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Thursday, 21 March 2013

How to decide when an agreement has the object of restricting competition

In Case C-32/11 Allianz Hungária Biztosító Zrt, v Gazdasági Versenyhivatal, judgment of 14 March 2013, the CJEU appears to have suggested a very different approach to determining when agreements have the object of restricting competition. This case was a preliminary reference from the Hungarian Supreme Court in relation to a dispute between the Hungarian competition authority and two insurance companies and the Hungarian association of authorised car dealers (GÉMOSZ) who also act as repair shops. The two major insurance companies had entered into contracts with the dealers whereby the rate of payment that the dealers received for repairs was linked to the amount of insurance that they sold. The question was whether or not these, vertical, agreements had as their object the restriction of competition? Although there are a number of issues in the case, this note just focuses on one of them.


 

In para. 36 of the judgment the court said:
"In order to determine whether an agreement involves a restriction of competition 'by object', regard must be had to the content of its provisions, its objectives and the economic and legal context of which it forms a part … When determining that context, it is also appropriate to take into consideration the nature of the goods or services affected, as well as the real conditions of the functioning and structure of the market or markets in question …" The court went on to say that the agreements would amount to a restriction of competition by object in the event that the referring court found that it is likely that, having regard to the economic context, competition on that market would be eliminated or seriously weakened following the conclusion of those agreements. In order to determine the likelihood of such a result, that court should in particular take into consideration the structure of that market, the existence of alternative distribution channels and their respective importance and the market power of the companies concerned. This would seem to licence a much broader inquiry into the factual circumstances then has been common in the past. Once a court, or competition authority, needs to examine market structure, or market power, it must make some attempt to define the market, something which may well be controversial and time consuming. In order to consider issues of market power, it is necessary not only to consider the market as it exists, but also question of how the market might develop, that is, what are the possibilities of entry? If the court has to understand alternative distribution channels, it must consider what they are and their effectiveness.


 

If this does represent a change in approach, it raises some difficult questions. Will it require a re-evaluation of previous case-law? Would the agreements in Consten & Grundig, for example, fall foul of this new test? Alternatively, this test is not meant to disrupt previous case law but should only be applied to agreements which seem problematic but do not fall within the established categories of object agreements, such as absolute territorial protection. What type of agreements would fall to be treated thus could be a difficult question. As the Advocate General noted, the agreements in question were not ones that, in the absence of a dominant position, competition law had previously established as being obviously problematic. On a technical level, the second sentence of para. 36 is not supported by the case cited (Case C-226/11 Expedia).


 

The decision suggests that there are some disagreements within the Court of Justice on how to approach object agreements and it increases the uncertainties in this area. Since there seem to be a steady stream of these cases at the moment, it is unlikely to be the last word.


 

Competition Law and UK retail banking

I have just finished a draft of this paper, which I will be presenting at the Socio-Legal Studies Association conference in York next week: or as much of it as can be done in twenty to thirty minutes. The full version is available on SSRN: http://ssrn.com/abstract=2236745

Friday, 15 March 2013

Cartel enforcement

Just before Christmas, Ali Nikpay, the OFT's senior director of the Cartels and Criminal Enforcement Group gave a very interesting talk to the Law Society Anti-trust section which can be found here: http://www.oft.gov.uk/shared_oft/speeches/2012/1112.pdf Although this is somewhat belated, I thought I would mention it because it is an excellent overview of the work of the OFT in relation to criminal enforcement, along with some thoughts about what the future might bring. The focus of this group is on criminal cartels, narrowly defined and criminal consumer law enforcement (a function which will presumably disappear following the creation of a Competition and Markets Authority). The whole speech is worth a read, particularly if you are interested in the OFT's current consultations on leniency and recently announced fining guidance.

The aim of the OFT is to develop a more proactive approach in this field, using the investigative powers that it has, including covert surveillance powers. There is also a warning that more director disqualification cases will be pursued.

As regards the criminal cartel offence, Ali Nikpay takes the view that the well-known enforcement problems are because of the requirement of dishonesty. He puts forward a strong case that reform was necessary and that the changes will not widen the offence unduly. On the former point, he argues that the requirement of dishonesty causes problems because "white-collar" crimes lack obvious indicators of dishonesty which means that likelihood of persuading a jury of the dishonesty of the conduct in a cartel case is far lower than many commentators assume and has been a major factor in the OFT's decision, in consultation with leading counsel, to close most of the criminal cartel cases they have launched so far. In addition, this has allowed defendants to create "dishonesty based defences", such as, "I was trying to protect jobs", "I was only following orders" etc. Despite these obstacles, he predicts one cartel case in the next year and another one to two in the next two to four years.

He makes the very god point that the criminal cartel offence is defined narrowly and does not catch, for example, vertical agreements and concerted practices. It is aimed at a small set of activities. He has confidence in the proposed publication exclusion because of its limited scope: only those customers directly affected by the offence need to be notified, only detail necessary to identify the existence of the conduct need be published and it only has to be published when the agreement is implemented. The example he gives is of a research and development joint venture and he emphasises that there would be no need to publish confidential information.

He is also confident that the new defences introduced into the offence will be effective. These are:

  • the individual did not intend to conceal the arrangements from customers


 

  • the individual did not intend that the arrangements would be concealed from the CMA


 

  • before entering into the agreement, the individual took reasonable steps to ensure that the arrangements would be disclosed to a professional legal adviser for the purpose of obtaining advice about them before they were made or implemented (the 'professional advice defence').


 

Although the boat has sailed on this, I am still uncomfortable at the thought of sending people to prison, even if they have not acted dishonestly. I also think that the argument that dishonesty makes the offence very difficult to prove would be stronger if there were some actual examples of failing to prove this, although it's easier to write this than be responsible for a policy which would involve going against counsel's advice and bringing failed prosecutions (not a recipe for a successful career).

Public interest mergers

I have recently completed a draft, emphasis on draft, paper on public interest mergers which looks at, among other things, HBOS/Lloyds and News International/BSkyB. Having just worked out this new-fangled SSRN thing, you can find it here: http://ssrn.com/abstract=2233822 Any comments are very welcome.