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EC Developments

Application of the ‘Priority Principle’

by Emily Townsend | Jun 14, 2012 | EC Developments, Mergers & Acquisitions

The EU Commission was notified of the Seagate/Samsung transaction and the Western Digital/Hitachi transactions – both mergers involving hard drive disk businesses – within days of each other. In its decision on the Seagate/Samsung transaction (published on May 10, 2012), the EU Commission explains its different treatment of the two mergers.

The EU Commission explains that the ‘priority principle’ requires them to review a deal’s impact on competition according to the date the deal was notified. Therefore, because Seagate/Samsung was notified first, the EU Commission examined the deal based upon the competitive conditions existing at the time of notification and without considering the potential impact of a second deal which was notified only one day later.

Reminder of the facts

Seagate Technology had prenotification contacts with the Commission March 14, 2011 and publicly announced and notified its acquisition of Samsung’s hard disk drive business on April 19, 2011. After a Phase II investigation, the EU Commission unconditionally cleared the transaction on October 19, 2011, concluding that it would not significantly impede effective competition in the hard disk drive market because four competitors would remain.

Western Digital proposed to acquire Hitachi’s hard drive business and notified this transaction on April 20, 2011, after Seagate/Samung. Western Digital and Hitachi publicly announced the deal on March 7, 2011 and had prenotification contacts with the Commission on March 10, 2011 – both dates earlier than the same events for Seagate and Samsung. The Western Digital/Hitachi transaction was also cleared by the EU Commission after a Phase II investigation on November 23, 2011, but was subject to several significant remedies (and application of the ”up-front buyer" system) unlike Seagate/Samsung because the EU Commission carried out its competitive analysis on the basis that only three hard disk drive competitors would remain.

Explanation of the ‘priority principle’ applied by the EU Commission

In its decision concerning the Seagate/Samsung transaction, the EU Commission recognizes having assessed the transaction according to a “priority principle” ("first come, first served" approach), based on the date of notification. The EU Commission defended the application of this “priority principle” and noted that it had already been applied in several previous cases (most recently in TomTom/Tele Atlas, Commission Decision of May 14, 2008) but the EU Commission had not expressly explained its approach as they have in the present case.

According to the EU Commission, the relevant framework to evaluate the effects of a transaction is the competitive conditions existing at the time of notification ("It is neither necessary nor appropriate to take into account future changes to the market conditions resulting from subsequently notified transactions that require approval from the Commission."). The EU Commission states that the date of notification is a clear and objective criterion for applying the priority principle. It "takes the view that the priority principle, based on the date of notification, is the only one that ensures sufficient legal certainty, transparency and objectivity and respect the other provisions and aims of the Merger Regulation."

The [...]

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EU General Court Rules European Commission Wrong to Reject Summarily Claimants’ Requests for Access to Investigation Files

by McDermott Will & Emery | May 31, 2012 | Cartel Enforcement, EC Developments

by Andrea Hamilton, David Henry and Philipp Werner

EU Court rules that European Commission must undertake an individual and specific review of requested cartel documents before it can deny a damages claimant access thereto.

To read the full article, click here.

Private Actions in Competition Law: UK Government Consultation

by McDermott Will & Emery | Apr 25, 2012 | EC Developments, Monopolization/Abuse of Dominance

by Philipp Werner, David Henry and Andrea Hamilton

On April 24, 2012, the UK government took a significant step towards private antitrust actions by publishing a consultation document on how best to encourage private sector challenges to anticompetitive behavior. This consultation must be seen in the broader context of efforts to develop private antitrust enforcement in the European Union. The UK has already established itself as a premier venue for private antitrust actions, and the case law on jurisdiction, privilege and access to leniency documents in follow-on actions is rapidly evolving.

The UK government envisages that new, more effective, measures are to be introduced as a complement to public antitrust enforcement by the UK Office of Fair Trading and the European Commission. In particular, the UK Government is consulting on a host of measures the most salient of which are the following:

Establish the Competition Appeal Tribunal as the "go to" venue for antitrust actions in the UK;
Introduce an opt-out collective actions regime;
Promote Alternative Dispute Resolution;
Measures to ensure that private actions effectively complement public enforcement.

The consultation runs until July 24, 2012. A copy of the consultation is available here.

Tax Deductibility of Antitrust Fines In the EU

by McDermott Will & Emery | Mar 22, 2012 | EC Developments

by Philipp Werner

If companies are fined for antitrust infringements, the question arises whether the fines are tax-deductible. Given the high amounts of fines imposed by the European Commission and the competition authorities of European Union (EU) Member States, the importance of the question is obvious.

In several EU Member States such as the Netherlands, France or the United Kingdom, the authorities have already made it clear that antitrust fines are not tax-deductible. This is also the view of the European Commission. However, the question has not yet been settled by the European Court of Justice and has now come up again in Belgium in a recent case.

In 2011 Tessenderlo S.A., a Belgian chemical company, was fined € 83.7 million by the European Commission for breach of EU antitrust rules in an animal feed phosphate cartel case. It now seeks to deduct the amount of the fine from its tax liabilities in Belgium, arguing that the fine amounts to business costs (frais professionnels). This was refused by the Belgian tax administration and Tessenderlo brought the matter to the Brussels first instance court (Tribunal de première instance de Bruxelles), which decided to refer the matter to the Constitutional Court.

The Brussels first instance court seeks to know whether the currently argued interpretation of Belgian tax law is compatible with the Belgian constitutional principle of equality. According to that interpretation, administrative fines such as antitrust fines are included in the list of tax-deductible business costs – as opposed to criminal fines. An official from the European Commission has announced that the Commission will file an amicus curiae brief before the Belgian Constitutional Court, arguing that the deduction of antitrust fines would undermine their deterrent effect.

European Commission Considers Taking Over Cartel Investigations to Prevent Exploitation of German Law Loophole

by Emily Townsend | Mar 22, 2012 | Cartel Enforcement, EC Developments, German Developments

by Martina Maier and Philipp Werner

Under German law, companies may escape cartel fines by undertaking an internal restructuring. The German competition authority has indicated a willingness to reallocate such cases to the European Commission, which can impose a fine on the corporate group regardless of any internal restructuring. Commission officials speaking at a conference have suggested recently that the Commission would be willing to take over cartel cases from EU Member States, even at a late stage in the proceedings, in order to fine undertakings for their anti-competitive behaviour.

To read the full article, click here.

China Conditionally Clears Western Digital’s Acquisition of Hitachi’s Hard Disk Drive Business

by Jackie Sinn | Mar 15, 2012 | Chinese Developments, EC Developments, Mergers & Acquisitions

by Henry L.T. Chen, Frank Schoneveld and James Jiang

Recently China’s Ministry of Commerce (MOFCOM) approved Western Digital’s proposed acquisition of Hitachi’s hard disk drive business on a conditional basis. Containing the most comprehensive clearance conditions ever imposed by MOFCOM, this decision mirrors previous guidance issued by the European Commission and illustrates that at least two authorities in two of the world’s major economies are working toward imposing similar clearance conditions in their respective jurisdictions.

Antitrust Inspections in The Energy Exchange Market

by Emily Townsend | Feb 14, 2012 | EC Developments, Energy/Commodities, French Developments, German Developments

by David Henry and Philipp Werner

On February 7, the European Commission (EC) and the European Free Trade Association (EFTA) Surveillance Authority conducted unannounced inspections in the energy exchange market. Representatives of Nord Pool Spot (Lysaker, Norway) and EPEX Spot (Paris, France and Leipzig, Germany) announced that the companies were subject to inspections. It is not known whether other companies were also raided. The inspections show that the EC’s enforcement policy extends beyond the retail level of the energy sector.

To read the full article, click here.

European Commission Launches Green Paper Consultation

by McDermott Will & Emery | Jan 18, 2012 | EC Developments, Monopolization/Abuse of Dominance

by Philipp Werner

The European Commission has launched a Green Paper consultation on credit card, internet, and mobile payments with regard to card-fees and related matters of concern to the competition authorities.

Interested stakeholders have until 11 April 2012 in which to submit their views.

To read the full article, click here.

European Commission Adopts New State Aid Rules on Services of General Economic Interest

by Emily Townsend | Dec 28, 2011 | EC Developments

by Martina Maier and Philipp Werner

On December 20, 2011, the European Commission adopted a new legislative package on the application of State aid rules on services to public services – known as Services of General Economic Interest (SGEI). EU Member States spend billions of euros each year on SGEI, so any rules concerning the assessment of these compensations under EU State aid rules have a huge political and economic impact in Europe.

Background

The principle of EU State aid law is that it prohibits the granting of State aid by EU member states to specific companies or industry sectors. This concerns direct grants as well as other economic advantages such as state guarantees, favorable interest rates or tax breaks. State aid may under certain circumstances be approved by the European Commission after notification of the aid measure by the member state.

The new package replaces the 2005 package and sends mixed signals. On one hand, it exempts any compensation for certain social services, regardless of the amount of compensation. It also provides for a simplified treatment of a wider range of SGEI including, for example, health care services, and de minimis regulation for SGEI, expected to be adopted early next year, may further ease the burden for member states and service providers. On the other hand, it lowers the compensation threshold for a more in-depth analysis of compensations for such services under EU State aid rules.

The new SGEI package contains rules for aid granted by member states to companies that provide certain social or other services in the public interest. If these services are (also) provided on the market, they are referred to as SGEI. As a general rule, compensation for SGEI may be granted if the company has been entrusted with the provision of such services, if the compensation is calculated on the basis of objective and transparent parameters, and if the compensation does not exceed the costs related to the provision of the service.

The New SGEI Package

The new package is comprised of four instruments: a communication explaining the basic concepts of State aid that are of relevance for SGEI, a decision that exempts compensation for certain SGEI from the notification requirement and summarily approves the compensation under EU State aid rules (such as the Block Exemption Regulations in the field of EU competition law), and a framework for the analysis of SGEI compensation that is not exempted under the decision. It also contains a proposal for a de minimis regulation. The latter could not be finalised in time due to substantial criticism from the member states and is expected to come into force next year.

The decision sets out the conditions under which State aid in the form of public service compensation granted to companies entrusted with SGEI is exempt from the notification requirement. This exemption has been extended from hospitals and social housing to a broader spectrum of social services. It now covers [...]

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European Commission Provides Guidance on Disclosure of Leniency Documents

by Emily Townsend | Dec 22, 2011 | Cartel Enforcement, EC Developments

by Philip Bentley QC, Philipp Werner and Christoph Voelk

In response to a request from the English High Court, which is currently reviewing a cartel damage claim, the European Commission has submitted an amicus curiae brief on the disclosure of leniency documents. The Commission’s opinion is that national courts should not order the disclosure of leniency documents prepared specifically for the purpose of an application under the EU leniency programme. In contrast, the applicant’s reply to the statement of objections and the replies to requests for information could be ordered to be disclosed, insofar as they do not concern leniency material.

To read the full article, click here.

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