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European Commission Targets Spanish Football Clubs including Real Madrid and Barcelona for State Aid Investigations

by | Dec 19, 2013 |

The European Commission (Commission), on 18 December 2013, opened three formal State aid investigations into public support measures for major Spanish football clubs. The Commission alleges that the clubs under investigation have benefitted from State aid that cannot be authorised. The clubs, which include Real Madrid and Barcelona, are therefore exposed to the risk of the alleged benefit being recovered. Professional sports clubs in other EU Member States should also be aware that the Commission is starting to enforce the State aid rules in the sport sector.

The European Commission (Commission), on 18 December 2013, opened three formal State aid investigations into the public financing of some of the most well-known Spanish football clubs.

The first investigation concerns possible tax privileges for Real Madrid CF, Barcelona CF, Athletic Club Bilbao and Club Atlético Osasuna. These four clubs are exempted from the general obligation on professional football clubs to convert into sport limited companies. The effect of the exemption is that these clubs enjoy a preferential corporate tax rate of 25 per cent instead of the 30 per cent applicable to sport limited companies.

The second investigation will assess whether or not a land transfer between the City of Madrid and Real Madrid CF involved any State aid in favour of the club. In the third investigation, the Commission will examine the compliance with EU State aid rules of guarantees given by the State-owned Valencia Institute of Finance for loans that were used to finance the three Valencia clubs Valencia CF, Hercules CF and Elche CF, while those clubs were seemingly undergoing financial difficulties.

The Commission is empowered to investigate public support measures going back 10 years under general EU State aid rules. Should the Commission come to the conclusion that the measures in favour of the Spanish football clubs infringe EU State aid rules, it can order Spain to recover the State aid from the clubs and the relevant public support measures could no longer be applied.

Background

Unlike amateur sport, professional sport is an economic activity to which the general EU State aid rules apply. Although the economic nature of professional sport has been recognised in the past, the Commission has only recently picked up on potential EU State aid in the sport sector.

The Commission sent an information request to all EU Member States in October 2012, asking them to provide all relevant information regarding public financing of the professional football clubs in their country. The Commission subsequently launched an investigation in the Netherlands (see McDermott website here) (https://www.mwe.com/Commissions-Launches-First-State-Aid-Investigations-Into-Football-Clubs-04-02-2013/?PublicationTypes=d9093adb-e95d-4f19-819a-f0bb5170ab6d) in March 2013 concerning, amongst others, PSV Eindhoven.

Implications

Professional football clubs in other EU Member States should watch the Spanish and Dutch cases with interest as the Commission is starting to enforce the State aid rules in this sector and it is likely that professional football clubs in other Member States will also become subject to an investigation.

Since the underlying legal and economic concepts of the Commission’s probe into the financing of football clubs are not [...]

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European Commission Investigates Exemption from Renewable Energy Surcharge for Energy-Intensive Companies in Germany

by | Dec 18, 2013 | , ,

The European Commission today opened a State aid investigation into the German Renewable Energy Source Act (the EEG), claiming that the EEG may have given unlawful advantages to energy-intensive companies in Germany. These companies now face the potential risk that benefits totalling billions of euros may have to be repaid.

The European Commission (Commission) today opened a State aid investigation into the German Renewable Energy Source Act (the EEG). In its preliminary assessment, the Commission has come to the conclusion that the EEG may have given unlawful advantages to energy-intensive companies in Germany.

The EEG aims to support renewable energy by fixing the tariffs that electricity providers must pay for energy from renewable sources such as solar panels or wind turbines. This is known as the EEG Surcharge and electricity providers are entitled to charge their customers to finance these fixed feed-in tariffs for renewable energy. These tariffs are higher than those for energy from traditional sources. The EEG exempts energy-intensive companies from the EEG surcharge.

The Commission has come to the preliminary conclusion that exemption from the EEG surcharge constitutes State aid for the energy-intensive companies and therefore cannot be authorised. Energy-intensive companies that have benefitted from the exemption face the significant risk of the recovery of the alleged benefit. The potential State aid involved is likely to amount to billions of Euros.

Energy-intensive companies are threatened with recovery orders from two sides:

  • Should the Commission conclude that the exemption from the EEG Surcharge constitutes State aid and therefore cannot be authorised, it will order Germany to recover the advantages from the companies that benefitted.
  • Following a recent ECJ judgment (see McDermott website here), national courts, at the request of interested parties, may also order the recovery of the benefits before the Commission releases its final decision, on the basis of the purely preliminary Commission decision to open the State aid investigation.

Beneficiaries of the exemption from the EEG surcharge should therefore consider whether to appeal the Commission’s decision to open the State aid investigation or to participate in the investigation by commenting on the opening decision and then prepare to bring an action for annulment against the Commission’s final decision at the end of the investigation.

Beneficiaries also have to analyse whether or not, under national law, they are required to set up accruals for the reimbursement of the alleged aid. They are strongly advised to seek legal advice on this point.

The Commission’s investigation into the EEG should be seen in the broader context of its increased focus on State aid in the energy sector. The Commission today published its draft Guidelines on environmental and energy aid for 2014 to 2020 for public consultation. The text is currently not binding, but is supposed to enter into force in 2014. Amongst other things, it covers the compatibility assessment of State aid for renewable energy. The Commission also today opened a State aid investigation into a fixed feed-in tariff for a period of 35-years for the [...]

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European Commission Simplifies Aspects of EU Merger Control

by | Dec 10, 2013 | ,

The European Commission (Commission) has issued a package of measures (the Reform Package), the rationale for which is to simplify and streamline EU merger control. The Reform Package does this by extending “simplified” treatment to more transactions, reducing the information that parties to a notifiable transaction have to submit and streamlining the pre-notification process. The reforms take effect on 1 January 2014.

The overall objective of the Reform Package is to make EU merger procedures simpler and more business friendly. But it may actually introduce additional work for some types of transactions, for instance by introducing new categories of information that parties to a notifiable transaction must be prepared to supply.

The Reform Package

The Reform Package is comprised of a revised Merger Implementing Regulation, a Notice on Simplified Procedures and revised notification forms, namely a revised Form CO, a revised Short Form CO and a revised Form RS.

The main features of the Reform Package are as follows.

Extension of the Simplified Procedure

At present, transactions that do not present competition concerns are eligible for simplified treatment. Parties to these transactions are entitled to use the Short Form CO, which requires less information and generally requires less time because a market investigation is not necessary.

The Reform Package expands the simplified procedure to apply it to more transactions. Specifically:

  • In markets in which two merging companies compete (horizontal overlap), the simplified procedure applies to mergers below a 20 per cent combined market share, instead of 15 per cent currently.
  • In mergers where one of the companies sells an input to a market where the other company is active (vertically-related markets), the simplified procedure applies to mergers below a 30 per cent combined market share, instead of 25 per cent currently.
  • Provided that the increase in market shares is small, i.e., a Herfindahl–Hirschman Index increase of 150 or less, the simplified procedure applies where the parties’ combined market shares are between 20 per cent and 50 per cent.

The Commission estimates that, under the Reform Procedure, between 60 and 70 per cent of notifiable transactions will be eligible for simplified treatment, representing a 10 per cent increase over current levels.

Information Requirements

The Reform Package introduces several changes in respect of the provision of information in connection with EU merger procedures. Some of these changes will reduce the overall amount of information that parties to notifiable transactions will have to provide to the Commission.

  • More transactions eligible for simplified treatment. As the Reform Package makes more transactions eligible for simplified treatment, it follows that parties to those transactions will need to provide less information in connection with their merger procedure.
  • Waivers for certain information. The Reform Package envisages that parties using either the Form CO or the Short Form CO will also need to provide less information, but this will largely remain within the discretion of the Commission case team reviewing the transaction. Specifically, under the Revised Package, parties will have greater likelihood of being relieved from [...]

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Relief for harm incurred as a result of protracted judicial review must be sought before General Court

by | Dec 3, 2013 |

On 26 November 2013, the European Union’s top court, the European Court of Justice, gave a seminal ruling establishing the principle that a claim for damages for losses incurred as a result of excessively long judicial review proceedings before the General Court must be brought in a separate action before the General Court itself.

Introduction

On 26 November 2013, the European Union’s top court, the European Court of Justice (ECJ), gave a seminal ruling establishing the principle that a claim for damages for losses incurred as a result of excessively long judicial review proceedings before the European Union’s court of first instance (the General Court) must be brought in a separate action before the General Court itself. Allowing the General Court to decide on whether it acted too dilatorily, may raise eyebrows in practitioner circles and amongst potential damages claimants alike.

The ECJ decided to distance itself from the stance it had taken in a previous judgment, Baustahlgewebe v Commission (Case C-185/95 P), where it took it upon itself to simply reduce the fine to reflect the excessive length of proceedings before the lower instance court. The ECJ’s 26 November ruling instead implies that parties seeking compensation for losses incurred as a result of excessively long proceedings will have to invest more money and time in preparing a separate action before the General Court.

Background

In 2005, the European Commission (Commission) levied fines exceeding €290 million on 16 firms for operating a cartel in the industrial bags sector (Industrial Bags Case COMP/38354). The majority of the addressees of the Commission decision lodged an appeal before the General Court seeking to have the Commission’s decision annulled or to have their respective fines annulled or reduced. Nearly six years later, in judgments handed down on 16 November 2011, the General Court ruled on the actions, dismissing those brought by Kendrion NV (Case T-54/06), Groupe Gascogne SA (Case T-72/06) and Sachsa Verpackung GmbH (now Gascogne Sack Deutschland GmbH) (Case T-79/06).

The General Court took five years and nine months to decide to uphold the Commission’s findings, considerably longer than the average 24.8 months currently required for the General Court to examine and rule on a Commission decision. In Case T-54/06, during the course of the proceedings, Kendrion NV raised the slow nature of the General Court’s proceedings before the General Court itself. The General Court stated simply “The legality of [the] decision may be considered only in the light of the facts and circumstances at the disposal of the Commission at the date of the adoption”. The General Court therefore rejected as ineffective the ground of appeal which alleged that the Court had failed to observe the principle that it must adjudicate within a reasonable time, on the ground that only the legality of the decision fell within its review jurisdiction.

Not satisfied with this response, Kedrion NV, along with Groupe Gascogne SA and Gascogne Sack Deutschland GmbH complained to the ECJ that the General Court had taken far too long to [...]

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EU National Courts May Have to Order Recovery of State Aid Before European Commission Makes Final Decision

by | Nov 26, 2013 | ,

The European Court of Justice decided on 21 November 2013 that EU national courts must assume that a measure qualifies as State aid, if the European Commission has opened an in-depth investigation into that measure.

This judgment is relevant to all cases in which the disputed measure was already granted, or is planned to be granted, and the European Commission has opened an in-depth investigation but not yet made a final decision on whether or not the measures qualify as State aid.

The European Court of Justice (ECJ) decided on 21 November 2013 in Deutsche Lufthansa AG v Flughafen Frankfurt-Hahn GmbH (C-284/12) on the obligations placed on national courts in EU Member States that have been asked by a third party to order the recovery of State aid that was granted to a beneficiary without approval by the European Commission.

The ECJ stated that, even though the assessment carried out by the European Commission in its decision to open an in-depth investigation is preliminary in nature, the decision to open an investigation has legal effect and is therefore binding for national courts in that they must find that the measure qualifies as State aid. If the aid was granted without approval by the European Commission, the national court will have to order its recovery.

Background

EU Member States cannot implement measures that qualify as State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union (TFEU) until those measures have been approved by the European Commission (“the standstill obligation”, established in Article 107(3)(3) TFEU). The European Commission has exclusive competence to approve State aid.

National courts may, however, find an infringement of the standstill obligation and order the recovery of State aid that was granted without European Commission approval. Although national courts may not authorise State aid, they are permitted to decide whether or not a measure qualifies as State aid.

State aid investigations by the European Commission begin with a first phase, in which the European Commission requests information from the relevant EU Member State and gives the State the opportunity to give its views on the qualification of the relevant measures as State aid and grounds for their authorisation.

In complex cases, the European Commission generally opens an in-depth investigation. When making its decision to initiate an in-depth investigation, the European Commission has to provide an initial assessment of the measure and explain why it has come to the preliminary conclusion that the measure qualifies as State aid.

In the case at hand, the competitor of an alleged aid beneficiary approached a German court seeking recovery of alleged aid given to the beneficiary and suspension of its implementation. According to the appellant, the measure qualified as State aid, was granted without approval by the European Commission and was therefore in violation of the standstill obligation. The European Commission opened an in-depth State aid investigation into the relevant measures in 2006, but the final decision is still outstanding.

Question Referred by [...]

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CJEU Confirms Prior State Aid Cannot be Taken into Account by Public Authority To Justify Further Subsidies as Market Behaviour

by | Oct 31, 2013 |

In its recent judgment in Land Burgenland (Joined Cases C-214/12 P, C-215/12 P and C-223/12 P) the Court of Justice of the European Union has confirmed that State aid granted to an undertaking in the past must not be taken into account in the context of the Market Economy Operator Principle to justify further subsidies, even if the prior aid was declared compatible with State aid rules. Public authorities and potential buyers will have to take this into account when privatising or buying publicly owned companies.

To read the full article, click here.



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UK Competition Commission Provisionally Finds Anti-Competitive Features in Privately-Funded Health Care

by | Sep 4, 2013 | ,

The UK Competition Commission (the CC) has provisionally found that there are anti-competitive features in the supply or acquisition of privately-funded health care services, which give rise to adverse effects on competition.  If the CC’s provisional position is indicative of its final position, private healthcare providers—in particular, private hospital groups—may face significant changes in how they do business in the United Kingdom, and potential new entrants may find additional opportunities.

To read the full article, click here.



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State Aid Procedural Regulation Grants More Powers to the European Commission

by | Aug 1, 2013 |

by Martina Maier and Robert Bäuerle, with contribution from Katharina Dietz, a paralegal at McDermott Will & Emery’s Brussels office

New rules of procedure in EU State aid investigations will enter into force very soon.  The European Commission will, for the first time, have the opportunity to request information from entities other than the EU Member State concerned, such as public and private companies that are not subject of a State aid investigation themselves.  Companies will be obliged to respond to the information request and fines might be imposed for failing to respond on time or providing incorrect, misleading or incomplete information.  Other major changes include a more restrictive approach in dealing with complaints and the European Commission now being able to conduct inquiries across various EU Member States into a particular sector.

To read the full article, click here.



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On Heels of European Raids, Energy Companies Face U.S. Class Actions

by | Jul 9, 2013 | , ,

by Megan Morley

White Oaks Fund LP, an Illinois private placement fund, filed a class action suit last week against BP PLC, Royal Dutch Shell PLC and Statoil ASA in the Southern District of New York.  White Oaks Fund v. BP PLC, et al., case number 1:13-cv-04553.  The complaint alleges that the energy companies colluded to distort the price of crude oil by supplying false pricing information to Platts, a publisher of benchmark prices in the energy industry, in violation of the Sherman and Commodity Exchange Acts.  Plaintiffs claim that defendant companies are sophisticated market participants who knew that the incorrect information they provided to Platts would impact crude oil futures and derivative contracts prices traded in the U.S.

This action follows at least six civil litigations that have been filed against BP, Shell and Statoil after the European Commission (EC) and Norwegian Competition Authority raided the companies in May.  The London offices of Platts were also searched.  After the surprise raids, the EC has stated that it is investigating concerns that the companies conspired to manipulate benchmark rates for various oil and biofuel products and that the companies excluded other energy firms from the benchmarking process as part of the scheme.  In addition, at least one U.S. Senator has requested that the U.S. Department of Justice look into whether any of the alleged illegal behavior occurred in the U.S.

The private actions filed against these energy companies in the U.S. on the heels of an investigation by the European Commission are not uncommon.  Any company that transacts business in the U.S. and undergoes a raid or investigation by a foreign competition authority should prepare to face these civil litigations and defend itself against similar allegations.



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New Guidelines on Regional Aid for 2014-2020

by | Jun 27, 2013 |

by Martina Maier

The European Commission adopted new Guidelines for regional aid for the period 2014–2020.  The new legal framework will have significant impact on the possibility of public support for investments of public and private undertakings in the European Union.  Major policy changes include the limitation of the possibility for large undertakings to benefit from regional aid and a more restrictive method of calculating the acceptable aid amount.  Public authorities granting regional aid as well as companies benefitting from regional aid should be aware that the new Guidelines will enter into force on 1 July 2014, but that all existing aid schemes as well as the current regional maps will already expire on 31 December 2013.

Read the full article here.



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