Better late than never. Last year’s recap post on European Union competition law and policy developments already was quite long (see post here). This year’s post might even be longer. Sorry, dear readers, nothing much I can do – 2021 was a very busy year.
Article 101 – of principles, evaluation of rules and new theories of harm
Pay-for-delay (again) and beyond: Lundbeck et al. and Teva investigations
Pay-for-delay agreements were already a hot topic at the CJEU in 2020 (see last year’s recap post). In 2021’s Lundbeck et al. decision (discussed on KCL here), the Court did not only largely follow AG Kokott’s opinion. It also followed the basic principles established in Generics. This is essentially a positive development, as it shows that the Court is evolving a coherent doctrine for by-object restrictions in general and pay-for-delay agreements in particular.
To remind you where we now stand with regard to pay-for-delay agreements, restrictions by-object and potential competition: In Generics and Lundbeck, the CJEU confirmed that the notion of by-object restrictions of competitions must be interpreted strictly so that the category is limited to agreements, for which the only plausible explanation is the restriction of competition. Similar to its findings in Budapest Bank, the Court held that, in this context, attention must lie on the agreements’ provisions, objectives, and its economic and legal context. When it comes to pay-for-delay agreements, the Court again confirmed that these agreements could not automatically be considered a restriction by object unless the value transfers cannot have any explanation other than incentivising the parties not to compete. Potential competition was also again an issue in Lundbeck. For the generic manufacturer to be considered a potential competitor, the Court reiterated Generics and found that it is sufficient that there are ‘real concrete possibilities’ of entry, the generic has ‘a firm intention and an inherent ability’ to enter the market, and that ‘does not meet barriers to entry that are insurmountable’. A process patent ‘of an active ingredient that is in the public domain’ does not constitute an insurmountable barrier, even if that patent was validated in later litigation.
Pharma, life science and IP were also a 2021 focus for the Commission beyond pay-for-delay agreements. For the first time, the Commission investigates a case relating to the pharmaceutical sector’s divisional patent filing, litigation, and communication strategies. With its Teva investigation initiated in March 2021, the Commission explores two novel theories of harm. The first potential abuse relates to an artificial extension of the market exclusivity of Teva’s multiple sclerosis drug Copaxone after the basic patent had expired. The Commission is investigating whether Teva repeatedly delayed entry of potential generic competitors by strategically filing and withdrawing divisional patents, obliging them to file a new legal challenge each time, requiring time and resources. The second potential abuse relates to Teva’s communication strategy, which allegedly went beyond the necessary marketing of its own follow-on product by targeting competing products to create a false perception of health risks associated with their use. A new theory of harm? We will see!
Verticals in focus: Interbrand vs intraband, geo-blocking, new regulations and guidelines
2021 was undoubtedly a year for developments on vertical restraints. With its decision on Valve, the Commission kicked off 2021 with one of the most interesting decisions on vertical agreements in the last years and clarified that geo-blocking is nothing to joke about. In its first decision on cross-border sales restriction after the adoption of the Geo-Blocking Regulation and the CJEU’s decision on Groupe Canal+ (discussed on KCL here), the Commission established that Valve and five PC video game publishers (Bandai Namco, Capcom, Focus Home, Kock Media and ZeniMax) prevented gamers from purchasing PC games from Central and Eastern EU Member States or activating PC games purchased from these countries, where prices were lower than in other Member States. The Geo-Blocking Regulation does not apply to such digitally supplied copyright-protected content. Nevertheless, the Commission can investigate such practices as a competition case, thus complementing the Geo-Blocking Regulation. Concerning the Geo-Blocking Regulation itself, the Commission is assessing whether a per-se prohibition of unjustified geo-blocking of copy-righted content could be included in a revised version of the Regulation. In the competition law context, the imminent revision of the vertical rules (more on this in a minute) will have to establish a position on territorial restrictions and restrictions on passive sales when it comes to IP-protected content, hopefully in line with or complementing the Geo-blocking Regulation.
This time in a vertical context, the question of by-object restrictions of competition also played a role in the preliminary reference procedure in Visma (discussed on KCL here). Software developer Visma had concluded distribution agreements according to which distributors had to register potential customers with Visma and were in return granted six-month exclusivity for completing the transaction with that customer over other customers. According to the Latvian Competition Authority, the distribution agreements amounted to a by-object restriction. Even though the Court of Justice ultimately left the qualification as a by-object or by-effect case to the referring court, its different view was clearly discernible. The agreement only concerned a limitation of Visma’s own product intrabrand. In its reasoning, the CJEU repeated its mantra (see above): by-object restrictions are rare, should not be assumed lightheartedly and must be assessed in the light of the provisions of the agreement, the objective pursued, and the economic and legal context. According to the CJEU, vertical agreements, in particular, are less likely to be harmful to competition and likely unproblematic unless they lead to a restriction of interbrand competition, i.e. competition between different brands as opposed to competition between distributors of the same brand.
Coming to the vertical rules themselves. In July, the Commission published its long-awaited revised Draft Vertical Block Exemption Regulation and corresponding Draft Vertical Restraints Guidelines (discussed on KCL here and here) for public consultation. The focus of the update lies in the adaption of the vertical competition rules to digital markets and e-commerce, particularly the activities of online manufacturers, including their sales through online intermediaries. Consequently, the main changes relate to possible problematic behaviour on such markets by such actors. The envisaged instruments contain changes on dual distribution and resale restrictions in exclusive and selective distribution models as well as rules on most favoured nation clauses, dual pricing, protection on brick-and-mortar sales, online resale restriction, agency and online intermediation services. Recently, the Commission already drafted a new section dealing with information exchange in dual distribution as a result of comments received, for which it opened another consultation period ending this week.
Sustainability, here we go!
No matter where you look: sustainability and competition law appears to be one of the hottest topics nowadays. In 2021, it seemed to have already arrived in Article 101-case practice. In July 2021, the Commission adopted a settlement decision against Daimler, BMW and Volkswagen for colluding on technical development in the area of emission cleaning (discussed on KCL here). Precisely, the car manufacturer had agreed and exchanged information on AdBlue tank sizes, refill ranges, and AdBlue consumption estimates. While the case is – rightfully or not – treated as ‘an example of how competition law enforcement can contribute to the Green Deal by keeping our markets efficient, fair and innovative’, it is particularly interesting because it concerns a collusion on technical development. The latter finding that collusion on technical development amounts to a cartel makes it a first of its kind.
Sustainability is also in focus when it comes to the Commission’s revision of the Horizontal Block Exemption Regulations and Horizontal Guidelines (discussed on KCL here and here). The outcome of the evaluation phase was a noticeable lack of guidance with regard to agreements pursuing sustainability goals on the EU level. The new Regulation and Guidelines should clarify the scale of possible cooperations and the type of benefits that could outweigh restrictive effects on competition. Furthermore, the evaluation found deficits concerning information exchange, R&D, specialisation, purchasing, commercialisation and standardisation agreements. Last week, the Commission published the revised Draft Horizontal Guidelines, the Draft Research and Development Block Exemption Regulation and the Draft Specialisation Block Exemption Regulation. The public consultation will run until 26 April 2022.
Further revisions envisaged: new rules for the automotive sector and on collective bargaining for self-employed
Other regulations and guidelines are also being reworked at the moment. In May 2021, the Commission published its evaluation of the regime applicable to the automotive sector, the Motor Vehicle Block Exemption Regulation and the Supplementary Guidelines, as well as the Vertical Block Exemption Regulation and the Guidelines on Vertical Restraints, as far as they apply to the automotive sector (discussed on KCL here). With the foreseen adaptions, the Commission wants to address the changing automotive market, especially the emergence of new technologies and the increasing role of data collection to lock in aftermarket revenues. In 2022, the Commission will likely publish draft new versions of the documents applicable for the automotive sector.
Another set of rules is on the way. In December 2021, the Commission published its Draft Guidance on the application of Article 101 on collective bargaining of the self-employed(discussed on KCL here and here). The draft guidance serves as a reaction to the growing possibilities for private individuals to sell their labour as freelancers and self-employed through online platforms. Labour unions criticised that this practice undercuts adopted collective agreements and contemplated extending collective agreements to freelancers and self-employed. The Draft Guidance tries to find a careful balance. On the one hand, it recognises that freelancers and self-employed are undertakings in the sense of Article 101 TFEU, and agreements on remuneration, in particular, could fall in the by-object category. On the other hand, the Draft Guidance accepts the importance of collective agreements to improve working conditions also for freelancers and self-employed in the digital era, especially for ‘false self-employed’. In particular, the Draft Guidance eludes on the narrow concept of the ‘working condition exemption’ for Article 101 TFEU. The public consultation period ran until 24 February 2022.
Classical stuff: bid-rigging
The Court also dealt with the refinement of principles with regard to more classical restrictions of competition under Article 101. Concerning bid-rigging, the manipulation of a tender procedure by means of coordination on the bid, the preliminary reference case from Finland in Kilpailu provided some clearance on the duration of bid-rigging infringements (discussed on KCL here). The CJEU held that the infringement ends when the essential part of the tender contract, especially the amount to be paid, have been definitely agreed upon, so when the successful bidder and the authority conclude and sign the contract. Payment instalments or work completed at a later stage are not decisive.
A super big bluff? The rise and fall of the Super League
Last spring, the European competition law community was all abuzz. Twelve of the largest European football clubs announced the creation of a so-called Super League (discussed on KCL here). After severe backlash by fans and other clubs as well as FIFA-UEFA, nine clubs backed out of the project, which led to a broad discussion on the competition law implications of FIFA-UEFA’s behaviour. FIFA-UEFA and national federations threatened to ban the clubs from playing in any other competition at domestic, European or world level, and their players could be denied the opportunity to represent their national teams. By referring to 2020’s International Skating Union case of the General Court, commentators argued that the measures would constitute a restrictive agreement between undertakings and possible abuse of UEFA’s dominant position. While the Commission did not pick up the case, it reached the European level in any case. As reported in our recap post on 2021 Spanish developments (available here), a Madrid Court, in proceedings involving the Spanish company incorporated to implement the Super League and FIFA-UEFA, requested a preliminary ruling from the CJEU on whether FIFA-UEFA’s practices breach Articles 101 and 102 TFEU.
Article 102 – GAFA cases and legal tests
All eyes on Google: Shopping, Android, AdTech
Google Shopping was certainly the 102-case of the year (discussed on KCL here). Such a long decision does certainly not fit well into a recap post. Let’s focus on the, in my opinion (more on this here), most important issue: the legal test. In that context, the General Court held that the general principle of equal treatment, as a general principle of EU law, applies in the context of Article 102 TFEU for dominant undertakings. Based on this finding, it reframed the European Commission decision as an abusive discrimination case, with self-preferencing amounting to an independent form of abuse under Article 102 TFEU. According to the General Court, the legal test requires exclusionary effects, which must be considered in light of the individual circumstances of each case. Contrary to views in the literature, the Bronner criteria, particularly indispensability, are not part of this legal test.
Another Google 102-case was discussed on the General Court level in 2021: the Google Android case. In the fall of 2021, the five-day hearing on the appeal of the 2018 Commission decision took place in Luxembourg and concerned the most important aspects of the decision. The discussions focused on Google’s dominance concerning Android and the Play Store and the competition faced through Apple’s iOS and App Store. Furthermore, discussions concerned the pro- or anti-competitive effects of mobile application distribution agreements, which led to the preinstallation of the Google Search and Chrome app and their ties to the Play Store. Moreover, the hearing concerned the justification of so-called anti-fragmentation agreements, according to which Google conditioned its licensing of the Play Store and Google Search to original equipment manufacturers who would not develop or sell devices running on an Android fork. Lastly, the parties and interveners discussed the revenue sharing agreements. Google made the revenue sharing with the original equipment manufacturers and mobile network operators conditional on a commitment not to preinstall competing general search apps on any devices. In 2022’s recap post, we will likely hear about the case’s final outcome.
Three Google decisions are not enough. Following a similar decision by France, in June 2021, the Commission opened a formal investigation into Google’s potential anti-competitive behaviour in the AdTech space. Similar to the Google Shopping case, the theory of harm in this investigation focuses on self-preferencing. The Commission will ‘assess whether Google has violated EU competition rules by favouring its own online display advertising technology services in the so-called “ad tech” supply chain, to the detriment of competing providers of advertising technology services, advertisers and online publishers.’ In particular, the Commission will examine ‘whether Google is distorting competition by restricting access by third parties to user data for advertising purposes on websites and apps while reserving such data for its own use.’
Leave some space for Facebook (Meta) and Apple
The other GAFAs were also a subject of interest in 2021’s abuse of dominance developments. Particularly Facebook was targeted all across Europe (the various developments discussed on KCL here). On the EU level, the Commission opened an investigation in Facebook Marketplace. The investigation will touch upon two theories of harm. First, the Commission will assess the misuse of data gathered by Facebook from advertisers, in particular, in order to compete with them in markets where Facebook is active, such as classified ads like Facebook Marketplace. Second, the Commission will investigate whether Facebook illegally tied its online classified ads service Facebook Marketplace to its social network.
Data abuse also lies at the heart of the German Facebook saga (discussed on KCL here and here). After a long back-and-forth between the German Competition Authority, the Higher Regional Court Düsseldorf and the Federal Court of Justice, the Higher Regional Court Düsseldorf halted the proceedings and filed a request for a preliminary ruling to the CJEU (discussed on KCL here). In 2019, the Bundeskartellamt held that Facebook abused its dominant position by collecting and matching data of its users from third-party services, including its subsidiaries WhatsApp and Instagram, without explicit consent from its users. Now, the Court of Justice has to decide on this fascinating case on the boundary between data protection and competition law, which has been a huge topic of conversation in the EU competition law community.
Let’s turn to another GAFA. In 2020, I reported on multiple Apple investigations. In 2021, the Commission already followed with a Statement of Objections in the Apple music streaming case, which was initiated through a complaint by Spotify. The EU competition law enforcer came to the preliminary conclusion that Apple abused its dominant position on the market for the distribution of music streaming apps through its App Store by (1) making it mandatory for music streaming app developers to use Apple’s own in-app purchase mechanism when distributing their apps via Apple’s App Store, and (2) using anti-steering provisions that limit the ability of app developers to inform users of alternative purchasing possibilities. 2022 might bring a decision here.
On the way to an abuse of dominance doctrine: Slovak Telekom and Servizio Elettrico Nazionale
Next to Google Shopping, Slovak Telekom and AG Rantos’ Opinion in Servizio Elettrico Nazionale were the 102-highlights of 2021. Let’s start with Slovak Telekom (discussed on KCL here). The case concerned the Slovakian former legal monopolist Slovak Telekom. The Slovak telecoms regulator obliged the company to offer its competitors on the retail broadband market access to its local loop part of its metallic pair network under FRAND terms in accordance with the EU regulatory framework for access to telecommunications networks. In the aftermath, the Commission found that Slovak Telekom had both set unfair terms and conditions for access to the local loop and conducted a margin squeeze. At the centre of the case at the CJEU was the question of whether the Commission would have to prove that access to the network was indispensable within the meaning of the Bronner case law. While the Court of Justice confirmed that the Bronner case law is generally still applicable, it confined its application to specific situations: outright refusals to supply. In cases of constructive or implicit refusal to supply, like in Slovak Telekom, which concerned the unfair conditions of access already given access, indispensability and the other Bronner criteria do not need to be fulfilled to find an abuse. The Bronner criteria are only applicable when a company would be forced to contract with a competitor, so a duty to deal with a competitor with which the dominant company did not deal before. As mentioned above, Google Shopping followed Slovak Telekom in a similar manner.
AG Rantos’ Opinion in Servizio Elettrico Nazionale (discussed on KCL here) was much more than a simple opinion. It contained many interesting discussions on the general abuse of dominance doctrine and on the novel conduct of this case. The case concerns the use of legitimately collected customer data by the ENEL group during its legal monopoly position to later target offers to those same customers once the Italian energy market was liberalised. In the course of the opinion, AG Rantos discusses many issues important to Article 102 TFEU doctrine, such as what conduct, especially when the conduct is non-price-related, constitutes an abuse and what goals are pursued with Article 102 TFEU. As to the data abuse, in particular, according to AG Rantos, a focus of an analysis of the anti-competitiveness must lie on the replicability of data. Now, we are eagerly waiting for a decision of the Court!
Here we go again: Aspen and excessive pricing
In last year’s recap post, I already reported on the Aspen excessive price investigations. The Commission initially suggested that the price for Aspen’s cancer medicine was 300% above Aspen’s relevant costs, amounting to illegal excessive pricing. In 2020, Aspen had offered commitments (discussed on KCL here) to reduce its prices across Europe for the six cancer medicines by, on average, approximately 73% retrospectively from October 2019, to guarantee the supply of the drugs for the next five years, and, for an additional five-year period, to either continue to supply or make its marketing authorisation available to other suppliers (generics). After a market test, the Commission made the commitments legally binding in a commitment decision in January 2021. With regard to the always much-discussed legal test for excessive pricing, the Commission was cautious. It applied the standard EU case law from United Brands and AKKA/LAA (discussed on KCL here) to establish that a dominant firm’s price is excessive if it has no reasonable relation to the economic value of the product supplied.
Merger Control – something old, something new
Article 22-referrals and the many novelties of the Illumina/GRAIL merger
Already in 2020, I reported that the Commission wanted to revive the so-called Dutch clause. In 2021, the Commission got serious and adopted a Guidance on the application of the referral mechanism set out in Article 22 EUMR (discussed on KCL here, here, here). Under Article 22 EUMR, national competition authorities are allowed to refer transactions even if they do not meet the filing thresholds or otherwise be reportable in the referring Member State. The only condition is that the transaction affects trade between Member States and threatens to significantly affect competition within the territory of the Member State or States making the request – two conditions up to the Commission’s consideration, i.e. legal uncertainty for merging parties. The new guidance sets out principles and clarifies the application cases for Article 22-referrals. According to the Commission Guidance, a focus should lie on the digital and pharma sector, particularly prone to the ‘killer acquisitions’ the Commission wants to tackle with the new-old mechanism.
A first use case for the Article 22-referral mechanism was the Illumina/GRAIL merger in the pharmaceutical sector (discussed on KCL here). The merger is not only a highlight for being the first Article 22-case under the revised framework. It can simply be described as the merger case of 2021 due to the many circumstances that followed the 9 March 2021 Article 22-referral from France, joined by Belgium, Greece, Iceland, the Netherlands, and Norway. So many things happened in this case, it is hard to keep track. Let’s try. First, Illumina applied with the French Council of State to suspend the French national competition authority’s referral of its acquisition of GRAIL to the European Commission. However, the French Court declined to block the Article 22-referral to the Commission. Then, on 19 April 2021, the Commission accepted the referral. Consequently, on 28 April 2021, Illumina applied to annul the acceptance decision with the General Court. The judicial proceedings are ongoing; a hearing took place on 16 December 2021. In the meantime, the Commission had opened an in-depth investigation (Phase II) on 22 July 2021 because it was ‘concerned that the proposed acquisition may reduce competition and innovation in the emerging market for the development and commercialisation of cancer detection tests based on sequencing technologies’. Until now, the case was novel enough due to the Article 22-referral. What followed then was something that really took the European competition law bubble and especially the Commission by surprise. Despite the ongoing Court proceedings, Illumina/GRAIL simply refused to accept the Commission’s newly discovered possibility for Article 22-referrals and subsequent Phase II-review. In an astonishing move clearly disregarding the Commission’s authority, they closed the transaction on 18 August 2021. In Illumina’s opinion, its agreement to acquire GRAIL would have otherwise expired before the end of the Commission’s review. The Commission, naturally, did not put up with this. On 20 September 2021, it adopted a Statement of Objections in view of adopting interim measures following Illumina’s early acquisition of GRAIL, which was followed by the first-ever interim measure decision for gun-jumping on 29 October 2021. The interim measures include, inter alia, for GRAIL to be kept separate from Illumina and be run by an independent manager, a prohibition for the two companies to exchange information, etc. On 1 December 2021, Illumina also appealed this interim measure decision. In parallel, the Commission continues to investigate the possible gun-jumping behaviour of Illumina and GRAIL and contemplates issuing an Article 14-fining-decision. The final decision of the Commission is still outstanding today. Anyhow, Illumina/GRAIL will give us much food for thought – on the authority of the European Commission and the rule of law in EU competition law in general – and many upcoming Court and Commission decisions.
More on gun-jumping: the Altice Judgment
Double-trouble for Altice: after the Commission imposed two fines on Altice for gun-jumping in 2018, the General Court followed with its judgment in 2021 (discussed on KCL here). According to the Commission, Altice failed to notify its acquisition of PT Portugal prior to the implementation under Article 4 EUMR and to comply with the prohibition pursuant to Article 7 EUMR not to implement a concentration prior to the Commission clearing it. The problematic behaviour – identified as grey zones of gun-jumping by commentators – amounted to premature implementation through veto rights in the SPA and instances in which Altice actually exercised decisive influence over PT Portugal prior to clearance. The Commission also looked into information exchanges that contributed to demonstrating the exercise of decisive influence but those were not found to amount to premature implementation themselves. The General Court largely backed the Commission and followed the Marine Harvest judgment (discussed on KCL in last year’s post and here), insofar as it held that issuing two separate fines for conduct that simultaneously breaches both Articles 4 EUMR and 7 EUMR is compatible with EU law because both Articles pursue autonomous objectives and regulate distinct cases. Yet, it reduced the fine for the Article 4 EUMR violation because it viewed the conduct as severe as Altice had informed the Commission before signing and filed a case team allocation request right afterwards.
What else is going on? Google/Fitbit, London Stock Rexchange/Refinitiv, Air Canada/Transat, Facebook (Meta)/Kustomer
Several other mergers caught the eye of EU competition lawyers in 2021. First and foremost: Google/Fitbit. Just before its Christmas holiday in 2020, the European Commission cleared Google’s acquisition of Fitbit subject to conditions (discussed on KCL here). In 2021, it published the decision. The 254-page decision delves into many interesting aspects that could become relevant also for future abuse of dominance analysis – as usual: things missed in merger analysis can come back and haunt you in 102-cases. The Commission identified a large number of affected markets across the board of the parties’ activities: 28 in total! Table 26 of the decision shows horizontal, vertical or conglomerate effects. Unfortunately, the Commission did not take a global ecosystem-based based or gatekeeper approach to the assessment of acquisitions. In clearing the merger, the Commission accepted three final remedies: the Ads Commitment, the Web API Access Commitment and the Android APIs Commitment.
In January 2021, the Commission started its year with the first access remedy decision in the financial sector in London Stock Exchange/Refinitiv. In Phase-II, the Commission has voiced concerns on horizontal overlaps in the market for electronic trading of European Government Bonds and vertical concerns in the markets for the trading of over-the-counter interest rate derivatives, consolidated real-time data feeds, and desktop services as well as index licensing. The remedies now include a – quite standard for the industry – 99.9% divestment of the London Stock Exchange’s stake in the Borsa Italiana group, which includes MTS, the trading venue for European Government Bonds to a suitable purchaser to mitigate the horizontal concerns. Euronext was approved as such a suitable purchaser later in 2021. The novel-to-the-industry access remedies aim at addressing the vertical concerns. The London Stock Exchanges committed to offering its global over-the-counter interest rate derivatives services on open access and non-discriminatory basis. Furthermore, it commits to data access remedies with regard to both consolidated real-time data feeds and desktop services as well as index licensing.
After the Commission had opened an in-depth investigation to assess the Air Canada/Transat merger in 2020, the companies abandoned the deal in 2021. The Commission had voiced concerns over the reduced competition on 33 origin and destination city-pairs between the EEA and Canada. Even after Air Canada offered to divest slots on these routes, the Commission was not happy with the transaction and demanded access remedies to airport infrastructures. But also, an improved remedy package did not suffice, and a failing-firm defence for the Covid-struck airline industry seemed to be out of the question – too high barriers. Therefore, Air Canada abandoned the deal.
We started with the Dutch clause and we end the merger report with the Dutch clause – the new favourite tool in EU merger control. Another Article-22 referral ended up at the Commission’s desk with Facebook (Meta)/Kustomer. In August 2021, the Commission opened an in-depth investigation due to concerns in the market for the supply of Customer Relationship Management software. In particular, the Commission was concerned that, as a result of its combination with Kustomer, Facebook might foreclose access to its business-to-consumer over-the-top messaging channels, namely WhatsApp, Messenger or Instagram. Furthermore, concerns for the markets for the supply of online display advertising services, or segments thereof, were considered. In the meantime, the Commission cleared the acquisition, subject to conditions in January 2022.
State aid – revisions and novelties
Covid-19, extended Frameworks and airline cases
At the latest since the Covid pandemic, European state aid law has proved to be of utmost importance for EU lawyers. In 2021, the Commission expanded and prolonged the Temporary Framework to support economic recovery in the context of the coronavirus outbreak in January 2021 and in November 2021 (to 30 June 2022). Since the adoption, the Temporary Framework has been amended six times (discussed on KCL here, here, here, here and here). The January 2021 package concerned increased ceilings for certain support measures and the possibility to convert repayable instruments granted under the Temporary Framework into other forms of aid, such as direct grants, provided the conditions of the Temporary Framework are met. The November 2021 package introduced two new measures to create direct incentives for forward-looking private investment and solvency support measures for an additional limited period. Furthermore, the Commission has continued to grant numerous measures, listed in a factsheet. As indicated in last year’s post (discussed here and analysed in-depth here), such an extensive relaxation of the EU state aid rules during the pandemic might have already produced long-term negative effects on the internal market, in particular, due to the uneven geographical distribution of aid in the EU.
In 2021, especially Ryanair’s appeals of the many decisions granting aid to airlines in the context of the Covid-19 pandemic reached the General Court (discussed on KCL here, an overview of the cases here). The large amounts of state aid were authorised under both Articles 107(2)(b) and Article 107(3)(b) TFEU. It is true that the aviation industry, in particular, has been hit hard by the pandemic due to travel restrictions and drops in demand. Yet, Ryanair particularly criticised the unequal treatment concerning (former) state airlines and inadequate justifications of the aid measures. While some judgments upheld the state aid measures for airlines (see, for example, the decision on the Swedish aid scheme), Ryanair also secured several wins, for example, concerning the aid to TAP, KLM and Condor on the grounds of inadequate reasoning – the first time the EU General Court has annulled Covid-19 State aid measures. The discrimination allegations were – rightfully or not will likely depend on the CJEU appeals – dismissed.
The Courts clarify: Poste Italiane, Fútbol Club Barcelona, Amazon, Engine, Spanish tax cases and Tempus Energy
In 2021, the European Courts provided several clarifications for the EU state aid assessment and procedures. The Poste Italiane judgment of March 2021 concerned the notion of services of general economic interest (SGEI) (discussed on KCL here). SGEI are services the state wants to provide for the general public which are not adequately supplied by market forces alone. They can conflict with Article 107 TFEU. The Altmark judgment and the Commission’s SGEI Framework set out the conditions that need to be met to ensure that public service compensation does not constitute a selective advantage. The Poste Italiane judgment concerns an Italian law providing that agents responsible for collecting the Italian municipal real estate tax must hold a current account with Poste Italiane (to enable taxpayers to pay that tax) and must pay a fee for the related management. The CJEU held that Poste Italiane’s post-office current account services could not be qualified as an SGEI as it does not satisfy the first Altmark condition. Poste Italiane was not entrusted by one or more acts of public authority that precisely defined the nature, duration and scope of the alleged public service obligations. Conversely, Poste Italiane’s right may be regarded as a selective advantage under Article 107 TFEU.
Equally in March 2021, the CJEU delivered another judgment on the advantage-criterion in Fútbol Club Barcelona (discussed on KCL here). In 2016, the Commission found that Spain had granted illegal and incompatible State aid in the form of corporate tax privileges to several football clubs in Spain. The CJEU now backed the initial Commission approach quashed by the General Court in 2019. Specifically, it clarified that the advantage must be determined ex-ante – that is, at the moment of the authorisation – and not be based on future variable events that, in the case at hand, might offset the advantage. That question is only relevant at the later stage of recovery, where the Commission will consider the individual situation of the beneficiaries in order to determine the precise amount to be recouped. Still, the analysis may be forward-looking to some degree, as the decision hinted, whenever the future circumstances occur ‘systematically’.
On 12 May 2021, the General Court issued two judgments in tax ruling cases from Luxembourg: Amazon and Engie. The judgments concern the notion of selective advantage and the corresponding evidentiary issues. In Amazon, the General Court annulled the 2017 Commission decision, which had found the tax ruling granted by Luxembourg to Amazon to be incompatible state aid. The case concerned the arm’s length nature of a royalty paid by Amazon’s Luxembourg operating company to another Luxembourgish group company in exchange for the use of certain intangibles. The General Court underlined its finding in Apple (discussed on KCL here and here) that the Commission bears the burden of proof for the selective advantage. Particularly a methodological error in applying the arm’s length principle endorsed by the tax ruling is not enough to prove the existence of a selective advantage. Member States have a certain margin of appreciation in applying transfer pricing methods. In particular, the Commission must demonstrate that any methodological error coincides with reducing the tax burden in the absence of the respective tax ruling. In the case at hand, the tax ruling granted by Luxembourg endorsed an application of the arm’s length principle based on the transactional net margin method.
On the other hand, the General Court upheld the 2018 Commission’s decision on Luxembourg’s tax rulings to Engie. The Engie case involved several tax rulings by Luxembourg, which endorsed a financial transactions scheme between four group companies of Engie incorporated in Luxembourg. The scheme caused a so-called double non-taxation where income was at the same time treated as a loan whose interests were deductible and as an investment exempted from taxation under Luxembourgish tax law. The General Court underlined the Commission’s economic approach to assess the arrangement as a whole rather than as separate transactions and stressed the unlawful selective advantage.
Another judgment on the fundamentals of state aid assessment followed in September 2021 with the Tempus Energy judgment (discussed on KCL here). The judgment concerns the Commission’s investigative duties in the preliminary examination phase of state aid proceedings. In 2014, the Commission decided not to raise objections regarding a State aid scheme of the UK. The CJEU clarified which elements give rise to doubts as to the compatibility of a State aid measure with the internal market, which obliges the Commission to open a formal investigation under Articles 108(3) TFEU and 4(4) of Regulation No 659/1999. It held specifically that significance, complexity and novelty of a state aid measure, the length and content of the pre-notification contacts or the multiplicity and origin of informal contacts by third parties individually and summarily not necessarily give rise to doubts in that sense. Rather, the Commission must specify substantive grounds for observations or issues capable of creating difficulties.
Lastly, as reported in our recap post on 2021 Spanish developments (available here), on 6 October 2021, the CJEU dismissed the appeals against eight judgments of the General Court upholding the classification of the Spanish tax scheme on the amortisation of financial goodwill as State aid. This marks the end of a long back-and-forth between the Commission, General Court and CJEU. The judgment expands the notion of selectivity in the sense that a measure of general nature open to all undertakings can be selective if it benefits only certain undertakings deciding to carry out specific transactions in foreign, as opposed to Spanish companies.
Sustainability and state aid
The sustainability debate does not stop at state aid law. In 2021, the Commission approved several aid measures of different Member States, each time specifically mentioning the objectives of the EU Green Deal. The Commission approved a €5.7 billion French scheme to support electricity production from small solar installations on buildings, which aims to transition to an environmentally sustainable energy supply. Furthermore, the Commission granted a €173 million aid scheme for charging and refuelling stations for zero and low emission vehicles in Poland, which will promote alternative fuels and encourage consumers to use greener vehicles. In November, the Commission permitted a €2.27 billion Greek aid scheme to support electricity production from renewable energy sources, and high efficiency combined heat and power, which will help Greece reach its renewable energy targets. Just before Christmas, the Commission approved two further measures. It allowed a €3 billion Spanish scheme to support research, development and innovation, as well as environmental protection and energy efficiency measures of companies in the value chain for electric and connected vehicles, which will help Spain accelerate the transition towards a more sustainable and connected mobility. Lastly, it approved a €783 million Croatian scheme to support electricity production from renewable energy sources.
Furthermore, just before Christmas 2021, the Commission endorsed the new Guidelines on State aid for climate, environmental protection and energy. The new guidelines are applicable from January 2022 and provide guidance on how the Commission will assess the compatibility of environmental protection, including climate protection and energy aid measures under Article 107(3)(c) TFEU. Especially, the Guidelines broaden the categories of investments and technologies that Member States can support, such as clean mobility infrastructure, resource efficiency, or biodiversity. Moreover, the Guidelines entail certain flexibility and streamline existing rules by introducing a simplified assessment of cross-cutting measures under a single section of the Guidelines and eliminating the requirement for individual notifications of large green projects within aid schemes previously approved by the Commission. The Guidelines also provide certain safeguards, such as public consultation requirements above certain thresholds.
Other revisions to the state aid rules
2021, in general, was the year for revisions of several rules governing EU state aid law. In April, the Commission revised the Regional Aid Guidelines. These Guidelines set out rules under which Member States can grant state aid to companies to support the economic development of disadvantaged areas in the EU. In the new Guidelines, the Commission increased the overall regional aid coverage to 48% of the EU population, updated the list of assisted-areas and predefined c-areas based on the latest available Eurostat statistics and increased flexibility for Member States to assign so-called non-predefined c-areas on the maps. But, sustainability also played a role here. The new Guidelines increased maximum aid intensities to support, inter alia, the European Green Deal by enabling additional incentives for investments in the disadvantaged areas of the EU and including several aid intensity bonuses.
In July 2021, the Commission extended the scope of the General Block Exemption Regulation following certain changes in other programs and the general European realities. The new rules will allow Member States to implement specific aid measures without prior Commission scrutiny. The revised rules concern aid granted by Member States for projects funded via certain EU centrally managed programmes under the new Multiannual Financial Framework. The GBER extension largely aligns EU funding rules and EU state aid rules and introduces new block exemptions in these areas. Furthermore, the Regulation deals with certain state aid measures to support the green and digital transition as well as the recovery from the economic effects of the Covid-19 pandemic. These include the state aid rules for energy efficiency projects in buildings, publicly-accessible electric recharging and hydrogen refuelling infrastructure for road vehicles as well as for fixed broadband networks, 4G and 5G mobile networks, certain trans-European digital connectivity infrastructure projects and certain vouchers.
In November 2021, a revision of the Communication on State aid rules for Important Projects of Common European Interest followed, which also applied from January 2022. The Communication addresses the criteria for Member State support to important cross-border projects of common European interest that overcome market failures and enable breakthrough innovation in key sectors and technologies and infrastructure investments. The Commission particularly has the – surprise – EU Green Deal and the Digital strategy in mind. The Communication clarifies that important projects of common European interest must ordinarily involve at least four Member States. Furthermore, the important projects of common European interest must be designed transparently and inclusively. The Communication also sets out rules to facilitate the participation of SMEs in those projects, such as the possibility for smaller companies to have a more limited own contribution to the projects than otherwise required.
Sanctions and procedures: fundamentals
Rebuttable presumption of parental liability: Goldman Sachs and Italmobiliare
In 2021, the CJEU issued two important judgments on the parental liability doctrine, following a current trend. According to the parental liability doctrine, a parent company can be liable for anti-competitive conduct of its subsidiary when the parent exercises a decisive influence over its subsidiary. Previous case law in Akzo Nobel had established a rebuttable presumption in case a parent company holds, directly or indirectly, all or almost all of the capital in a subsidiary that has committed an anti-competitive infringement. This principle has been repeated in many of the following judgments that refined the parental liability doctrine and the presumption of decisive influence during the last ten years.
In Goldman Sachs (discussed on KCL here), for the first time, the CJEU applied this presumption in a case where the parent company merely held a lower level of shareholding but held all the voting rights in a subsidiary. The CJEU made clear that it is the degree of control of the parent company over its subsidiary that is relevant for the presumption. Just as with the Akzo Nobel-presumption regarding share capital, the presumption relating to voting rights is expected to not only encompass all (so 100% of the voting rights) but also almost all of the voting rights. The latter ‘almost all’ is still unclear. It will be interesting to see which combination of a (high) majority stake in the share capital of a subsidiary and degree of voting rights the CJEU still accepts for this presumption.
In Italmobiliare, the CJEU follows the line of case law from Goldman Sachs (but also Pirelli). The CJEU underlined that the parental liability doctrine is applicable also in the case of the parent only being a financial investor when it holds 100% of the shares of the subsidiary. According to the CJEU, the presumption does not amount to an infringement of fundamental rights – the principle of personal liability and the presumption of innocence – as long as the presumption is rebuttable. If that is indeed possible in practice, remains to be seen. The CJEU held that the fact that a rebuttal remains difficult does not make the presumption de facto irrefutable.
Fundamental rights and principles: Qualcomm, Slovak Telekom, Pometon, Bpost and Nordzucker
Several other 2021 judgments of the European courts also dealt with fundamental rights and principles in competition procedures. The Qualcomm case concerned the principle of freedom from self-incrimination. During the Commission’s investigation into Qualcomm’s alleged predatory pricing practice, the authority had ordered Qualcomm to provide information. Qualcomm stated that the Commission’s order to provide new and not pre-existing documents would infringe their freedom from self-incrimination. The CJEU followed the General Court’s approach and dismissed this ground of appeal. The freedom from self-incrimination would only be violated if an undertaking would have to produce documents containing an admission of guilt. Otherwise, the Commission can compel an undertaking under investigation to put factual information into writing and send that document to the Commission to comply with the obligation to cooperate.
In Pometon (discussed on KCL here), the Court applied its case law on the principle of impartiality and the presumption of innocence to hybrid settlements. By transferring jurisprudence from the ECtHR on the presumption of innocence and the principle of impartiality in complex criminal proceedings, the CJEU held that the Commission must take sufficient drafting precautions in the settlement decision to avoid a premature judgment as to the non-settling party’s participation in the cartel, and must only refer to the non-settling party were necessary. In the opinion of the CJEU, the General Court rightfully held that the Commission complied with these prerequisites and dismissed this ground of appeal.
The other Slovak Telekom judgment of 2021 (discussed on KCL here) concerned the ne bin in idem principle and Article 11 (6) Regulation 1/2003 but is connected to the 102-proceedings discussed above. The case at hand dealt with two investigations against Slovak Telecoms by the Slovak competition authority and the Commission. The Slovakian proceedings concerned alleged abuses of a dominant position on the markets for telephone services and low-speed internet access. The Commission procedure concerns the abuse discussed above. The CJEU held that both investigations and abuses were independent and that there was no apparent link between the two markets. The only coincidence was that both investigations alleged abusive practices against Article 102 TFEU. According to the CJEU, this does not violate the ne bis in idem principle and does not trigger Article 11 (6) Regulation 1/2003.
The Opinions of AG Bobek in Nordzucker and Bpost (discussed on KCL here) also concerned the principle of ne bis in idem. By analysing the case-law of the CJEU and the ECtHR, the Advocate General suggested a unified test relying on the identity of the offender, the relevant facts and the protected legal interest. The judgment is still outstanding, which will also give the CJEU the chance to clarify the parallel application of competition law and sector-specific Regulation. Particularly with regard to the upcoming Digital Markets Act, this could have wide implications.
Fines, fines, fines!
Coming back to Pometon (discussed above) here again. The CJEU ended up partially annulling the judgment of the General Court for violating the obligation to state reasons and the principle of equal treatment in the calculation of the fine. The Court considered the method of arriving at fine and held that the GC did not provide sufficient information about the method used and factors taken into consideration while arriving at a rate of 75%. The CJEU compared the situation of Pometon, the company that did not participate in the settlement, to one of the cartelists that settled with the Commission. Both undertakings had played a limited role in the cartel and had limited sales in the EEA, the geographic area of the cartel. Contrary to the 75% reduction applied by the GC, the CJEU followed Advocate General Hogan and applied an 83% discretional reduction of Pometo’s fine in the exercise of its unlimited jurisdiction to substitute its own appraisal for that of the Commission.
Coming back to the above-mentioned Commission decision on Daimler, BMW and Volkswagen for colluding on technical development in the area of emission cleaning with regard to fines. The Commission is ultimately bound by Article 23(2)(a) of Regulation 1/2003 and enjoys a wide margin of discretion within the Regulation limits. In line with the principle of legitimate expectations and legal certainty, the calculations generally have to be based on the 2006 Fining Guidelines, but also here, the Commission has discretion. The Guidelines apply to all kinds of violations, also new or never-been-used-before theories of harm. In this case, the Commission used its discretion and granted an additional fine reduction of 20% since this was the first cartel prohibition decision based solely on a restriction of technical development.
A small side-not for purchaser cartels from the Commission. In January 2021, the Commission published its decision in the Ethylene purchaser cartel settlement case. The Ethylene cartel is only the second case of application of the 2006 Fining Guidelines to a purchaser cartel. As the cartel related to collusion on purchase prices, the Commission used the value of purchases (rather than the value of sales) in the EU to set the level of the fines. Here, the Commission took recourse to a discretionary increase tool. As those value of purchases figures were presumably artificially lowered precisely because of the cartel behaviour, this was likely to result in a level of fines below the economic significance of the infringement. Therefore, in order to avoid under-deterrence, the Commission used its discretion under the Guidelines to increase the amount of the fine for all companies by 10%.
When leniency is alive and kicking
The Recylex judgment of the CJEU in the context of the car battery recycling cartel concerned the interpretation of the 2006 Leniency Notice with regard to partial immunity. First, the case dealt with the question of the quality of new facts required to obtain partial immunity. The CJEU clarified that an undertaking applying for partial immunity must provide evidence of additional facts increasing the gravity or duration of the infringement in question, complementing or supplementing those the Commission is already aware of, and being capable of altering the material or temporal scope of the infringement. A simple strengthening of evidence with regard to the existence of the infringement and which the Commission already has in its possession, is not sufficient. Second, the case concerned the rankings for partial immunity, particularly its reordering if a higher-ranked undertaking does not meet the conditions for immunity (anymore). On the one hand, the CJEU stressed that the Notice requires complete, continuous and expeditious cooperation of immunity applicants, a leniency applicant can lose (partial) immunity if it does not fulfil these requirements and the Leniency Notice also knows a ranking of partial immunity recipients, which affects the amount of the reduction. On the other hand, the CJEU held that the Notice does not include any provisions for a change in that ranking.
In the context of leniency ranking, we come back to the above-mentioned Italmobiliare case. Here, the CJEU again confirmed that leniency applicants could not move up in the leniency ranking when another undertaking already granted immunity is no longer eligible for leniency. This is also the case when the full immunity recipient loses its benefit. Since a lower-ranked partial immunity recipient cannot by nature fulfil the conditions for full immunity under point 8 of the Leniency Notice, such as being the first to submit information, the order cannot change.
One last time we come back to the above-mentioned Commission decision on Daimler, BMW and Volkswagen for colluding on technical development in the area of emission cleaning here. The case underlines the (still existing) importance of the EU leniency programme, at least in the context of public enforcement. Daimler received full immunity, and Volkswagen Group benefited from a 45 % reduction under the leniency programme. In the case of Daimler, full immunity results in avoidance of an aggregate fine of circa €727 million. All parties benefitted from a 10% reduction under the 2008 settlement notice. Too bad for Daimler – the case is not closed yet. Even if public enforcement (except for possible court proceedings) comes to an end here, the parties must prepare themselves for private enforcement, where Daimler’s leniency status will be of little use. The Commission’s decision also has a binding effect against them. The Damages Directive and its Member State implementing laws give leniency applicants only very limited advantages, such as blacklisting leniency applications from disclosure or special rules for joint and several liability. (Side-note: I analysed a possible way out of the leniency rut in a recent post for KCL here).
Private enforcement: two big cases
Children and their parents in private enforcement (and beyond): Sumal
One of the most important cases of 2021 was the Sumal judgment (discussed on KCL here and here). As discussed above, in public enforcement of competition law, the CJEU has constantly held that parent companies can be held liable for their subsidiaries’ anti-competitive behaviour. The question of whether a subsidiary can be held liable for the anti-competitive behaviour of its parent company was neither addressed for public nor for private enforcement before. The CJEU held that the subsidiary established in its Member State could be held liable for the damage caused by the conduct of the parent company sanctioned by the Commission. Both need to form a single economic unit, which depends on the entities’ economic, organisational, and legal links. The claimant only needs to prove the existence of the economic unit itself and not that a specific legal entity is liable for the damages. Consequently, Sumal will have vast implications on many elements of public and private enforcement, including jurisdiction.
Volvo and the place where the damage occurred
The first big 2021 private enforcement development was the Volvo judgment (discussed on KCL here). It mainly concerned the tort jurisdiction under Article 7(2) Brussels Ibis Regulation in follow-on damages actions. The CJEU held that despite Article 7(2) of the Regulation conveying both international and territorial jurisdiction, Member States are free to centralise the handling of particular types of disputes, like private competition damages actions, to a single specialised court. The judgment underlines – particularly for highly technical areas such as competition law – the huge potential for centralised and specialised courts, which Member States largely lack. Outside of such specialisation, the CJEU highlighted that Article 7(2) Brussels Ibis Regulation confers international and territorial jurisdiction on the Court within whose jurisdiction the harmed undertaking purchased the goods affected by those arrangements or, in the case of purchases made by that undertaking in several places, the Court within whose jurisdiction the harmed undertaking’s registered office is situated.
Other Legislation, Consultation and Reports
The Draft DMA is being discussed
In the last recap post, I reported on the just-published Proposal of the Digital Markets Act by the European Commission. The Proposal aims at providing an ex-ante regulation of the behaviour of digital gatekeeper platforms, switching from the current, lengthy ex-post competition intervention approach. In 2021, the DMA was discussed in countless online conferences, articles but also in the EU institutions. In the Parliament, the DMA was assigned to the Committee on the Internal Market and Consumer Protection and German MEP Andreas Schwab as the rapporteur (see his interview for KCL here). In December, the Parliament approved the report of the Committee on the Internal Market and Consumer Protection, which amends the Proposal by, for example, increasing the quantitative thresholds for gatekeepers. The Council also published a general approach in November 2021, where it proposed, for example, a shorter deadline and improved gatekeeper criteria. Trilogue negotiations started in January 2022 to reach a compromised text.
Protecting the level playing field in the EU: the Draft Foreign Subsidies Regulation
In the last recap post, I also reported on the White Paper on levelling the playing field as regards foreign subsidies. In 2021, the Commission published a Proposal for a Regulation on foreign subsidies distorting the internal market (discussed on KCL here and here). The Proposal includes all three models introduced in last year’s post: 1) distortions caused by foreign subsidies affecting general market operations, 2) distortions caused by foreign subsidies facilitating the acquisition of EU undertakings, and 3) distortions caused by foreign subsidies in the context of procurement procedures. The biggest difference lies in the competence for the different procedures. While the White Paper suggested that at least some such powers could be shared with Member State authorities, the Proposal now confers exclusive jurisdiction on the Commission. Yet, the Proposal still lack alignments and streamlining with existing procedures, such as merger control and FDI review.
Another tool in the digital strategy: the Draft Artificial Intelligence Regulation
Equally in the last recap post, I mentioned the Commission White Paper on Artificial Intelligence. In 2021, the Commission also followed with a proposal in that regard. The Draft Artificial Intelligence Act (discussed on KCL here) is the first-ever legal framework on AI specifically. The comprehensive framework contains rules on (the tedious) definition of AI, a risk-based system, fines and a supervision and enforcement mechanism. The risk-based system – being of central importance in the new Act – categorises AI into unacceptable, high and low risk. Unacceptable risk AI systems, such as social scoring systems by public authorities, are banned. For high-risk AI systems – either AI that is (part of) a product that is already subject to certain EU safety regulations or AI systems designated by the Commission as high risk – the Draft contains several obligations for providers, such as risk management systems, information to end-users or human oversight. For low-risk AI systems, the Draft mainly foresees transparency obligations. One thing is for sure: with the AI Act, another specialised regulation tool will come into play, taking the specifics of the industry into account and supplementing the Commissions Digital Strategy.
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Thanks for great summary