Chinese Buyers Act Quickly – Parallel Uk & Eu Foreign Takeover Control Systems Proposed

Federal Cartel Office Imposes Fines On Automotive Suppliers

New Notification Conditions for Italian Mergers and Acquisitions

CMA’s new guidelines give clarity for smaller and non-overlapping mergers

Expedia targeted once again by the French

Chinese Buyers Act Quickly – Parallel Uk & Eu Foreign Takeover Control Systems Proposed

Authors: Robert Bell and Roman Madej

On the 13th September 2017 Jean-Claude Juncker, the European Commission President, unveiled a framework for investment screening for certain foreign mergers in his “State of the Union” address to the European Parliament.

At the same time the text of a proposed Council Regulation was published which set out inmore detail the proposed new EU system.

These proposals are similar in nature to those proposed by the UK in the Queen’s speech a few months ago.

This proposal had been widely predicted since early August when the UK Press highlighted how the EU Commission President was preparing to unveil EU foreign takeover controls in his keynote speech in September.

In his speech he re-stated his dedication to free trade but noted that EU Member States were not “naïve free traders”. He promised that Europe will and, must, always defend its strategic interests.

This is why he explained that he was proposing a new EU framework for investment screening. He stated:-

“ If a foreign, state-owned, company wants to purchase a European harbour, part of our energy infrastructure or a defence technology firm, this should only happen in transparency, with scrutiny and debate. It is a political responsibility to know what is going on in our own backyard so that we can protect our collective security if needed”.

The new draft legislation made under Article 207(2) of the Treaty on the Functioning of the European Union (TFEU) empowers both Member State governments and the Commission to screen and block or unwind foreign investments in the European Union (EU) on the grounds of “security or public order”. The proposed regulation would form part of the Common Commercial Policy and would be applied separately to the provisions of the EU Merger Regulation..

The proposed regulation would apply to all foreign investments of any kind and give Member States the power to screen foreign investments concerning persons established in that Member State. However the EU Commission will have a power to intervene to screen foreign investments in any Member State “that are likely to affect projects or programmes of Union interest”. The draft Regulation includes an indicative list of EU projects including Horizon 2020, the Trans-European Networks for Energy (TEN-E), the Trans-European Networks for Transport (TEN-T) and European GNSS programmes (aka “Galileo”, the global navigation satellite system).

Member States could intervene on the grounds of security or public order which are defined widely to include critical infrastructure or technologies, the supply of critical inputs and access to sensitive information or the ability to control sensitive information”.

The proposal appears to be clearly aimed at foreign state controlled-principally Chinese- enterprises. The proposed Regulation states that in considering whether a foreign investment is likely to affect security or public order, Member States and the Commission may take into account whether the foreign investor is “controlled by the government of a third country, including through significant funding”.

At the back of this proposal is the Commission’s belief that the EU’s openness to Chinese investment is not reciprocated in China and measures to stop the gradual Chinese spending spree are required.

The proposed Regulation introduces a cooperation mechanism between Member States and the Commission to ensure that Member State governments report screening of foreign investments under the new mechanism to the Commission and the other Member States allowing other Member States and /or the EU Commission to raise objections, where appropriate. These objections, however, would stop short of a formal veto. The power to block or not would remain with the relevant Member States but the decision making Member State would be hard pressed to ignore the protestations of other Member States or the Commission..

It is up to each Member State to design their own investment screening mechanism within the confines of the proposed Regulation.

It is as yet unclear how these systems would be similar to CFIUS, the USA’s Committee on Foreign Investment. In the USA, the CFIUS mechanism allows the USA to block foreign takeovers when they could threaten USA strategic interests.

Federal Cartel Office Imposes Fines On Automotive Suppliers

Author: Eckart Budelmann

On 13 July 2017 the German Federal Cartel Office (FCO) announced the imposition of fines amounting up to €9.6M on three European heat shield manufacturers for the automotive industry. A fourth company involved in the agreement was not fined since its cooperation helped disclose the existence of the cartel and provide essential evidence in the investigation, which commenced in 2013.

In 2011, the four automotive suppliers agreed on sharing highly sensitive economic information with respect to a common client, a major German car manufacturer with considerable market power. In order to strengthen their bargaining position with the car manufacturer, the companies agreed to exchange information as to the status of their respective contractual negotiations.  

Furthermore, the companies coordinated their price policy by deciding to jointly pass on to customers the price increases of certain ancillary components or processes, such as the increase of certain aluminum-related costs.

As usual, the Federal Cartel Office determined the fines after weighing up the gravity and the duration of the antitrust violation. In addition to that, the Cartel Office factored in the economic standing of the companies in question. Especially the countervailing market power and the behaviour of other market players were taken into account and considered in favour of the accused parties.

Furthermore, the penalties imposed were reduced in recognition of the fact that some of the fined companies cooperated with the FCO in the course of the proceedings.

However, the fines imposed are not yet legally binding. The companies still have the opportunity to appeal the decision of the FCO.

New Notification Conditions for Italian Mergers and Acquisitions

Authors: Luigi Zumbo and Arturo Battista

On 29 August 2017, Law No. 124 of 2017 entered into force and amended Section 16 (1) of Law No. 287 of 1990 (the Italian competition law) that provides for prior notification system of all mergers and acquisitions in Italy which fall within certain thresholds.

As of 29 August 2017, a concentration has to be notified to the Italian Competition Authority when it meets the new cumulative conditions below:  

(i) The aggregate turnover in Italy of all undertakings involved exceeds € 492 million,

and

(ii) The individual domestic turnover of at least two of the concerned undertakings is above € 30 million.

The amendment is notable because the second condition takes into account the turnover of all other companies involved in the transaction in addition to the target company.

The change is likely to reduce the number of merger notifications in Italy. However it may although unintentionally also capture in the prior notification process joint venture transactions which would have otherwise not required notification.

CMA’s new guidelines give clarity for smaller and non-overlapping mergers

Authors: Robert Bell and Roman Madej

On 5 September 2017, the CMA released new guidance regarding its Mergers Intelligence Function and the informal guidance it can give parties who are considering whether to submit their merger for formal deliberation by the CMA.

This relatively new process confers great advantages for companies with border the thresholds for notification or mergers which do trigger thresholds but the parties activities do not overlap. Parties can seek an informal opinion of no-interest using the merger intelligence unit of the CMA. To do only involves a 5 page paper that the parties get to submit before an indication back from the CMA. It also has the advantage of no-filing fee.

The new guidance on the 5 September just updates the CMA’s position on this, likely following repetitive questions from parties using the new process. The CMA have now stated that, as a general rule to prioritise their workload, they will only consider a briefing note after there is a signed letter of intent or heads of terms. They must be sure of the parties ongoing and formalised intent to merge before they are willing to spend time assessing a case.

Further, and perhaps most importantly, the CMA have indicated they will not use the informal procedure to grant the parties merger clearance by the back door (or on the cheap!). Instead, if after enquiries the CMA feels it does not wish to investigate the merger, it will only contact the main parties to indicate that it has no further questions at this stage. Crucially for its own discretion, the CMA retains its right to a four-month statutory period (set out in section 24 of the Enterprise Act 2002) to possibly investigate the merger further.

Also on 5 September, the CMA released new guidelines on two other issues. The first relates to initial enforcement orders (IEOs) and provides clarification on:

  • the circumstances in which an IEO will typically be imposed;
  • the form that an IEO will typically take;
  • the types of derogations that the CMA is likely to grant; and
  • the timing for imposing and revoking IEOs and granting derogations.

The second piece of guidance relates to the merger notice form and reflects changes include making the form clearer to understand, eliminating unnecessary questions and providing additional guidance on what information is and isn’t likely to be required by the CMA in any given case.

Further information on all three issues can be found by following this link.

Expedia targeted once again by the French

Authors: Kathie Claret, Francois-Xavier Mirza and Emmanuelle Mercier

Flag: France

Following the French Economy Minister’s claim against Expedia in 2013, the Paris Court of Appeals, by decision dated 21 June 2017, heavily fined this Online Travel Agency (OTA), considering that certain provisions in the contracts between Expedia and its hotel partners created a “significant imbalance” between the parties under Article L. 442-6, I, 2° of the French Commercial Code.

The dispute originates from 2011 when Expedia was subject to an inquiry by the DGCCRF (the French competition and consumer frauds authority). The contracts entered into between Expedia and hoteliers in 2008-2011 that were reviewed by the authorities all included two types of contentious clauses that were considered unlawful by the French Government: the parity clause and the “last available room” clause.

The parity clause required the hotelier to grant Expedia conditions that were at least as favorable as those granted via other platforms (competing websites, hotel’s own direct sales, etc.) in terms of prices and promotional or non-promotional offers. The “last available room” clause provided that no matter how many rooms were available for booking, the hotelier was required to save the last available one to Expedia.

The Paris Court of Appeals ruled on several matters in this case:

  • Public order law nature of the provisions on restrictive practices

While the Paris Commercial Court had considered in its first instance decision that English law, the law specified as applicable in the contracts in question, applied to this case, the Court of Appeals ruled that French law applied to the matters at hand. What is interesting to note is that the Court of Appeals specified that even if foreign law were generally applicable between the parties, the relevant provisions of article L. 442-6 of the French Commercial Code on restrictive practices were nonetheless applicable, because they constitute public order law insofar as they are critical for the safeguard of equality and loyalty between business partners.

  • No double jeopardy

Expedia is currently facing pending proceedings before the French Competition Authority (FCA) following a complaint in 2013 from hotel unions against several OTAs. The FCA has already ruled in such case in regard to Booking.com, which was not sanctioned in return for its commitment to end the use of the parity clause (see the June 2015 edition of the Bryan Cave EU & Competition Law Bulletin).

In the proceedings before the Court of Appeals, Expedia argued that the Court was required to stay its proceedings and await the decision of the FCA as it concerns the same contractual relationships and that under the non bis in idem principle, Expedia cannot be sanctioned twice for the same use of the litigious clauses.

The Court of Appeals rejected Expedia’s claims in this regard. Its rationale for doing so was that the concomitant proceedings are based on different grounds. Thus, while the FCA proceeding is based on the provisions of the TFUE regarding anti-competitive practices which are meant to safeguard competition on the market, Art. L. 442-6 of the French Commercial Code concerns restrictive practices and aims at protecting competitors, not the market itself. Therefore, the Court of Appeals concluded that the non bis in idem argument was groundless, and that even if the FCA were to rule on restrictive practices matters, the Court would not be bound by the FCA’s findings.

  • The invalidity of the parity and the “last available room” clauses

The Paris Court of Appeals found that the parity and the “last available room” clauses breached both Art. L. 442-6 II, d) and. Art. L. 442-6 I, 2° of the French Commercial Code.

Indeed, Art. L. 442-6 II, d), which entered into effect in August 2008, prohibits provisions that enable businesses to automatically benefit from the most favorable clauses granted to competing contractual partners. Thus, both the parity and the “last available room” clauses were found to have breached that Article as they allowed Expedia to benefit from the best conditions in terms of prices and of room availability.

Furthermore, both types of clauses were also found to breach Art. L. 442-6 I, 2° which prohibits the fact of subjecting or trying to subject a contracting partner to contractual provisions that create a significant imbalance between parties. The Court of Appeals ruled that the breach was evidenced by the inability of the hoteliers to negotiate the contractual provisions, the fact that the competitive and tariff advantages that Expedia benefits from is borne solely by the hotelier, and that there is no counterpart for the hoteliers.

Therefore, both clauses were declared null and void and, notwithstanding that OTA parity clauses with hoteliers were already prohibited as of August 6, 2015 by the creation of Article L. 311-5-1 of the French Tourism Code, Expedia was required to remove them from its contracts.

  • Expedia France and Expedia Inc.’s liability

In its first decision, the Paris Commercial Court had considered that Expedia France and Expedia Inc. could not be found liable for the litigious clauses as they were not the actual signatories of the contracts (the signatories were subsidiaries belonging to the same group).

The Paris Court of Appeals approved that decision as regards breach of Art. L. 442-6 II, d) of the French Commercial Code. Indeed, this Article specifically refers to the provisions of an agreement, while Expedia France and Expedia Inc. were technically third parties in relation to the agreements signed with the hoteliers.

However, Art. L. 442-6 I, 2° holds liable a party who subjects or tries to subject a business partner to obligations that create a “significant imbalance” between the parties. Therefore, this article was found to sanction a behavior, which may embrace more than the sole signature of an unbalanced agreement.

Thus, Expedia Inc. and Expedia France were found to have been directly involved in the wrongful behavior in light of the following evidence:

  • Expedia Inc. was advertising a “price alignment guarantee” on its website, which evidenced its involvement in the implementation of the parity clauses;
  • Expedia France’s own sales teams were soliciting hoteliers to invite them to enter into Expedia-operated websites’ sales programs;
  • Expedia France’s staff would monitor the hoteliers to try to ensure that they complied with the parity clauses;
  • The general terms of the agreements specified that the term “Expedia” referred to several companies depending on the location, including Expedia Inc.

Therefore, with regard to its influence on the market, its income and the persistence of the breach, the Expedia group was fined 1 million euros for having subjected its business partners to obligations that created a significant contractual imbalance between the parties.

Expedia had already been ordered by the Paris Commercial Court to pay 430,000 euros in damages to hoteliers and trade associations for unfair competition acts in 2011 and it still facing pending proceedings before the FCA. The French jurisdictions seem determined to make their case with Expedia.

Decision : Paris Court of Appeals June 21, 2017 no. 15/18784