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The Court of Justice of the European Union (CJEU) Confirms the Commission’s Approach to Hybrid Settlements

by Louise Aberg | Mar 10, 2017 | Cartel Enforcement, EC Developments

The case follows on from the Commission’s Animal Feed Phosphates cartel decision pursuant to which fines totalling €176 million were imposed on a number of producers of animal feed for price fixing and market sharing throughout the EEA.

During the investigation into the infringement, all the companies involved engaged in settlement discussions with the Commission with a view to obtaining a 10 percent reduction in the fine that would otherwise have been imposed had they not settled with the Commission. However, during the settlement process Timab, a subsidiary of the Roullier Group, decided to withdraw from the settlement procedure. The Commission therefore followed the standard administrative infringement procedure against Timab – despite the fact that it had entered into settlements with the other companies involved in the cartel. This was the first time, therefore, that the Commission rendered a decision in a so-called ‘hybrid’ case i.e. where some parties settle but others do not.

During the initial settlement discussions, several meetings were held between the Commission and Timab, during which evidence of the infringement was discussed. On the basis of the evidence available, the Commission informed Timab that a fine in the range of €41 to €44 million would be imposed on it. However, in its final decision of 20 July 2010, the Commission levied a fine of nearly €60 million on Timab.

Timab challenged the Commission’s decision before the General Court of the European Union (GCEU) in case T-456/10, claiming that the Commission had infringed its legitimate expectations regarding the amount of the fine, on the one hand, and its right not to incriminate itself, on the other. Such challenge was unsuccessful, however.

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EU Court Rules That Royalties for Unpatented Technology Are Not Necessarily Anticompetitive

by Emily Townsend | Jul 11, 2016 | EC Developments, IP Antitrust

On 7 July 2016, the Court of Justice of the European Union (CJEU) handed down a judgment on whether Article 101 of the Treaty on the Functioning of the European Union (TFEU) must be interpreted as precluding effect being given to a licence agreement requiring the licensee to pay royalties for the use of a patent which has been revoked (Sanofi-Aventis v. Genentech, Case C-567/14).

Background

In 1992, Hoechst granted a licence to Genentech for a human cytomegalovirus enhancer. The licensed technology was subject to one European patent and two patents issued in the United States. In 1999, the European Patent Office revoked the European patent.

Under the licence agreement with Hoechst, Genentech was obliged to pay a one-off fee, a fixed annual research fee and a running royalty based on sales of finished products. Genentech never paid the running royalty, however, and in 2008 it notified Hoechst and Sanofi-Aventis (Hoechst’s parent company) that it was terminating the licence. Hoechst and Sanofi-Aventis believed that Genentech had used the enhancer to manufacture its blockbuster drug Rituxan and was therefore liable to pay the running royalty on its sales of that drug.

Sanofi-Aventis initiated two separate actions. In the United States, it brought an action alleging that Genentech infringed the two US patents. The US courts ultimately decided that there was no infringement of the patents in question. Sanofi-Aventis also submitted an application for arbitration against Genentech before the International Court of Arbitration to recover the royalties.

In the arbitral award, the sole arbitrator held that Genentech had manufactured Rituxan using the enhancer and that the company was therefore required under the licence to pay Sanofi-Aventis the running royalties. According to the arbitrator, the commercial purpose of the licence was to avert all litigation on validity. Thus, payments already made under the licence could not be reclaimed, and payments due had to be made regardless of whether the patent had been revoked or was not infringed.

Genentech brought an action before the Paris Court of Appeal seeking annulment of the arbitral award. The company relied on public policy arguments, claiming that a requirement to pay for the use of technology that Genentech’s competitors could use without charge put Genentech at a competitive disadvantage and contravened Article 101 TFEU. The Paris Court of Appeal stayed the proceedings and made a preliminary reference to the CJEU.

CJEU Judgment

The CJEU explained that royalties reflect the parties’ assessment of the value that is attributable to the possibility of exploiting licensed technology, and that this assessment may still apply after expiry of the period of validity of the patent. The court referred to established case law (Case 320/87 Ottung) and held that, where the licensee is free to terminate the licence agreement by giving reasonable notice, an obligation to pay a royalty throughout the validity of the agreement (i.e., not the validity of the IP rights) does not fall within the purview of the Article 101(1) TFEU prohibition.

The CJEU argued that Article 101(1) TFEU does [...]

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CJEU to Rule on Extradition of EU Citizens in Criminal Antitrust Proceedings

by Christian Krohs and Louise Aberg | Apr 4, 2016 | Cartel Enforcement, EC Developments, German Developments, Private Litigation

The first European citizen to be extradited from Europe to the United States for criminal antitrust conduct recently succeeded in having a Berlin court refer the matter of his extradition to the Court of Justice of the European Union (CJEU) in the context of his damages action with regard to his extradition, after a series of multiple setbacks and a 24-month period of imprisonment.

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General Court of the EU Upholds Cartel Fines of €131 Million Imposed on Toshiba and Mitsubishi Electric, Dismisses Arguments Based on Principle of Equal Treatment

by Louise Aberg | Jan 27, 2016 | Cartel Enforcement, EC Developments, EU Developments

By two judgments of January 19, 2015 (Case T-404/12 Toshiba v. Commission and Case T-409/12 Mitsubishi Electric v. Commission), the General Court of the European Union (GCEU) upheld the fines of €131 million imposed by the European Commission (EC) on Toshiba and Mitsubishi for their participation in a cartel on the market for gas insulated switchgear (GIS), dismissing a line of reasoning essentially based on the principle of equal treatment.

The cartel, involving 20 European and Japanese undertakings, consisted in an agreement between competitors with the objective of coordinating the commercial activity worldwide of the members. The cartel members developed a quota system aimed at determining the market shares to allocate between them. In parallel, the cartelists reached an unwritten understanding, according to which GIS projects in the European market and Japanese market were reserved to European members and Japanese members of the cartel, respectively.

In its 2007 decision, the EC found a single and continuous infringement of competition law on the GIS product market between 1988 and 2004 and imposed fines on Toshiba and Mitsubishi, inter alios, of €86.25 million and €113.92 million, respectively. It also found the two Japanese undertakings jointly and severally liable for up to €4.65 million. Both companies challenged the EC decision, which led to two judgments of the GCEU (Case T-113/07 Toshiba v. Commission and Case T-133/07 Mitsubishi Electric v. Commission), subsequently upheld by the Court of Justice of the European Union (CJEU) (Case C-498/11 P Toshiba v. Commission and Case C-489/11 P Mitsubishi Electric v. Commission). The GCEU annulled the fines imposed on the two Japanese undertakings, finding that the Commission had infringed the principle of equal treatment in calculating their fines. The reference year used to calculate the fines for the applicants was indeed different from that chosen for the European participants in the infringement.

Having been asked to reexamine its decision, the EC recalculated the fines imposed on Toshiba and Mitsubishi and fixed them at €56.79 million and €74.82 million, respectively, without changing the amount of the fine for which they were held jointly and severally liable. The two Japanese undertakings then lodged a new appeal before the GCEU seeking the annulment of the revised fines. In support of their action, the applicants alleged, inter alia, an infringement of the principle of equal treatment as regards the determination of their level of culpability as compared to the European participants in the infringement and the starting amount of the fine.

First, Toshiba and Mitsubishi argued that they were less culpable than their European counterparts because their participation had been limited to agreeing not to enter the European Economic Area (EEA) market, whereas the European undertakings had distributed the GIS projects on that same market through active collusion. In other words, they contended that their participation only consisted in a failure to act and that, consequently, they could not be held as liable as the European undertakings for the implementation of the cartel.

The GCEU reiterated its settled case-law, according to which the [...]

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The European Union’s Highest Court Rules on Standard-Essential Patents, Injunctions and Abuse of Dominance

by McDermott Will & Emery | Jul 23, 2015 | EU Developments, German Developments, IP Antitrust, Joint Ventures/Competitor Collaboration

The long-awaited ruling on the seeking of injunctions in the context of standard-essential patents encumbered by fair, reasonable, and non-discriminatory (FRAND) terms has been delivered by the Court of Justice of the European Union, in Huawei v. ZTE C 170/130. Although the judgment lays down the legal test applicable to injunctions involving standard-essential patents, and significantly clarifies the landscape that had previously been shaped by the European Commission, a number of issues remain unresolved.

Huawei Technologies entered into negotiations with ZTE Corporation over the possibility of concluding a licence agreement in relation to Huawei’s patent that is essential to the long-term evolution (commonly known as 4G) standard, on FRAND terms. Given that negotiations between the companies were unsuccessful, and because Huawei contends that ZTE continued using the standard-essential patent (SEP) without paying royalties, Huawei brought an infringement action against ZTE, seeking an injunction to stop the sale of certain ZTE products.

In adjudicating the matter, the Regional Court of Düsseldorf considered that the outcome of the litigation largely depended on whether or not the action brought by Huawei constituted an abuse of dominance. Given this consideration, and the uncertainty surrounding the topic of SEP injunctions, the Court made a reference for a preliminary ruling to the CJEU. The Court asked in what circumstances a dominant SEP holder, who has committed to grant licences to third parties on FRAND terms, can seek an injunction to stop an infringement of that SEP, or to recall products manufactured using the SEP, is to be regarded as committing an abuse contrary to Article 102 of the Treaty on the Functioning of the European Union (TFEU).

The Test for SEP Injunctions

The CJEU decided that the following conditions must be satisfied before a dominant SEP licensor can validly bring an injunction against a party infringing an SEP, without acting contrary to Article 102 TFEU.

Notification From The SEP Holder

Prior to taking any action, a SEP holder that has given an irrevocable undertaking to a standardisation body to grant a licence to third parties on FRAND terms, must alert the alleged infringer to the infringement complained about. This prior notice must designate the SEP in question, and specify the way in which it has been infringed.

“Willingness” of The Alleged Infringer

After the alleged infringer has been informed about the infringement, it must (somehow) express its willingness to conclude a licensing agreement on FRAND terms. Presumably, this willingness refers to the alleged infringer agreeing to receive a FRAND offer from the SEP holder. It would seem, therefore, that an alleged infringer who is not prepared to enter into any sort of bona fide negotiations would be presumed to be unwilling.

Unfortunately, although the CJEU refers to the concept of “willingness”, it does not address the criteria for determining the alleged infringer’s willingness. The ruling therefore does not make it entirely clear what the potential licensee should do in order to be treated as willing.

FRAND Offer

The SEP holder must present to the alleged infringer [...]

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A New Concept in Cartel Fining: “Direct EEA Sales Through Transformed Products”

by McDermott Will & Emery | Jul 11, 2015 | Cartel Enforcement, EU Developments

On 9 July 2015, the Court of Justice of the European Union (CJEU) issued its judgment in InnoLux Corp. v Commission C-231/14P, confirming the existence of a new concept in cartel fining: “direct European Economic Area [EEA] sales through transformed products”. This new concept can be used by the European Commission to calculate fines of an amount higher than a restrictive reading of its Fining Guidelines might suggest.

Background

The judgment arose out of the liquid crystal display (LCD) cartel case, which involved several LCD producers in Asia. The European Commission determined that the cartel participants had three channels of sale into the EEA:

Direct EEA sales, i.e., LCD panels for IT or television applications directly sold to another undertaking in the EEA.

Direct EEA sales through transformed products, i.e., LCD panels incorporated intra-group into a final IT or television product and subsequently sold to another undertaking in the EEA.
Indirect Sales, i.e., LCD panels sold by one of the cartel participants to another undertaking outside the EEA, which would then incorporate the panels into final IT or television products and sell them in the EEA.

The Commission took the view that inclusion of the third channel was not necessary for the purposes of imposing a fine to achieve a sufficient level of deterrence, but did take account of the first two channels. InnoLux challenged the inclusion of the second channel, and the General Court of the European Union rejected the challenge.

The CJEU’s Judgment

The CJEU upheld the decisions of the EU General Court and the Commission, notwithstanding the opinion of the Advocate-General to the contrary.

The CJEU referred first to the established case law, according to which the amount of the fine imposed on an undertaking must reflect “the economic significance of the infringement and the relative size of the undertakings’ contribution to it”.

Next, the CJEU observed that, applying this principle, the existing case law (Guardian Industries C-580/12P 12 November 2014) concludes that sales of the product concerned to a related party in the EEA should be taken into account in the same way as sales direct to unrelated parties.

The CJEU then took an innovative step. It extended the approach in Guardian Industries as follows. When sales of a cartelised product are made to a related party outside the EEA, and the product is incorporated into a downstream product that is sold to independent third parties inside the EEA, the sales of the downstream product into the EEA can be taken into account in determining the amount of the fine. The value to be taken into account is not the full value of the downstream product, but the proportion of that value that corresponds to the value of the cartelised product that was incorporated into the downstream product.

The CJEU emphasised that this case was not about whether or not the Commission had jurisdiction. The Commission’s jurisdiction was not in dispute because the cartel participants, including Innolux, made some sales of LCDs direct to independent [...]

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CJEU Rules Maximum Cartel Fine Applies Only to Infringing Subsidiary Turnover and Reduces Fine by €17 Million

by McDermott Will & Emery | Sep 10, 2014 | EC Developments

On 4 September 2014, the Court of Justice of the European Union (CJEU) confirmed that the maximum fine of 10 per cent of turnover imposed on the infringing subsidiary of a non-infringing parent company should be calculated on the basis of the turnover of that subsidiary, and not the parent company, if and to the extent that the infringement occurred during the period prior to the acquisition of the subsidiary by the parent company.

In 2007, the European Commission issued a decision fining the participants in a cartel operating on the market for zips and other fasteners.

Stocko Fasteners participated in the cartel as an independent company from 1991 until 1997, when it was acquired by the YKK Group and renamed YKK Stocko Fasteners. It continued to participate in the cartel until 2001. YKK Stocko Fasteners was fined €19.25 million for its participation in the cartel from 1991 to 1997, calculated on the basis of the YKK Group’s turnover. The YKK Group companies (including YKK Stocko Fasteners) were fined €49 million jointly and severally for the period 1997 to 2001.

These fines were upheld by the EU General Court and the YKK Group appealed to the CJEU, inter alia, against the fine imposed on YKK Stocko Fasteners. The YKK Group argued that the limit on fines of 10 per cent of total turnover prescribed by Article 23(2) of Regulation (EC) No 1/2003 should have been applied only to YKK Stocko Fasteners’ turnover and not to the turnover of the whole YKK Group. The fine of €19.25 million imposed on YKK Stocko Fasteners amounted to significantly more than 10 per cent of that company’s total turnover in 2006, the business year preceding the imposition of the fine.

The CJEU’s Ruling

The CJEU observed that Article 23(2) of Regulation (EC) No 1/2003 provides that “For each undertaking… participating in the infringement, the fine shall not exceed 10 per cent of its total turnover in the preceding business year” (authors’ emphasis). Stocko Fasteners was a separate undertaking until its acquisition by the YKK Group in 1997, so the CJEU found the Commission was wrong to treat YKK Stocko Fasteners and the rest of the YKK Group as a single undertaking for the purposes of the 10 per cent limit. In fact, if YKK Stocko Fasteners did not pay the €19.25 million fine, the Commission could not enforce payment by the rest of the YKK Group.
The CJEU consequently decided to set aside the General Court’s judgment and annul the Commission’s decision, and reduced the fine imposed on YKK Stocko Fasteners to €2.79 million. This figure corresponded with 10 per cent of its turnover as a YKK subsidiary in 2006, the year preceding the imposition of the fine, less an allowance for leniency.

Comment

Over recent years, the way fines against cartels are calculated and attributed has become ever more hotly debated. In most cases, the central issue has been the attribution of the fine to parent companies for infringements by their subsidiaries, or to shareholding partners for [...]

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German Court Rejects National Competition Authority Liability for Damages After Unlawful Prohibition of a Merger

by Emily Townsend | Mar 27, 2014 | German Developments, Mergers & Acquisitions

The Higher Regional Court in Düsseldorf yesterday dismissed an action for damages of €1.1 billion brought by GN Store Nord against the German Federal Cartel Office. The judgment sheds some light on the possibility for companies to claim damages in the context of an unlawful prohibition of a proposed merger.

Click here to read the full article.

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

by Emily Townsend | Oct 31, 2013 | EC Developments

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.

Obtaining Legal Advice is Not a Shield Against Fines for Infringement of EU Competition Rules

by Emily Townsend | Jun 26, 2013 | Cartel Enforcement, EC Developments

by Philipp Werner and Aiste Slezeviciute

On 18 June 2013, the Court of Justice of the European Union (CJEU) held that a company that infringed EU competition rules will not escape a fine even if it can claim that it relied on advice given by a legal adviser on the compatibility of its behaviour with national competition rules (Case C-681/11 Bundeswettbewerbsbehörde, Bundeskartellanwalt v Schenker & Co. and Others). In the same ruling, the CJEU also held that relying on the correctness of a decision taken by a national competition authority (NCA) does not protect a company from being found guilty of an infringement of competition law and fined.

To read the full article, click here.

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