Since 2009, the Superintendence of Industry and Commerce is the “National Competition Authority” in Colombia. It is a powerful entity and this was the result of years of discussions inside the Congress, as well as in judicial courts, to consolidate this Superintendence as the Single Competition Authority of our country[1].

This entity has been strengthened with an important team of economists and lawyers, and is designed to protect free competition as an administrative agency. However, this institutional design to protect free competition has been subject to variations, as a reaction to bid rigging in public tenders.

1. Current institutional arrangement. The scandals in public procurement have been the driver of punitive legislation in our country: Law 1474/2011 was enacted as a reaction to the “procurement cartel” in the Capital District (Bogota D.C.) and so, bid rigging was criminalized.

For this criminal persecution, there is an institutional arrangement led by the General Prosecutor’s Office. In addition, the administrative entities exercising powers of surveillance and control (i.e., the Superintendence) have functions of judicial police, for which they have the legal obligation of reporting any “criminal news” as soon as they become aware of it, as well as of cooperating with the Prosecutor’s Office in the collection of evidentiary material[2].

In this arrangement, the Superintendence is only a supporter, but has no possibility of conducting the criminal prosecution and taking the colluders to court.

2. Necessary adjustments. Recently, the “cartel of vigilantes” was discovered and two investigations were initiated simultaneously: An administrative investigation by the Superintendence, and a criminal investigation by the Office of the General Prosecutor. However, the individuals investigated in each process are not the same.

Although there is no criminal conviction for the new crime of collusion yet, a bill of law guided by the Superintendence[3] intends for this entity to have a direct criminal action to accuse the members of the cartel before the judges of the Republic.

This proposal is, on its own, neither good nor bad. Albeit, the institutional adjustment should be complete. If it is decided to amend the current institutionalism, the possibility that the SIC exercises the criminal action in a direct way will create some difficulties for businesspeople:

(i) Criminal and Administrative interrelationships: With respect to the penalties, a provision already exists in law 1474/2011 which provides an interrelationship between the administrative and criminal procedure, such that individuals fully exonerated from the fine by the Superintendence may obtain a reduction in the penalty of the criminal process.

However, other problems were not solved, such as the following:

-If an entrepreneur comes before the Superintendence as an informant (whistleblowers) but he does not receive the complete exemption of the fine, but a lower percentage, it is not provided that the Prosecutor’s Office will grant him any benefit (therefore, he risks being deprived of his liberty).

-If an entrepreneur comes first before the Prosecutor’s Office as an informant, he may pursue the application of benefits for “effectively cooperating to avoid any further crime or new crimes” and will thus avoid being deprived of his liberty in the criminal procedure, although he would not obtain benefits before the Superintendence as an informant (therefore, the infringer risks paying fines of up to 32 million USD or 150% of the profit generated by the infringement, whichever is greater, for each infringement to the competition regime).

Should the informant choose between the exoneration of the administrative fine and his liberty? The incentive for whistleblowers to be the first informant is blurred if, despite obtaining the benefits before the Superintendence he will not obtain any benefit before the Prosecutor’s Office and vice versa.

The communicating channels between both entities should be regulated so that, those cooperating effectively may obtain a preferential treatment both in the administrative and in the criminal action, regardless which authority was first contacted by the informant.

(ii) Problems with the simultaneous exercise of the criminal action: Our view has been[4] that it is not necessary to create a crime of collusion because, for a long time we have had a crime that censures the theatrical and misleading maneuvers to deceive a third party: Fraud.

In fact, criminal law states that “obtaining an illicit benefit for oneself or a third party, damaging another party, by misleading the latter through artifices or deceptions” is a crime. This is the same behavior of bid rigging, as it consists on executing an agreement in order to obtain an illicit benefit by misleading the contracting entity, presenting a situation of free competition that is barely simulated or faked, in detriment of the entity[5].

Then, there existed and still exists a criminal category which par excellence reproaches “the theater, scene, trick, chimera, fantasy, imagination, artifice, deception originated by the artifice of the agent” in detriment of the contracting party.

In said scenario, we have now two criminal offences that can be activated with bid rigging, therefore creating two inconvenient:

First, if it is intended for the Superintendence to exercise the criminal action specifically for the crime of collusion, it shall be excluded that the Prosecutor’s Office persecutes the same perpetrators for the same facts, but under other crimes such as fraud. Otherwise, nothing is being obtained other than creating a duplication of actions and generating institutional redundancy.

Second, the case of the “cartel of vigilantes” evidences the criteria disparity between the Superintendence and the Prosecutor’s Office, because for the same facts the first one is investigating 32 individuals while the second is investigating only 16. The reform must avoid that the standard to press charges is different, depending on who exercises the criminal action. Only one of the two Entities should be responsible for this criminal action.

(iii) The SIC as judicial police: In the understanding of the SIC, this Entity does not have regular judicial police functions[6], which explains why the granting of a direct criminal action is deemed necessary.

Nevertheless, there is an express regulatory provision that obliges the Superintendence to inform to the Prosecutor’s Office of every criminal news, to support the Prosecutor’s Office in the criminal investigations and leave the decision of which cases will be brought to court in the hands of the Prosecutor’s Office[7].

If the Superintendence is going to have a direct action, it must be released from its functions as judicial police for the crime of collusion, so that it may investigate and decide in an autonomous way, which cases it will bring before the courts.

(iv) Supporting personnel: In line with the foregoing, for the persecution of the conduct there must be sufficient personnel with technical knowledge in order to obtain material evidence of the conducts, to interrogate, or even to arrest the alleged perpetrators.

Having said that, the criteria of institutional specialization makes advisable that the Superintendence strengthens and grows in competition protection issues, including the criminal field. For several decades and particularly since 2004^[8], Colombia has had an institutional turn to overcome the weaknesses that generated the multiplicity of competition authorities for our markets^[9], because it was finally understood that competition problems have almost no particularity to deserve a different treatment and therefore, with an unsuccessful attempt in 2005 and finally with Law 1340/2009 we turned in pursuit of unification.

The Government’s position in that regard has been consistent in reinforcing and acknowledging the virtues of unifying the competition regime and in that sense, the approach of criminal prosecution for the violation of free competition should not be an exception.

 

[1] “Novedades de la Ley 1340 de 2009 para el Regimen de Proteccion de la Competencia.” ARCHILA PEÑALOSA, Emilio José. Magazine Contexto No. 32. Universidad Externado de Colombia. Bogota D.C. 2010

[2] Law 906 / 2004 art. 202. Resolution 0-0879/2002 of the General Prosecutor’s Office

[3] “Aumentaremos la capacidad sancionatoria”. El Espectador; Monday April 12, 2015.

[4] “¿Era necesaria la criminalización de los acuerdos colusorios?” ARCHILA PEÑALOSA, Emilio José. Revista Contexto No. 37. Universidad Externado de Colombia. Bogota D.C. 2012

[5] “Colusión en licitaciones y concursos El caso paradigmático para las entidades públicas”. ARCHILA PEÑALOSA, Emilio José and PABON ALMANZA, Camilo. Revista Contexto No. 38. Universidad Externado de Colombia. Bogota D.C. 2012

[6] Rad. 15-23164/2015

[7] Law 906/2004 art. 202. Resolution 0-0879/2002 of the General Prosecutor’s Office, second recital; articles. 1, 3 and 5

[8] Peer review OECD 2009

[9] Joint report BID/OCDE (2004). Colombia: Institutional Challenges to Promote Competition.

The configuration of “control” by means of the acquisition of “substantial or controlling influence” according to the Argentinean Federal Supreme Court:

Argentinean Federal Supreme Court rendered issued a ruling[1] that according to our point of view is extremely important since it provides certainty about the interpretation of all economic transactions in which no real “control” case arises as is the case provided by paragraphs a) and b) of Article 6 of Law 25,156 (“merger” and “transfer of goodwill”, respectively), which provide no interpretative complexity. [2]

The decision of the Supreme Court shed light upon one of the two cases covered by paragraphs c) and d) of Article 6 of Law 25,156 (“Competition Act “), which undoubtedly recognize more difficulty due to the fact that are cases that refer to the special features of each transaction.

It is worth transcribing literally both paragraphs, since the need for legislation on competition law is evidenced in order to appeal to broad precepts, essential to cover the different and innovative designs that economic transactions may acquire, to prevent that new ways may avoid the controls established by legislation in this matter: [3]

“c) The acquisition of property or any right to shares or equity or debt securities that give any right to be converted into shares or equity or having any influence on the decisions of the person who issued said shares where such acquisitions give the buyer control or substantial influence over an undertaking;

1. d) Any other agreement or transaction that transfers, de jure or de facto, to a person or an economic group, the assets of an undertaking or gives a determinative influence over ordinary or extraordinary business decisions.”

We outlined the phrases designed by the legislator in order to understand the universe of cases in the world of business that cannot be thoroughly defined. The common denominator is given by the “influence” which is qualified in two ways: “substantial“ or “intended“.

The case under analysis highlights on the assumption of “substantial influence[4]” over the following concepts:

1. Theuniverse of assumptions taken bythe concept “substantial influence” includes the two cases covered by paragraphs 1) and 2) of Section 33 of the Companies Act[5].
2. Definesthe first case as “… internal or de iure control, which occurs when a partner holds a stake, for any reason, that gives the necessary votes to constitute the social will in corporate or ordinary meetings…”[6]
3. And the secondas “… the so-called external or in fact control, which occurs when an individual exercises a dominant influence as a result of their shares, quotas or parts of interest held, or due to special existing relations …”[7]
4. But additional case identified, other than those found in section 33 ofthe Companies Act, under the concept of “substantial influence”, whenthe possibility to effectively influence in the strategyand competitive behaviorof a companyis inferred,in the absenceofthe control proceduresprovided for in section33 ofthe Companies Act.[8]
5. This “third supposition” may be based upon the protected legal right by the Competition Act, in order to ensuringfair competitionbetween economic operators, which would beessentialforsuchactors that behaveindependently, free from interference byits competitors, regarding the strategyand the competitivebehavior that may display, which in this casewould be affected byan economic transactionthat fails tobeframed inthe provisions of section33 ofthe Companies Act[9].
6. Such”interference”inthe strategy and in the competitive behaviorcouldbe both positive–when can be established– as well as negative –when blocking its definition- and not necessarilyexercised in order to be deemed verified[10].
7. The Supreme Court understoodthat the arguments ofthe appellant did not touchthegrounds of the decision, so the Supreme Court concluded that the acquisition of “substantialinfluence” over the transaction´s “target company” was verified in the case[11]. The elements considered by the a quo and accepted bythe Supreme Courtare:
   42. Althoughit wasa minority stake, itreached3% ofthe shares with voting rights,the remaining shareholders had less stake: one 28%, other8.4% and two having 10.6%, making itthe firstof thatminority stake as partofa shareholder agreementwhich provided thatdecisions were madeby a simple majority, a fact that allowed the appointment -for example- of 4 out of 10directors[12].
   43. Accordingto the behavior ofthe remaining shareholders, such stake couldallow its owner to positively determinethe corporate will of the company,incase that the remaining shareholders did not voteon the same and only one sense[13].
   44. As such participation of 42.3% gave to its holder the possibility to veto decisions relating with the competitive strategy of the company, in all cases in which a qualified majority is required, as would be the “approval and the amendment of Telco SpA´s budget or the decisions of the vote to be issued at the extraordinary meeting of Telecom Italia SpA” indirect controller of Telecom Argentina[14].
   45. Along withits shareholding, it was also taken under consideration the fact that TelefonicaA. was “… the sole shareholder of Telco SpA in the business of telecommunications, which is the activity of the company that Telco SpA was aimed at control” was taken into account. It also mentioned the contractual provisions aimed to control the entry of other shareholders that may operate in this market[15].
   46. Finally, it was taken into account the conduct ofthe parties that arranged different contractual conditions in order to guarantee the independent administration ofTelefonicaA.andTelecomItalia SpAso thatthe operation would notaffectcompetition, due to the understanding–on the one hand- that said conduct of the parties was considered as one´s act and that can only can only be explainedto the extentthatthe parties haveconsidereda potentialimpositionto competition and, on the other hand,that such”private” control of the absenceof imposition to competition could not replace the “State” control”.

[1] Decision dated March 10, “Pirelli y CSPA y otros s/ notificación art. 8 ley 25.156 incidente de apelación de la Resolución SCI n° 2/10 en concentración 741.”

[2]“a) the merger between companies;

1. b) the transfer of goodwill;”

[3] This was the case in the past, where the law of antitrust recognized an impression of criminal law itself, with a thorough description of the factual requirement of the established legal type, whose satisfaction was practically impossible due to the evolution that recognized the way to carry out business, circumstance allowed to avoid the controls set forth by the first legislators in this matter. The current wording of sections 1st and 2nd of Law 25,156 respond to the same logic.

[4] The High Court, taking into account the opinion of the Attorney General, stated: “In the case, the interpretation of the concept of the acquisition of substantial influence over a company is at stake under Article 6, paragraph c, of Act 25,156.” (opinion of the Attorney General, page 8).

[5] “Both cases provided for in the argentine companies act are covered by Article 6, paragraph c, of the Law 25,156 … “(Opinion of the General Attorney, page 10). Subsections of article 33 of the Companies Act provide as follows: “1) Holds stake, on any capacity, that may to grant the necessary votes to constitute the social will in corporate or ordinary meetings; 2) Exercises a dominant influence as a result of the shares, quotas or parts of interest owned, or by special links between companies.”

[6]Opinion of the General Attorney, page 9 in fine.

[7]Opinion of the General Attorney, page 9 in fine and 10.

[8]0020“…the latter extends the notion of control as a relevant element in order to determine the existence of an economic concentration within the field of antitrust by incorporating the figure of substantial influence. This situation is constituted when an individual acquires the possibility to interfere over the strategy and the competitive behavior of a company, through the acquisition of capital, although not having control under the terms set forth in Article 33, paragraphs 1st and 2nd, of Law 19,550.” (Opinion of the General Attorney, page 10).

[9] “You cannot forget that the purpose of the Antitrust Law is to ensure free competition among the different economic market operators. To that effect, it is important that the actors may behave as free competitors and this may be affected by economic concentrations so that imply that the controlled or participated company may lose autonomy to take their competitive decisions. This mission of the regimen of Law 25,156 explains the reasons why the concept of taking control in the area of antitrust exceeds the notion of corporate control of Article 33 of Law 19,550, to also include the supposition of substantial influence. In order to constitute substantial influence it is enough that the partner may influence to determine the competitive strategy of the company; Also, it is not necessary, that may influence in other decisions of the company.” (Opinion of the General Attorney, p. 10).

[10] “…this possibility of interference can be exercised in a positive way -through the possibility of imposing its own will at the moment of adopting decisions- or in a negative way-through the possibility to veto decisions of the other partners-. The reason for this is that the loss of autonomy of a competitor can take place in all the mentioned cases. In addition, for the purposes of determining the existence of substantial influence, it is not required that the partner has actually exercised its ability to influence the determination of competitive behavior; being reasonable likely to be exercised taking into account all the circumstances of the case (Notari, Mario, “La nozione di “controlo” nella disciplina antitrust”, Published by Giuffré, Milán, 1996, page 258 and following.)” (Opinion of the General Attorney, page 11).

[11] This is the “Telco Operation” carried out by Telefónica S.A. regarding Telco SpA.

[12] Opinion of the General Attorney, page 12, 1st paragraph.

[13] Opinion of the General Attorney, page 12, 1st paragraph.

[14] Opinion of the General, page 12, 2nd paragraph.

[15] “In the shareholders´ agreement, Telco SpA´s partners agreed to that there would not enter new members that were telecommunication operator … “defined as” … any physical or legal entity that has more than 10 percent of the shares of a publicly traded company and operate in that business, or at least entitled to appoint one board member. Furthermore, the shareholders’ agreement, Telefonica S.A. reserved the right to request the corporate brake – up in case Telecom Italy SpA held a strategic alliance with a telecommunications operator.“ Opinion of the General Attorney, page 13, 1st paragraph.

In March last year, the Australian Government commissioned an independent ‘root and branch’ review of Australia’s competition law and policy – the first review of its type in over 20 years.

The Review Panel’s Final Report was released on 31 March 2015. The Australian Government intends to respond to the Final Report in the second half of this year. We would not be surprised if it endorsed many of the suggested reforms.

The Final Report considers three broad areas:

• competition law: substantive changes to Australia’s key piece of competition legislation, the Competition and Consumer Act 2010 (Cth) (CCA);
• competition policy: reforms to regulatory frameworks to open up competition in a number of sectors, including taxis, pharmacies and human services; and
• institutions: among other things, the Panel advocates removing all access and pricing functions from the Australian competition regulator, the Australian Competition and Consumer Commission (ACCC), and transferring them to a new access and pricing regulator.

The Panel made over 50 specific recommendations. Below, we explore some of the key recommendations for the CCA.

Merger review – a new formal process

Under Australian competition law, there is no mandatory notification regime for mergers.

The Panel has not recommended introducing a mandatory regime. But it has proposed several changes to the existing voluntary regimes.

Currently, there are three merger review processes available in Australia:

• informal clearance: under this process, the ACCC provides merger parties with an informal view about whether a merger is likely to substantially lessen competition. Merger parties almost invariably rely on this process, because it is flexible in terms of the information to be provided to the ACCC and the timeframes for assessment;
• formal clearance: under the CCA, merger parties may apply to the ACCC for formal clearance. The ACCC can grant formal clearance if it is satisfied that the acquisition would not have the effect or likely effect of substantially lessening competition. Since the formal clearance process was introduced in 2007, no one has elected to use it, in part because of the significant amount of information required to be provided to the ACCC upfront; and
• authorisation: under the CCA, merger parties may apply to the Australian Competition Tribunal – a quasi-judicial body – for authorisation on the grounds that their merger will result in a net public benefit. This means that a merger may be allowed to proceed on public benefit grounds, even if it is likely to harm competition. Between 2007 (when the current process was introduced) and late 2013, no one applied for merger authorisation. But in recent years, there have been two applications – first by Murray Goulburn in relation to its proposed acquisition of Warrnambool Cheese & Butter, and then by AGL in relation to its proposed acquisition of Macquarie Generation’s electricity assets.

The Panel has made a number of important recommendations about these processes:

• in relation to informal clearance: the Panel believes that the process should be retained, but that there should be further consultation between the ACCC and business to help improve the timeliness of the ACCC’s decisions; and
• in relation to formal clearance and authorisation: the Panel has recommended combining these processes into a single formal regime which allows both competition and broader public interests to be considered. Under this process, applications would be made to the ACCC, with a right of review to the Tribunal. There would be strict timelines, and no prescriptive information requirements, although the ACCC would be empowered to require the production of business and market information from the parties involved.

While the Panel’s suggestion of a single formal regime should make the process more ‘user-friendly’, it will also mean that parties lose the ability to apply directly to the Tribunal for merger authorisation. The AGL case showed that the Tribunal can, after testing the evidence, come to a very different view from the ACCC on competition issues. Further, the current merger authorisation process is quick, with a time limit of three months (absent complex or special circumstances). The loss of this merger approval option is disappointing.

Cartel laws – to be simplified

International practitioners may be surprised by the length, complexity and reach of Australia’s current cartel laws, which pose serious challenges for both interpretation and application.

The Panel expressed a range of concerns about Australia’s existing cartel laws, several of which stemmed from a recent court case where the laws were found to apply to:

• a tender for the sale of a Canadian corporation, which had business operations outside Australia, where the seller was based outside Australia, and where the tender was conducted outside Australia[1]; and
• an arrangement between parties if there is ‘more than a remote possibility’ that the parties are, or would be, in competition with each other.

To address these concerns, the Panel has made recommendations about both the extraterritorial reach of the cartel laws and the level of competition needed in order for the laws to apply. In particular, the Panel recommended that the cartel laws only apply to:

• conduct that affects trade or commerce within, to or from Australia; and
• corporations who are actual competitors, or who are ‘more likely than not’ to be in competition with each other.

More broadly, the Panel believes that the existing cartel laws are overly complex, and has recommended that they be substantially simplified.

In our view, the Panel’s suggested changes should make it easier for commercial parties to identify and assess the risks associated with their conduct. They may also benefit the regulator in bringing criminal prosecutions, in part because the simplified concepts will be easier for juries to understand and apply.

Joint venture defence – to be simplified and expanded

The CCA recognises the economic value of joint venture arrangements and includes exemptions from cartel laws for these arrangements.

Submissions to the Panel emphasised the importance of ensuring that Australia’s competition laws do not frustrate the formation of pro-competitive joint ventures, and that they are drafted appropriately to differentiate between legitimate joint ventures and anti-competitive agreements ‘dressed up’ as joint ventures.

The Panel has recommended a simpler and broader exemption for joint venture activities that do not have the purpose or effect of substantially lessening competition. The joint venture defence proposed by the Panel:

• removes the requirement for a joint venture contract, instead recommending that the defence be extended to apply to less formal joint venture arrangements;
• removes the requirement for a production and/or supply joint venture, instead recommending that the defence be broadened to apply to any joint venture for the production, supply, acquisition or marketing of goods or services; and
• includes a requirement that the relevant cartel provision under consideration:
• be for the purpose of the joint venture (this is an existing requirement);
• relate to goods or services acquired, produced, supplied or marketed by or for the purpose of the joint venture; or
• be reasonably necessary for undertaking the joint venture.

This third suggestion seeks to ensure that the relevant conduct is sufficiently linked to the joint venture so that only genuine joint venture conduct will benefit from the defence. While that link is clearly important, there has been no judicial consideration of the phrases recommended by the Panel, and they remain open to a number of possible interpretations. In particular, it is still unclear whether a provision that is not strictly necessary for the operation of a joint venture, but furthers its objective or enables it to operate more efficiently, comes within the scope of the defence.

Overall though, the Panel’s suggestions are to be welcomed. They address many of the concerns of joint venture parties, particularly those in the energy and resources sectors, where collaborative activities are common.

Price signalling – to be replaced with a prohibition on ‘concerted practices’

In 2011, the CCA was amended to include prohibitions against price signalling – the anti-competitive disclosure of information. They currently apply only to the banking sector.

The prohibitions have been heavily criticised, and the Panel has recommended they be repealed.

In their place, it has recommended dealing with anti-competitive information exchanges by extending the general prohibition against anti-competitive contracts, arrangements and understandings to include ‘concerted practices’. It has defined a concerted practice as ‘a regular and deliberate activity undertaken by two or more firms. It would include the regular disclosure or exchange of price information between two firms, whether or not it is possible to show that the firms had reached an understanding about the disclosure or exchange’.

While the term ‘concerted practices’ is not currently used in the CCA, it is a familiar concept in Europe. It will be interesting to see whether Australian courts adopt the European approach to ‘concerted practices’, or develop their own approach as cases are brought before them.

Unilateral conduct – introducing an ‘effects’ test

The current Australian prohibition regulating the conduct of firms with substantial market power considers the purpose of the relevant conduct rather than its effect. It also requires that there be a causal connection between the market power and the conduct (i.e. the market power must be ‘used’).

Perhaps the most controversial of the Panel’s recommendations is the introduction of an ‘effects’ test to this prohibition. More specifically, the Panel recommends that the section be re-framed to prohibit:

• a corporation that has a substantial degree of power in a market
• from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition.

This formulation – ‘purpose, effect or likely effect of substantially lessening competition’ – already exists in other sections of the CCA that apply to collective conduct. However, if the Panel’s recommendation is adopted, it will for the first time apply to unilateral conduct by a corporation with substantial market power.

The re-framed section also appears to remove the causal link between substantial market power on the one hand, and conduct on the other.

Many commentators have expressed serious concerns about this recommendation, arguing that it will create uncertainty and may chill legitimate competitive conduct. In addition, the case law regarding the existing prohibition, which has developed over many years, will, in essence, be abandoned.

While the Panel has acknowledged that re-framing this prohibition will lead to a period of uncertainty, in our view it has probably underestimated both the period of uncertainty and the consequences of that uncertainty on the conduct of firms with market power.

Next steps

The Australian Government has been consulting on the Panel’s recommendations, with submissions on the Final Report due by late May. It intends to formulate its response to the Final Report in the second half of this year.

[1] The cartel laws were found to apply because the relevant conduct was engaged in by parties incorporated in Australia and/or carrying on business in Australia.

by Martin André Dittmer, Sam MacMahon Baldwin and Søren Elmstrøm Sørensen, Gorrissen Federspiel

In recent years, there has been considerable focus on private antitrust litigation based on a prior infringement decision by either the European Commission or a national competition authority – known as follow-on litigation. In January 2015, the Danish Maritime and Commercial Court awarded damages to Danish Cheminova A/S in a follow-on action against Akzo Nobel.

Cartelists and others who act in breach of competition law are increasingly sued in private antitrust proceedings by companies who claim to have suffered a loss as a result of the anti-competitive behaviour. If such proceedings are initiated after a prior infringement decision has been rendered by a relevant competition authority the proceedings are commonly referred to as follow-on litigation. In January 2015, the Danish Maritime and Commercial Court rendered a decision in favour of the Danish company, Cheminova A/S (“Cheminova”), in a follow-on action against the Dutch company Akzo Nobel. The case is one of few court cases from Denmark concerning actions for damages for breach of competition law. However, the judgment may well increase potential victims’ appetite for suing competition law offenders on the back of infringement decisions from the European Comission or the Danish Competition Council. Also in light of the recently adopted Directive 2014/104/EU on actions for damages for competition law infringements which seeks to make it easier for companies and individuals to claim damages from companies not playing by the rules.

The background of the case against Akzo Nobel

In 2005 the European Commission fined six Akzo Nobel companies together with the companies EKA Chemicals AB, Atofina SA (now Arkema SA), Elf Aquitaine SA, Hoechst AG, Clariant GmbH and Clariant AG for their participation in a European market-sharing and price-fixing cartel for MCAA chemicals (Monochloroacetic acid) which lasted between 1984 and 1999.[1] Akzo Nobel was in total fined EUR 84.38 million by the European Commission for its participation in the cartel.

The Danish company, Cheminova, which produces crop protection products, had bought MCAA-mixture, Azonol, from Akzo Nobel during the cartel period for which Akzo Nobel was fined. In the view of Cheminova, Akzo Nobel overcharged Cheminova for such products due to the cartel, and accordingly Cheminova had suffered a loss for which Akzo Nobel was liable. Cheminova therefore initiated proceedings in Denmark before the Danish Maritime and Commercial Court with a claim for damages against Akzo Nobel.

Prior to the proceedings in Denmark Akzo Nobel had settled the case with some of its American customers by paying 20% of their purchases in damages.

The legal basis for bringing an action for damages under Danish law

Under Danish law claims for damages for competition law infringements are not governed by the Danish Competition Act but are subject to non-statutory torts law. Danish torts law provides that it is for the injured party to put forward and substantiate his case – in particular the basis for liability and the monetary loss sustained as consequence of the wrongdoing. Therefore, it generally falls upon the claimant to demonstrate causality between the wrongdoing and the loss suffered as well as foresee-ability.

During the proceedings before the Maritime and Commercial Court Akzo Nobel only disputed that Cheminova had suffered a loss – i.e. the issue of quantum. Akzo Nobel admitted the basis of liability, causality and foreseeability. Consequently, it was ’only’ for Cheminova to prove that they had suffered a loss and not least the size of such a loss.

Whether there was on overcharge

In order to verify whether Cheminova had suffered a loss – and the potential size of such loss – the parties submitted various economic models to the court. These models were heavily debated during the case by the parties and an expert economist was appointed by the court to assess the applicability and viability of the models.

A rather important issue for Cheminova was to persuade the court of a model which could demonstrate and measure Akzo Nobel’s actual contribution margin during the cartel period derived from the sale of Azonol and Akzo Nobel’s contribution margin if the cartel had not existed, i.e. the counterfactual scenario. Such a model would enable Cheminova to prove the amount which Cheminova had been overcharged by Akzo Nobel for Azonol. Based primarily on the expert report, Cheminova succeeded in persuading the court of accepting such a model – and that Akzo Nobel had received a higher contribution margin than would have been the case in the absence of the cartel. The court applied his model as a starting point when measuring the damages.

Whether the overcharge was passed on

During the case Akzo Nobel argued that even if it had overcharged Cheminova during the cartel period, Cheminova in any case had passed this higher price on to its customers and accordingly Cheminova had not suffered a loss. Akzo Nobel partly succeeded on this argument and Cheminova’s claim for damages was reduced with a certain percentage.

However, Cheminova argued successfully that the amount of damages should be adjusted in favour of Cheminova due to the fact that Cheminova had lost revenue since it sold products at a higher price to its customers – known as the ‘volume effect’.

Akzo Nobel then submitted that if Akzo Nobel was liable to Cheminova, the amount of damages should be adjusted for saved tax. The rationale was that the tax rate for companies was higher during the period where Akzo Nobel had overcharged Cheminova than the current tax rate. According to Akzo Nobel this would entail that Cheminova would be overcompensated – if the amount of damages was not adjusted – since Cheminova would only have to pay tax of the awarded damages based on the actual and lower tax rate. This argument was, however, rejected by the court.

In a split decision (3 against 2) the court finally ordered Cheminova damages in the amount of approximately EUR 1.4 million for the period 1986 to 2000. A dissenting minority of 2 judges favoured damages of approximately EUR 1.3 million.

Tendency towards more follow-on litigation

The Cheminova/Akzo case illustrates that it is not impossible to succeed in a claim for damages for breach of competition law and certainly the increasing focus on follow-on litigation – not least at EU-level – means that even more cases should be expected in the future. Therefore, companies have to take into account when assessing their conduct in light of competition law that they might end up in private antitrust proceedings and at the end of the day will have to pay damages to their customers or even worse their competitors.

Denmark has not yet implemented Directive 2014/104/EU on antitrust damages actions. The Directive must be implemented latest December 2016.

[1] Case No COMP/E-1/.37.773 – MCAA.

Developments in modern antitrust law have made it increasingly difficult for termination of vertical relationships between a supplier and a dealer to be actionable under the antitrust laws, particularly under a per se theory of liability.  Suppliers contemplating termination of dealer agreements, however, may need to carefully consider laws beyond contracts and antitrust.  That is, many states including California have statutes intended to afford greater substantive and procedural protections to dealers than may be found within the four corners of the dealer agreement.  What’s more, California’s statute – the Fair Practices of Equipment Manufacturers, Distributors, Wholesalers and Dealers Act (commonly known as California’s Equipment Dealers Act or CEDA), Cal. Bus. & Prof. Code § 22900 et seq. – is relatively arcane, has broad applicability to all kinds of “equipment” dealers, may apply to dealers solely doing business outside of California, and has a dearth of case law.

The original equipment dealers act in California was enacted in 1992.  The law was sponsored by an equipment dealers trade association, out of concern that mergers and acquisitions in the 1980’s resulted in significant closings of farm equipment dealerships which adversely affected rural economies and consumers.  The law thus provided protections to farm equipment dealers in their contracts with suppliers, including requiring suppliers to give prior notice of their intent to terminate a contract and provide the dealer an opportunity to cure the defect.  The law applied to equipment used for purposes of “agriculture, livestock, grazing, light industrial, and utility.”

CEDA was later amended in 2005, and among other things, broadly expanded its scope to include all agricultural, construction, utility, industrial, mining, outdoor power, forestry, and lawn and garden equipment.  While it is clear that CEDA does not apply to car dealers (who are covered under a different statutory scheme), less clear is what exactly is covered under CEDA’s expansive definition of “equipment.”  Particularly given the dearth of case law interpreting and applying CEDA, all suppliers of anything fairly characterized as machinery or equipment, or its related “implements” or “attachments” should carefully consider CEDA’s applicability.

If applicable, CEDA offers broad protections to dealers, including, for example, protecting dealers from terminations without good cause or from disparate treatment as between similarly-situated dealers in California.  CEDA also requires suppliers to give at least 90 days’ written notice of intent to terminate, to allow the dealer 60 days to cure any claimed deficiencies, and to buy back remaining inventory in the event of a termination.  CEDA also provides aggrieved dealers the right to costs and attorneys’ fees.

CEDA also has potential applicability to dealers exclusively doing business outside of California.  In a relatively recent case – and one of only a handful interpreting CEDA – the Ninth Circuit held that CEDA governed termination of a Danish dealer selling construction equipment exclusively within Denmark.  Gravaquick v. Trimble Navigation Intn’l Ltd., 323 F.3d 1219 (9th Cir. 2003).  The Ninth Circuit reached this holding because: (1) CEDA did not include a geographic scope limitation limiting it to dealers located and/or doing business in California; (2) at least one party in the dispute (the supplier) was located in California and the governing agreement included a California choice-of-law provision.

In sum, suppliers contemplating termination or other changes to their relationships with dealers possibly characterized as “equipment” dealers should carefully consider CEDA’s applicability before proceeding.

Whilst the competition rules against anti-competitive agreements can apply to franchise networks, the impact in practice has traditionally been low.  This is partly because competition authorities have taken a favourable approach to franchising and partly because of the potential ‘life savers’ available under EU law (e.g. the De Minimis Notice, the Vertical Agreements Block Exemption Regulation).

However, the decision taken by the UK’s Competition and Markets Authority last year, in which it fined Mercedes-Benz (the franchisor) and its dealers (each a franchisee with a small share of the market for the supply of commercial vehicles) over £2.8 million for breaching UK competition law, may be the start of a shift in gear.

The dealers had colluded on their responses to requests for quotations from customers in each other’s geographic ‘zones’ of business.  This was to ensure that the local dealer would win the business from his local zone.  Each dealer was fined between £116,000 and £660,000, wiping out up to 18 months’ of their profit after tax.

The franchisor, Mercedes-Benz, was held liable to pay over half of the total fine for its role as a ‘facilitator’ to the arrangement.  An employee of Mercedes-Benz organised (for a legitimate commercial purpose) and attended a meeting between two of the dealers at which the collusion took place.  By attending the meeting, that employee gave the dealers the impression that Mercedes-Benz approved of the arrangement. Unfortunately, she did not state that Mercedes-Benz did not condone the arrangement, she did not intervene to prevent discussions, and she did not leave the meeting.

This serves as a good reminder for franchise networks to put the pedal to the metal – rev up your competition compliance policies before you hit a red light.  For starters:

• Franchisees are competing businesses and must set their business strategies independently of competitors operating under different brands and the same brand.
• A franchisor or franchisee can be implicated in an infringement even if its involvement is limited, even if it is not active on the market (Mercedes-Benz did not sell direct to customers in its franchised territories) and (for serious infringements like this one) even if it has a small market share.
• Franchisors should proactively alert franchisees to the importance of competition law compliance and the risks of getting it wrong.
• Franchisors should exercise particular vigilance in the conduct of their network, take documented steps to prevent anti-competitive conduct from arising and distance itself to the extent any problems do arise.