Does the EU’s Qualcomm fine represent efficient justice?

A Heavy Burden: French company held liable for infringement of competition law by subsidiary due to failure to prove independence

“Constitutionally Unacceptable” EU Withdrawal Bill Faces Heavy Attack In House Of Lords

New German Competition Blacklist

New Turnover Thresholds For Italian Mergers And Acquisitions


Does the EU’s Qualcomm fine represent efficient justice?

Author: Robert Bell and Roman Madej

As widely reported, on 24 January 2018, the EU Commission fined Qualcomm €997m for abusing its dominant position in LTE baseband chipsets. Whilst the case appears to be an open and shut case of an abuse of dominance, the time taken to fine Qualcomm and end the behaviour, leaves a lot to be desired.

Baseband chipsets enable smartphones and tablets to connect to cellular networks and are used both for voice and data transmission. LTE baseband chipsets comply with the 4G Long-Term Evolution (LTE) standard.

Qualcomm is by far the world's largest supplier of LTE baseband chipsets. But there are other chip manufacturers active in this market – Intel (the largest supplier for chipsets used in computers), in particular, has tried to challenge and compete with Qualcomm for customers.

The Commission’s fine is based upon an agreement between Apple and Qualcomm dating back to 2011, a crucial time in the rapid rise of smartphone take up by European consumers. In this agreement, the Commission asserts that Apple agreed to exclusively use Qualcomm LTE baseband chipsets in its Iphone and Ipad products, in return for payments from Qualcomm to Apple. According to the Commission:

The agreement made clear that Qualcomm would cease these payments, if Apple commercially launched a device with a chipset supplied by a rival. Furthermore, for most of the time the agreement was in place, Apple would have had to return to Qualcomm a large part of the payments it had received in the past, if it decided to switch suppliers. This meant that Qualcomm's rivals were denied the possibility to compete effectively for Apple's significant business, no matter how good their products were.”

The Commission held that this agreement with Apple constituted an abuse of dominance by Qualcomm, as Qualcomm had used its market position to buy exclusivity and shut rivals from the market. The Commission also believed there was no justification for the conduct and that Qualcomm had failed to prove its assertion that there was no actual anti-competitive effect from the agreement. As well as the fine, Qualcomm were also banned from future practices of equivalent effect.

Whilst the conclusion of the case above and the Commission’s analysis looks clear enough, it does leave open some questions. The technology in question is a highly industrial component without any consumer oversight in the Iphones and Ipads. Would consumers really have benefitted from Intel chips being freely available to Apple at that time, or did consumers perhaps benefit from the quality of Qualcomm’s chips and the lowered costs for Apple from the payments, which may have been passed to consumers? Did the agreement with Qualcomm from 2011 perhaps represent a simple bidding victory for Qualcomm and Intel would have bid on similar terms, meaning they simply missed out on the contract, rather than have been excluded from the market? It is even unclear as to whether the Commission had analysis to prove Qualcomm’s actions led to higher priced Apple devices. Just because Intel was excluded by the agreement does not necessarily mean that consumers suffered or that the Commission had economic evidence of that.    

Lastly, does the case represent efficient justice? If the case was started in 2015, then the Commission’s lack of expedient process means that consumers never actually benefited from the Commission’s intervention. The agreement with Qualcomm ended in late 2016, and Apple did indeed switch between Qualcomm and Intel chipsets from that point, meaning freedom was restored to the market not by the Commission, but by the parties’ own freedom of contract and the competitive allure of Intel’s products to Apple. It could be argued that the only people who have really benefited at the present time are the EU, as the recipients of their own fine, the benefits of which consumers, nor Intel and other competitors, may ever see.

A Heavy Burden: French company held liable for infringement of competition law by subsidiary due to failure to prove independence

Authors: Kathie Claret

It is settled law that the fact that a subsidiary has separate legal personality is not sufficient to exclude the possibility of its anti-competitive conduct being imputed to the parent company. The European Court of Justice (“CJEU”) has created a rebuttable presumption to the effect that a parent company holding substantially all of its subsidiary’s shares is presumed to control the latter’s decisions (CJEU, Oct. 25, 1983, case 107/82, AEG; CJEU, Sept. 10, 2009, case 97/08, Akzo Nobel ; CJEU, Sept. 10, 2011, case 520/09, Arkema). To overcome the presumption, the parent company must prove that its subsidiary self-determines its actions on the market as an autonomous legal entity and not pursuant to instructions from its parent.

This burden of proof is hard to meet both under EU and French law. The CJEU has held that it is not sufficient to establish that the parent company is a non-operational holding company (CJEU, Sept. 9, 2011, case 521/09, Elf Aquitaine SA), nor that there are no common directors between the two companies (General Court of the European Union, July 9, 2011, case 190/06, Total and Elf Aquitaine), nor that the two companies operate on different markets (General Court of the European Union, July 9, 2011, case 190/06, Total and Elf Aquitaine).

Thus, it was foreseeable that the French Supreme Court on October 18, 2017 (case n° 16-19120, Mobilitas) would confirm the decision of the French Competition Authority (“FCA”) to sanction both a subsidiary company and its 99.6% parent by a EUR 158,450 fine (jointly and severally with its subsidiary to the extent of EUR 142,600) due to competition law infringement, even though the parent company demonstrated that:

  • The parent company was a non-operational holding company;
  • The subsidiary company director was empowered with the broadest authority to run the company without depending on the parent company;
  • The parent company’s sole mission consisted of approving the annual accounts of its subsidiary, without any discussion related to strategic, commercial, organizational, or logistical matters;
  • Both companies were geographically separated;
  • The subsidiary company managed its recruitment of staff by itself;
  • None of the parent company’s directors or shareholders traveled to the subsidiary’s territory (Martinique) for the last couple of years;
  • The parent company and its subsidiary operated on different markets;
  • The subsidiary’s manager was the only person legally entrusted with running the business and had a real control of the management of the subsidiary in terms of cost management and price fixing;
  • The two companies did not communicate about their affiliation; and
  • The subsidiary company opted not to challenge the FCA’s infringement proceedings, unlike the holding company.

In light of this impressive catalog of factual circumstances, which was nonetheless held to be insufficient, it is difficult to imagine the possible factual arguments that could lead the CJEU or the national courts not to hold parent companies liable for their subsidiaries’ infringements of competition law. The French Supreme Court did nevertheless open the door to a possible future argument by alluding to the importance for the parent and subsidiaries each to have their own legal department…

“Constitutionally Unacceptable” EU Withdrawal Bill Faces Heavy Attack In House Of Lords

Author: Robert Bell

The EU Withdrawal Bill is probably one of the most controversial and important constitutional UK Parliamentary Bills of modern times.

This is the Bill that will pave the way for the UK to leave the European Union and ensures that the UK retains in its wake a functioning statutory framework after Brexit. The aim is to provide legal certainty when converting existing EU law on the day the UK leaves the EU (“Exit Day”) into UK law. However, muddled political thinking could result in a lack of clarity with consequences for the UK’s constitutional law as well as legal certainty and effective judicial interpretation.

This week the Bill is to be debated by the House of Lords for the first time and is likely to be subject to heavy amendment with critics alleging that the current Bill “risks undermining the legal certainty it seeks to provide”. The House of Lords Constitution Committee, part of the UK’s upper revising chamber has already labelled it “constitutionally unacceptable” and called for significant amendments to the Bill.

In light of this we review the Bill’s provisions and the amendments accepted by the Government to date and ask how well they are likely to work in practice.

Summary

The central function of the Bill is to repeal the European Communities Act 1972 (“ECA”) thereby ending the supremacy of EU law after Exit Day which is currently prescribed as 29th March 2019.

It converts the provisions of EU law as they stand at the moment of exit into UK law. This is done by way of a series of savings provisions to ensure there is a functioning statutory framework after Brexit. The Bill also provides for the role of the UK courts and the status of pre- and post-Brexit European Court decisions.

Henry VIII Powers

Particularly contentious is the power the Bill creates to make secondary legislation. This power is given where the Government considers it necessary to correct existing UK legislation to take account of Brexit. Among other things, these powers could be used to remove the names of EU institutions no longer relevant after Brexit. These so-called Henry VIII‘s powers have been widely criticized due to their wide ranging scope and the fear that the Government will use them not just for corrective amendments but to push through policy provisions without adequate Parliamentary scrutiny.

The Government conceded an amendment to limit the scope of these powers to circumstances listed in an exhaustive rather than illustrative list. However, ministers could add to this list if it resulted in a deficiency in regulations. However those regulations would have to be approved by Parliament.

The House of Lords is expected to seek further amendments to the Bill on this particular issue.

Repeal of the ECA

The central function of the Bill is to repeal the ECA on Exit Day which is defined as 11.00 pm on 29 March 2019 pursuant to the provisions of Article 50 of the Treaty on the European Union. However an amendment put forward in the House of Commons was accepted by the Government and now Exit Day can be changed by way of a regulation by a Minister in the event that the UK cessation dates from the EU changes. The repeal of the ECA has the effect of removing the legal mechanism through which EU law is automatically transposed into UK law (via section 2(1)). It also removes the power to implement EU obligations (under Section 2(2)).

Retained EU law

The Bill expressly transposes all retained EU law on Exit Day into UK domestic law. This is because the ECA is being repealed and UK secondary legislation lapses automatically if the primary legislation from which it is derived is repealed. This body of law will apply immediately after Exit Day as it did immediately beforehand and unless or until Parliament enacts domestic legislation which amends it or a judgment of the Supreme Court or High Court of Justiciary in Scotland departs from it.

Therefore unless Parliamentary passes legislation modifying any provision of EU retained law it is possible that elements of retained EU law will remain enforceable for some time after Exit Day.

Interpreting EU Law in the UK post-Brexit

(i) Supremacy of EU Law

For the sake of legal certainty it is important to understand how retained EU law will be interpreted in the UK after Brexit happen.

The fundamental principle of supremacy of EU law, under which EU law took precedence over domestic law in the event of a conflict, ends with Brexit. However supremacy of EU law will still continue either when questions arise post-Exit about the interpretation, disapplication or quashing of enactments and rules passed before Exit Day or to domestic legislation enacted on or after Exit Day to modify pre-Exit Day legislation. The effect of this is to preserve Supremacy of EU law in so far as it relates to pre-Exit Day domestic legislation. However, overall the aim of Parliament in the Bill is to be able to amend the EU retained law in future after Exit Day without being bound by the supremacy of EU law.

(ii) CJEU Decisions Post-Brexit?

This has been the subject of a hotly contested debate. Currently UK courts and tribunals have to follow any CJEU judgments in the interpretation of EU law and may also refer questions of EU law to the Court for preliminary determination. After the Exit Day, UK judges need clear and unambiguous guidance about what weight to give to judgements of the CJEU, especially when they relate to the interpretation of retained EU law. The Government takes the view that it would be unpalatable to allow the Courts to be bound by CJEU judgements after Brexit.

So a quick solution was needed. The end result is very unsatisfactory. It leaves it to the Courts to exercise their own judgment (and hence leave them open to political attack) rather than politicians having the courage to decide what are clearly political rather than legal questions. This issue may well be debated more fully in the House of Lords.

The Bill at the present time states that UK courts or tribunals will not be bound by any principles established by or decisions of the CJEU on or after Exit Day. Nor can they refer cases to the CJEU. However the tricky bit is that a court or tribunal may, however

“have regard” to “anything done…by the European Court, another EU entity or the EU” on or after Exit Day if it considers it appropriate to do so

This rule applies to a court or tribunal’s pre-exit interpretation of retained EU law. However post-exit amendments to retained EU law can only be determined in accordance with CJEU case law and principles, if this was Parliament’s clear intention. The Bill introduces a rather strange power giving the Minister the power to make regulations that “require judicial notice to be taken” or provide for the admissibility of “relevant matters” including retained EU law or (post-Exit Day) EU law. Presumably this is in the law to give a statutory basis for evincing Parliament’s clear intention to give effect to CJEU case law.

Interpretation of Retained EU law post-Exit Day

On or after Exit Day, UK courts must interpret the validity, meaning or effect of law in accordance with retained Case law and retained general principles of EU law in so far as they are relevant to interpreting retained EU law (so long as that has not been modified on or after Exit Day). Notwithstanding this, the UK Supreme Court is entitled under its normal practice of departing from its own precedents to disregard or overturn pre-Exit Day CJEU principles and decisions if it wishes to do so. This provision reinforces that the UK Supreme Court is now the ultimate court of appeal for UK law post Brexit and gives pre-Exit Day CJEU case law the same binding and precedent status as domestic cases determined by the Supreme Court. This will inevitably mean that the Courts will now have a greater political role.

EU law based claims

EU law has been used successfully in the past to challenge the provisions of UK law, or indeed as a defence against a cause of action based on domestic law. However the Bill includes several provisions that will impact on the ability to bring legal claims based on EU law post-Exit Day. The use of EU law to challenge UK law is restricted as follows:

  • There will be no right to challenge the validity of any retained EU law on the basis that, immediately before Exit Day, an EU instrument was invalid.
  • Subject to certain limited exceptions a breach of the general principles of EU law will no longer be actionable on or after Exit Day, nor may a court or tribunal disapply or quash any enactment, rule of law or “conduct” in view of them.
  • There will be no right to damages in accordance with the rule in Francovich (Francovich v Italy (Case C-453/99) against the UK for failure to implement EU law unless the case had already begun before Exit Day.

Concern had been expressed that the repeal of this rule might deprive individuals of the right to claim damages for breach of specific statutory rights based on EU law. For example damages for breach of the public procurement rules. However the explanatory notes on the Bill suggest that this provision “does not affect specific statutory rights to claim damages in respect of breaches of retained EU law… or the case law which applies to the interpretation of any such provisions” This seems to allay concerns that claims under the Public Contracts Regulations will, be affected.

The loss of individuals’ EU rights on Brexit was the subject of considerable debate in the House of Commons. The Government was clearly on the back foot. It had previously asserted that Brexit would not lead to a diminution of individuals’ rights. In the face of considerable pressure from the House of Commons, the Government accepted an amendment permitting legal challenges to be brought within three months of Exit Day for a breach of the general principles of EU law, where these relate to anything that happens before Exit Day, provided the cause of the action is not and does not relate to the disapplication or quashing of an Act of Parliament or the common law. The decisions of courts, tribunals or other public authorities on or after Exit Day that relate to these legal challenges are also subject to challenge.

The EU Withdrawal Bill received its first reading in the House of Lords on 18 January 2018, and had its second reading on 30 January 2018. Any amendments will be tabled at the Committee Stage, following the second reading.

New German Competition Blacklist

Authors: Eckart Budelmann

The German Federal Government recently presented the so-called competition register bill (Wettbewerbsregistergesetz). By setting up a Federal register that would list all companies that were involved in corrupt practices and anti-competitive behavior, these companies will be blacklisted for public procurement contracts. This exclusion from public award procedures shall serve the prevention of business crime and the preservation of fair competition in the course of dealing with public contracts.

Until now, there were competition registers only in some states in Germany, leading to a fragmented legal picture within Germany and creating legal uncertainty for market participants with respect to the legal consequences of being registered with a competition register.

In order to tackle this inconsistency and create a nationwide standard, the German Federal Government presented the register bill.

The bill does emphasize the importance of compliance systems for companies that are involved in public procurement. If such systems are not installed yet, it is highly recommended to do so before the bill comes into force in 2019 in order to meet the challenges that are introduced by the competition register and its consequences.

Although being registered for antitrust violations does not ultimately lead to being put on the register, the competition register is anything but a toothless tiger.

In any event, a case-by-case assessment is made by public clients before initiating procurement negotiations. If 'compelling grounds' for exclusion are on hand, a so-called Ermessensreduzierung (reduction of discretion) will lead to exclusion from the award procedure. It is to be expected that authorities in many cases will consider that antitrust violation constitute 'compelling grounds' in this sense.

Against this background, companies which have been put on the list have a compelling interest in being removed. In order to be taken into account again for upcoming award procedures, companies need to fulfill three conditions:

Firstly, compensation for damages has to be paid or at least admitted if the estimation of the damages is not possible. Secondly, the company has to cooperate fully with investigating authorities and allow clarification. Thirdly, concrete measures for prevention such as setting up an effective compliance system have to be initiated.

These measures lead to erasure from the register as soon as the company can prove their application to the register authority. If a confirmation by the register authority is not achieved, it also can be received by a public client in the course of negotiations for public procurement contracts, as public clients are not bound by the decision of the register authority.

New Turnover Thresholds For Italian Mergers And Acquisitions

Authors: Gabriele Bricchi of Pirola Pennuto Zei & Associati

Section 16 (1) of Law no. 287 of 10 October 1990 requires prior notification of all mergers and acquisitions to the Italian Antitrust Authority which involve M&A meeting certain thresholds. Thresholds are adjusted every year in order to take account of increases in the GDP deflator index and published in the Bulletin of the Italian Antitrust Authority.

Over the last years the thresholds have increased to:

  • Euro 499 million for the combined aggregate domestic turnover of all the undertakings concerned; and
  • Euro 50 million for the domestic turnover of the target.

After a first modification of Section 16 (1) of law 287/1990 in 2012 – the thresholds changed from alternative thresholds to combined thresholds, the wording was then changed again in 2017.

The 2012 modification, aimed at reducing the very high number of notifications due to the fact that only one threshold had to be met, proved to be over-effective. After the 2012 modification, only a few concentrations exceeded both thresholds, thus making the system of control almost ineffective.

Law no. 124/2017 entered into force on 29 August 2017. It provides that the second threshold has to be exceeded by at least two of the undertakings concerned and no longer just by the target. In addition, this law also reduced the amounts of the thresholds.

Section 16 (1) of law no. 287/1990 now provides that concentrations referred to in section 5 shall be notified in advance to the Italian Antitrust Authority if:

  • the combined aggregate domestic turnover of all the undertakings concerned exceeds Euro 492 million, and
  • if the aggregate domestic turnover of each of at least two of the undertakings concerned exceeds Euro 30 million.

The wording of the second threshold is now in line with the Art. 1 (2) let. b) of the EU Regulation 139/2004 and undertakings concerned are interpreted in the same way as outlined in the Commission Consolidated Jurisdictional Notice under Council Regulation (EC) no 139/2004 on the control of concentrations between undertakings (2008/C 95/01), paragraphs 129 to 153. 

In any case, the amount of the thresholds shall be increased each year by an amount equivalent to the increase in GDP price deflator index. The next review will be made in 2018.