocation Of Spectrum To EE/BT In Forthcoming 4g/5g Mobile Spectrum Auction To Preserve Competition

The Italian Competition Authority Takes Interim Measures Against Alleged Abuse Of Dominance In The Publishing Sector

Significant Changes in German Competition Law


Brexit Withdrawal Bill Published by UK Government

Author: Robert Bell

Introduction

The UK Government’s Brexit strategy took another step forward on 13th July 2017 with the publication of the European Union (Withdrawal) Bill, commonly referred to as the “Great Repeal Bill”.

There was not much of a fanfare for the publication of this piece of legislation which is largely procedural. But, make no mistake, this is a seminal moment in the UK’s constitutional history and the Bill is likely to be rated as one of the most significant pieces of legislation to be tabled before the UK Parliament. It is also a key milestone in the Government’s programme of delivering Brexit by March 2019.

Its introduction into Parliament will herald a long and intense battle as the Government pits its wits against a variety of opposition amendments seeking to provide extra safeguards or table amendments to tie the Government’s hands in its negotiations with Brussels. Now that the Government no longer has an overall Parliamentary majority but is relying on support of the Democratic Unionist Party, it will need to adopt a more conciliatory stance in dealing with Parliament and its role in the Brexit process, if it wants to deliver on its manifesto commitment of securing a decent Brexit deal for the UK.

There is also likely to be strong opposition to the Bill from the Scottish and Welsh devolved governments. They are angry at Westminster reserving to itself the powers repatriated from Brussels. The devolved governments argue some of these powers should be devolved to the Scottish Parliament and Welsh Assembly. They are threatening to oppose the Bill.

The ECA repeal

The Bill repeals the European Communities Act 1972 (“ECA”) as of the UK’s date of exit from the EU (“Exit Date”). It will end the supremacy of EU law in the UK. In addition, EU laws and regulations passed or having an effective date after the Exit Date will be of no further effect in the United Kingdom.

However one of the most important objectives of the Bill is to provide legal certainty as of the Exit Date. This is important to both individuals and businesses (and particularly investors investing in the UK) to ensure everyone knows their rights and obligations before the law. If there were any legal loopholes this would potentially create legal chaos. So this Bill is the Government’s attempt to reassure that the exit from the EU will be done “with maximum certainty, continuity and control” to quote David Davis, the UK’s chief Brexit negotiator.

The ECA incorporated into UK domestic law all EU derived laws at the date of the UK accession into what was then, the European Economic Community. This comprised among other things EU Regulations and Decisions (and decisions taken under them). The Act made them directly effective in the UK with no need for further implementation. EU Directives were different as they had to be specifically implemented by UK legislation to become part of domestic law. So the Act provided a mechanism under section 2(1) for their incorporation by UK implementing regulations.

If the Government repeals the ECA, a large amount of EU law, principally in the form of these EU Regulations and EU Decisions (and decisions taken under them) would become void and unenforceable overnight. Therefore the Bill specifically re-enacts these types of legislative instruments into UK domestic law as of the Exit Date. The grand plan is that on Exit Date, UK law will be substantially similar to what it was prior to the UK leaving the Community.

In this way the Bill both delivers legal certainty as at the Exit Date but it also buys the Government time in assessing at some future date after Brexit whether to retain, amend or scrap this legislation.

Corrective Regulations

Not all EU legislation can be flawlessly implemented into UK domestic law without amendment. There are many passages in UK laws which refer to EU institutions, reciprocal arrangements between the UK and its institutions and the EU, or EU entities or Member States which no longer exist or are no longer appropriate. In addition, Ministers are also given the power to abolish or amend certain obligations. The Bill gives the Government the power to issue corrective regulations to cure these deficiencies. The regulation making powers are time limited to 2 years and are also subject to further safeguards set out in more detail in Schedule 7 of the draft legislation.

These corrective regulations must be laid before Parliament and must be approved by a resolution of both Houses of Parliament only if they propose the establishment of a new criminal offence, give the power to legislate or create a new public authority in the UK for the purposes of carrying out the relevant duties previously carried out by former EU entities. The controversial part of this Bill is whether these safeguards are enough and whether the Government is going to use its power to issue corrective regulations to make policy decisions rather than say, substituting UK public authorities for the names of EU entities. Expect to see a number of amendments tabled placing the Government under more rigorous scrutiny.

European Court and EU Case Law

As of the Exit Date, UK Courts or Tribunals are not bound by judgments or rulings of the ECJ delivered after that date, nor can they refer matters on interpretation of EU law to Luxembourg. They can however take notice of these rulings if they feel it is appropriate to do so. In relation to any retained EU laws the courts must decide these questions in light of retained case law and general retained EU legal principles of the Exit Date. However the Court of Appeal and Supreme Court are not bound by any retained EU law. They are free to depart from such law but must apply the same test as they would normally apply as to whether to depart from their own case law.

Given that the courts will now have the option of following European court case law after Brexit, there are concerns that this will lead to potentially contradictory and confusing developments of English laws in the future. So the Bill, far from providing legal clarity at and beyond Brexit, has potentially spurred future ambiguity and confusion.

Selective distribution in the French judicial spotlight again

By Kathie Claret, Francois Xavier Mirza and Emmanuelle Mercier

French cosmetics company Caudalie had previously made headlines in a case decided on February 2nd 2016. In that case, Caudalie had applied for an injunction against an online marketplace to compel it to cease selling Caudalie products, but the Paris Court of Appeal had rejected the claim, thus limiting the possibility for suppliers using selective distribution networks to impose an outright ban on marketplace retailers carrying their products (see our May 2016 EU & Competition Law Update).

On June 8th 2017, in a separate case, the French Supreme Court (Cour de cassation) ruled in favor of Caudalie, holding that Caudalie’s exercise of its contractual freedom prevailed over the need to apply qualitative selection criteria to contract renewals within a selective distribution network.

In 2008, Caudalie had entered into a one-year tacitly renewable selective distribution agreement for its products with a pharmacist. In October 2011, Caudalie notified the pharmacist that the agreement would not be renewed after its term on December 31st 2011, complying with the two-month notice period provided in the agreement.

Before the French Supreme Court, the pharmacist argued that within a selective distribution network, a supplier is not entitled, pursuant to Article L. 420-1 of the French Commercial Code and Article 101 §1 of the TFUE, to refuse to renew a given distribution agreement where the distributor meets the qualitative criteria previously defined by the supplier to be selected. The pharmacist claimed in this case that he did meet those criteria and that he had never breached the distribution agreement.

The pharmacist further argued that the refusal by Caudalie to renew the agreement constituted a refusal to sell, which would be wrongful under French competition law, to the extent that it would prevent the determination of resale prices by free competition, thereby artificially encouraging an increase in the resale price of the Caudalie products.

The French Supreme Court found, academically, that whether or not the pharmacist met the criteria defined by Caudalie to be a qualified distributor within its selective distribution network, and whether or not the pharmacist had breached the agreement, was irrelevant because the dispute did not relate, strictly speaking, to the re-selection of a non-renewed distributor following the decision not to renew his distribution agreement, but rather to the termination of that agreement. The Court found moreover that the pharmacist did not allege that Caudalie’s decision was an abuse of its right not to renew.

Thus, the French Supreme Court did not examine the competition law issues underlying a potential abuse of the right to renew, but based its decision purely on contract law. The Court ruled that since Caudalie was found to have complied with the provisions of the distribution agreement regarding its termination, Caudalie did not have to justify its decision not to renew the agreement, since, as a general contract law principle, no one can be forced to renew an agreement after its term.

Decision: cass.com. June 8th 2017, no. 15-28.355

Ofcom Places Restrictions On Allocation Of Spectrum To EE/BT In Forthcoming 4g/5g Mobile Spectrum Auction To Preserve Competition

Author: Robert Bell

On 11 July 2017, Ofcom, the UK Communications regulator, issued a statement relating to the forthcoming mobile spectrum auction for 2.3 and 3.4 GHz bands. The auction is to make available additional spectrum to facilitate the provision of 4G/5G connectivity and is driven by the increased popularity of band hungry mobile data services.

Ofcom’s concerns centre on the possible adverse effect to competition on the mobile market which may result if restrictions are not placed upon which operators can bid for the spectrum available at the auction. Its statement therefore sets out its analysis of the competition situation and its justification for placing restrictions on the allocation of spectrum in the 2.3 and 3.4 GHz bands.

The regulator believes that, without intervention, this auction could rise to a significant risk to competition as a result of one network being allocated most or all of the available spectrum. Ofcom found that BT/EE held 45% of all the mobile spectrum that was currently useable; Vodafone held 28%; O2 held 15%; and H3G held 12%.

The objectives behind the auction are to balance the desire to obtain as high a price as possible for the spectrum being offered. However, this must be balanced against the need to maintain effective competition in this industry for the benefit of consumers. Therefore, it is concerned that the very asymmetric distribution of immediately useable spectrum in the hands of EE/BT would have highly detrimental effects for effective competition on the market.

Even though all the mobile network operators are likely to remain credible competitors after the auction, those with smaller spectrum holdings may not be able to compete so strongly in future as those with much larger spectrum holdings.

Ofcom has therefore decided to intervene and place restrictions on the auction to address these competition concerns. It has decided to place a cap of 255 MHz on the “immediately useable” spectrum that any one operator can hold as a result of the auction. This cap means BT/EE will not be able to bid for spectrum in the 2.3GHz band.

It has also decided to introduce an additional cap of 340 MHz on the overall amount of mobile spectrum a single operator can hold as a result of the auction. This cap amounts to 37% of all of the mobile spectrum expected to be useable in 2020. Taken together, the effect of these restrictions will be to reduce BT/EE’s overall share of mobile spectrum. Based upon the present spectrum holdings of each of the mobile operators there will be no restriction on the amount of spectrum that any other bidder could win. 

The Italian Competition Authority Takes Interim Measures Against Alleged Abuse Of Dominance In The Publishing Sector

Author: Luigi Zumbo and Arturo Batista

With a recent decision, the Italian Competition Authority (the “ICA”) took interim measures against the Società Iniziative Editoriali S.p.A. (the “SIE”), an Italian company which is the publisher of the “L’Adige”, the main newspaper in the Province of Trento, for the alleged violation of Article 3 of Law No. 287/1990 (“The Italian Competition Law”), which prohibits the abuse of dominance.

The investigation started after a complaint from the Italian company Euregio S.r.l. (the “Com-plainant”), which operated in the Province of Trento providing daily press review services.

In particular, SIE withdrew from the mechanism called “Repertorio Promopress” (“Repertorio”), which allowed businesses like the Complainant’s to obtain the licences in order to use the contents of the newspapers sold in the Province of Trento for press review services.

The SIE’s withdrawal from Repertorio would mean the Complainant, and the other businesses providing press review services, would need to negotiate with SIE the fees to be paid to obtain the above services on a case by case basis.

However, SIE completely refused to grant the license to use the contents of “L’Adige” for press review services.

The ICA found that SIE’s refusal, stemming from the operator which enjoyed a dominant position in the upstream market (newspapers publishing), would jeopardise competition in the downstream market of daily press review services in the Province of Trento.

Therefore, the ICA ordered SIE to grant licence in order to make “L’Adige”’s contents available for press review services operators.

In our opinion this decision of the ICA is remarkable for the following reasons:

(i) The ICA highlights that undertakings enjoying a dominant position which owns an “essential facility” may be forced to share with other businesses their properties, even if the refusal to grant a licence would affect a market different for the one in which there is the dominant position (the downstream one); and

(ii) The ICA issued the order without taking into consideration (or proving otherwise) that SIE had no intention to enter the downstream market, so that SIE’s intellectual property was limited only for the viability of the downstream market of press review services.

Significant Changes in German Competition Law

Author: Eckart Budelmann

On June 9, 2017, the 9th amendment of the German Act against Restraints of the Competition (GWB) came into effect. The most significant changes affect the liability for cartel fines, the application of merger control and the compensation for cartel damages.

Extended liability for cartel fines

While the European sanctions law determines the subject for cartel fines through the “economic entity” model, German law would only impose fines on the legal person that was directly involved in the infringement. The amendment now introduces an extended liability concept in German law similar to the economic entity doctrine. From now on, a parent company can be held liable for cartel infringements committed by its subsidiaries. The liability of the parent company only requires its general control over the subsidiary but not any participation in the infringement itself. Apart from this “group liability” the amendment also introduces new rules concerning the “successor liability”. In the past, companies avoided fines by restructuring their business or deleting the legal entity whose representatives committed the infringement. From now on, the German Federal Cartel Office (FCO) will able to impose fines on the legal and/or economic successor of those legal entities.

Merger Control

The amendment introduces a new threshold for the notification requirement regarding merger control. Transactions will be subject to merger control if – in addition to the worldwide turnover thresholds and the first domestic turnover threshold – the counter-value (purchase price and assumed liabilities) amounts to more than 400 million euros. This threshold is primarily introduced in order to make start-ups and digital businesses subject to merger control, as these businesses often do not have high turnovers but great value. Under previous antirust-rules, takeovers of (yet) small, but innovative and by means of revenues highly promising companies have not been subject to notification, when the smaller company did not reach the relevant turnover threshold of EUR 5m – a constellation relatively often found in the digital market.

The new threshold, however, lacks the legal certainty of the common turnover thresholds thus will face difficulties in practice. The determination of the counter-value of transactions will require the FCO and the companies to conduct a detailed prognosis.

Implementation of the European Damages Directive

The amendment implements the European Damages Directive that strives to facilitate the enforcement of claims for damages in the event of competition law infringements. First of all, the limitation period for claims for damages is increased from three to five years. This also applies retrospectively to damage claims which arose before 27 December 2016 and were not statute-barred on 9 June 2017. The amendment furthermore introduces a rebuttable presumption that the cartel caused damages. The burden of proof regarding the amount of damages will remain with the claimant. In addition, it will be presumed that a surcharge has been passed on indirect customers. In order to facilitate proofing, both cartel members and cartel victims will gain easier access to relevant documentation of the FCO. Also the incentive to use the leniency scheme is significantly increased because those cartel members can only be held liable by their direct or indirect customers or suppliers. Other cartel members will still be jointly and severally liable.

Evaluation of markets

The amendment also introduces new criteria for the evaluation of the relevant markets. The fact that a service is provided free of charge is no longer an obstacle to the assumption of a market in the future. This is especially relevant for multi-lateral digital markets, where data mainly serves as a currency. However, according to the explanatory memorandum for the amendment, the prerequisite for a market is that the offer serves at least indirectly or in the long term a profit-oriented strategy. The newly introduced criteria for the evaluation of market power are direct and indirect network effects, access to data that is relevant to competition law, the parallel use of multiple services, innovation potential or the users’ effort to change the service provider.

Forecast

In conclusion, the 9th amendment of the GWB will have a deep impact on German competition law and compliance practices. Besides, further amendments in the near future are not unlikely. The amendment includes multiple evaluation orders for the Federal Ministry for Economic Affairs whose results may lead to further changes. Furthermore, in March 2017 the EU Commission presented the proposal for a directive for facilitating the enforcement of European Competition Law by the national authorities. Thus, further changes to German Antitrust Law due to EU-legislation can be expected in the not too distant future.