On 7 October 2019, the German Ministry of Economics and Energy published the draft Act on Digitalisation of German Competition Law (the “Draft Act”). The Draft Act proposes several key changes to the current competition rules in Germany, with an emphasis on what the proponents present as novel challenges that arise in digital markets and in connection with data. Subject to further revisions by the Federal Government, the Draft Act would enter into force during the second half of 2020.
On 24 September 219, the General Court (“GC”) delivered its long awaited judgments on the European Commission’s (“Commission”) decisions finding that tax rulings granted to Starbucks and Fiat constituted State aid. The GC annulled the Commission’s decision on Starbucks but upheld the Commission’s decision on Fiat. The judgements confirm that State aid rules enable the Commission to review whether tax rulings endorsing transfer pricing arrangements are in line with the arm’s length principle. However, in order to find that such tax rulings constitute State aid, the Commission must clearly show that they reduced their beneficiaries tax burden and cannot limit itself to pointing out inaccuracies or mistakes in the methodology used to calculate transfer pricings.
After her confirmation hearing in front of the European Parliament on Tuesday 8 October, Magrethe Vestager looks certain to remain as Competition Commissioner for a second term and to combine that with a broader responsibility for digital policy development. Both the second term and the combination of the competition portfolio with a policy brief are unprecedented in recent decades.
Several key points, including the way in which she intends to manage digital matters and a potential conflict of interest, emerged from the hearing.
On 10 September 2019, Margrethe Vestager was proposed as the European Commissioner for Competition, a post which she has held since November 2014. The appointment is still subject to the confirmation of the European Parliament.
Vestager has also been given the role of Executive Vice President, with the mandate of making “Europe Fit for the Digital Age”.
In her Mission Letter to Vestager, incoming European Commission President Ursula von der Leyen said she wanted Vestager to focus on strengthening competition enforcement in all sectors, by improving case detection, speeding up investigations and encouraging cooperation between national competition authorities on both an EU and global level. Vestager is also set to review EU competition rules on antitrust, merger control and State aid. Von der Leyen expects Vestager to do so by using the tool of sector enquiries. She is also expected to develop policies to tackle the effects of foreign State ownership and subsidies in the EU and share market knowledge within the European Commission, particularly in relation to the digital sector.
Vestager’s additional role of Executive Vice President (“Europe fit for the Digital Age”) makes her responsible for addressing issues of cybersecurity, technological sovereignty and artificial intelligence across Europe. When asked by reporters how she planned to balance this new role with that at the DG COMP, Vestager clarified that she had “no intention” of trying to do all the work herself; rather, “the task is to make a sufficiently strong team among commissioners to make sure we can make things happen”. The choice to entrust Vestager with both roles may mean that there will be a closer relationship between competition enforcement and regulatory policy in digital markets.
Fines are integral to EU cartel enforcement and subject to careful methodology and review. The European Commission (“EC”) determines cartel fines in accordance with the Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003 (the “Fining Guidelines”). The Fining Guidelines set the value of sales of goods or services to which the infringement relates as the proxy that forms the basis of the fine calculation. The value of sales, together with the duration of the infringement, is considered “an appropriate proxy to reflect the economic importance of the infringement as well as the relative weight of each undertaking in the infringement”.
The proportion of the sales value taken into account will depend on the degree of gravity of the infringement, multiplied by the number of years of the infringement, and will be set at a level of up to 30%. However, point 37 of the Fining Guidelines enables the EC to depart from the usual methodology where the peculiarities of the case, or the need to achieve a deterrent effect so require.
Implemented in 2006, the Fining Guidelines have since come of age and in recent cases – mostly in the financial services industry – the EC has started to apply point 37 to accommodate increasingly complex infringements and sectors, rather than as an instrument to wriggle it out of the occasional fining impasse. Does this mean the Fining Guidelines are ripe for an overhaul? Or can the use of point 37 cater for all situations in which the standard methodology falls short? Continue Reading
The European Commission (“EC”) has recently published Guidelines for national courts on how to estimate the share of the overcharge caused by cartels which was passed on by direct purchasers to their customers (“Passing-on Guidelines”). The Passing-on Guidelines provide an extensive practical overview of the applicable legal context, the relevant economic theory and quantification methods for the concrete harm caused to claimants in litigation. Continue Reading
On July 11, 2019, Assistant Attorney General Makan Delrahim announced fundamental and sweeping changes to the Division’s approach to corporate compliance policies that will bring it into line with other Department of Justice branches. In every case, the Division will now consider compliance programs in deciding whether to file criminal charges and in calculating fines. Also, when a company faces charges, Division prosecutors may now consider proceeding by way of deferred prosecution agreements (DPAs) rather than requiring companies to plead guilty. These policy shifts could be the most significant changes to U.S. criminal antitrust enforcement since the Division adopted its Corporate Leniency Policy more than 25 years ago. This Covington Alert will discuss how the policy change departs from longstanding DOJ practice, the significance of the change to corporations that face potential risk in cartel investigations, and the many unanswered questions about how the DOJ will apply the policy.
On 14 May, Johan Ysewyn and Dirk Van Erps (DG COMP) gave a presentation on recent EU cartel enforcement at the annual Advanced EU Competition Law Conference in London. Their presentation covered developments in enforcement, policy, and court review between May 2018 and May 2019.
There was not much cartel enforcement by the European Commission (“EC”) during the time period covered by the review. The EC issued only one settlement decision in Occupant Safety Systems II, which was triggered by an immunity application. The decision covered two separate cartels, which lasted from 2007 to 2011 and from 2008 to 2011, respectively. Both cartels involved the exchange of commercially sensitive information and price coordination for the supply of seatbelts, airbags, and steering wheels to Volkswagen and BMW, respectively.
On May 13, 2019, the Supreme Court (“the Court”) announced its 5-4 decision in Apple, Inc. v. Pepper, permitting iPhone users to proceed with an antitrust suit against Apple alleging that it monopolized the retail market for iPhone apps. The Court emphasized that it decided only the threshold issue, ruling that the iPhone users were not barred by federal law from bringing the suit, and did not address the merits of the claims. The Court concluded that consumers could bring suit against Apple because they purchased apps directly from Apple—through the Apple App Store— even if app developers (and not Apple) were setting the retail price of the apps. In this Covington Alert, Thomas Barnett, Beth Brinkmann and Derek Ludwin discuss the decision as well as a number of questions that it raises about the Supreme Court’s antitrust precedents relating to direct and indirect purchasers.
On 16 April 2019, England’s Court of Appeal ruled that the Competition Appeals Tribunal (the “CAT”) had erred in rejecting certification of former financial ombudsman Walter Merricks’ class action against MasterCard, for £14 billion. As a result, the CAT will now reconsider whether to certify the class. The decision has lowered the bar that will need to be cleared in this and future class actions in order to achieve certification. Louise Freeman and Harry Denlegh-Maxwell consider the decision and its implications for the UK’s fledgling class action regime in this Covington Alert.