EC Not Blocking Legitimate Efforts to Create Large European Companies: Competition Chief

This posting was written by E. Darius Sturmer, Editor of CCH Trade Regulation Reporter.

At a conference on competition policy, law, and economics in Cernobbio, Italy on November 2, European Commission Vice Chair for Competition Policy Joaquin Almunia shared the latest developments in the field of merger control, placing them in the context of the recent evolution of the EC policy.

Much of his speech (“Merger review: Past evolution and future prospects”) contested the perception that the EC is “raising hurdles against the creation of large European companies” and not supporting “European champions.”

In reality, the Commission has cleared more than 4,600 deals and blocked only 22 since the EU’s merger regulation came into force in 1990. “Fewer than five in every thousand cases!” he said. Last year, the enforcement authority received 309 notifications, approved as many as 299 of them in Phase I, and blocked only one transaction, according to Alumnia.

“So let’s recognize the facts: it is simply not true that the Commission is putting the brakes on the legitimate efforts of Europe’s firms to scale up,” said the official.

Europe doesn’t lack corporate giants, he said, noting that the top 100 corporations in the world included 30 from the United States and 27 from the EU.

He further cautioned against shielding Europe’s companies from competition. “Merger control is not the place for protectionist measures,” observed the official. “The discipline imposed by a keen competition environment in the Single Market is a tonic for Europe’s companies. It prepares them to do business on the global markets and to succeed.”

Almunia cited the introduction, in the guidelines of 2004 and 2008, of strict analytical frameworks and a test for competitive harm based on economic effects. After these changes, he said, EC merger review “is now focused more on how a merger can affect the competitive dynamics of markets and less on structural aspects such as concentration levels and market shares.”

He explained that high market shares are not always problematic, while sometimes even moderate shares can impair competition, depending on the actual market conditions in which each individual deal takes place. The authority assesses the likely impact of a merger on price and other parameters—such as quality, choice, and innovation—alongside the precompetitive effects and efficiencies of a proposed deal, he said.

Almunia expressed his intent to continue streamlining the system to focus on “cases that have a real impact on competition and consumers in the internal market and require complex analyses.” He observed that there is room for improvement on one substantive point: evaluating transactions that lead to the acquisition of non-controlling minority stakes. These transactions currently escape EC scrutiny, even though they may cause significant harm to competition.

Regarding particular transactions, Almunia noted that the EC was currently reviewing Hutchison’s takeover of Orange in the Austrian mobile telephony market and the merger between UPS and TNT. “Our preliminary view is that serious competition concerns would arise in both cases, and substantial remedies are needed.” It is also analyzing Raynair’s renewed bid to acquire a controlling stake of its Irish rival, Aer Lingus.

European Commission, Microsoft Settle Dispute over Browser Tying

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The European Commission (EC) adopted a decision on December 16 that renders legally binding a set of commitments that were offered by Microsoft to boost competition on the web browser market.

The commitments address EC concerns that Microsoft may have tied its web browser Internet Explorer to the Windows PC operating system in breach of European Union rules on abuse of a dominant market position.

Under the commitments approved by the Commission, Microsoft will make available for five years in the European Economic Area (through the Windows Update mechanism) a “Choice Screen” enabling users of Windows XP, Windows Vista and Windows 7 to choose which web browser(s) they want to install in addition to, or instead of, Microsoft’s browser Internet Explorer. The commitments also provide that computer manufacturers will be able to install competing web browsers, set those as default and turn Internet Explorer off.

“Millions of European consumers will benefit from this decision by having a free choice about which web browser they use,” stated EC Competition Commissioner Neelie Kroes. “Such choice will not only serve to improve people’s experience of the Internet now but also act as an incentive for web browser companies to innovate and offer people better browsers in the future.”

Microsoft Senior Vice President and General Counsel Brade Smith declared the EC’s decision “a major step forward.”Smith added that the company “look[s] forward to building on the dialogue and trust that has been established between Microsoft and the Commission and to extending our industry leadership on interoperability.”

The decision follows a Statement of Objections sent to Microsoft in January 2009, outlining the EC’s preliminary view that Microsoft may have infringed Article 82 of the EC Treaty by abusing its dominant position in the market for client PC operating systems and distorted competition through the tying of Internet Explorer to Windows.

According to the EC, the tie distorted competition by giving Microsoft an artificial distribution advantage not related to the merits of its product on more than 90 percent of personal computers.

The Commission’s preliminary view was that this tying hindered innovation in the market and created artificial incentives for software developers and content providers to design their products or web sites primarily for Internet Explorer. The approved commitments address these concerns, the EC said.

This decision, which does not conclude whether there is an infringement, legally binds Microsoft to the commitments it has offered and ends the EC’s investigation. If Microsoft were to break its commitments, the EC could impose a fine of up to 10 percent of Microsoft’s total annual turnover without having to prove any violation of EU antitrust rules.

A clause in the settlement allows the EC to review the commitments in two years. Microsoft will report regularly to the EC, starting in six months’ time, on the implementation of the commitments and under certain conditions make adjustments to the Choice Screen upon EC request.

Justice Department Statement

In response to the announcement, Assistant Attorney General Christine Varney of the Department of Justice Antitrust Division issued a statement in which she commended the EC and Microsoft for resolving their disputes and lauded the settlement. “A settlement that helps to clarify obligations under European law allows the industry to move forward,” Varney remarked.

Interoperability

While the settlement ends litigation over Microsoft’s alleged tying, the EC’s investigation regarding interoperability continues. Kroes hailed Microsoft’s contemporaneous publication of an improved version of its July 2009 commitments to allow interoperability between third party products and several Microsoft products—including Windows, Windows Server, Office, Exchange, and SharePoint.

Under these commitments, Microsoft pledged to publish the technical specifications of the programs so that interoperability could be achieved by any interested party. Although this initiative was described as “very welcome” by Kroes, she noted that its “arrangements remain informal vis-a-vis the Commission.”

Therefore, Kroes cautioned, “[T]he Commission will carefully monitor the impact of Microsoft’s proposals on the market and take its findings into account in its assessment of the pending antitrust investigation.”

EC Proposes Amendments to Block Exemption for Supply, Distribution Agreements

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

The European Commission (EC) proposed a revised Block Exemption Regulation and Guidelines on supply and distribution agreements, including franchise and other types of vertical agreements, on July 28. The proposed amendments would address recent market developments, including the increased buying power of large retailers and Internet sales.

Block exemptions create safe harbors from EC competition law for categories of agreements, relieving the contracting parties from the need to individually analyze the legality of those agreements under the general EC rules regarding vertical agreements. The current block exemption for those types of agreements (Commission Block Exemption Regulation N° 2790/1999) is due to expire in May 2010.

Proposed Amendments

Based on its analysis of the existing supply and distribution agreement block exemption, which has been in effect since 1999, and on stakeholders' comments, the EC found that the existing rules are working well overall and should not be fundamentally modified.

However, in light of recent market developments, the EC suggested amending the existing regulation and guidelines to take into account the increased buying power of big retailers and the evolution of Internet sales.

To address those developments, the EC proposed that the block exemption be available only to vertical agreements in which the supplier's market share does not exceed 30 percent.

The EC's proposal also refined, in the context of Internet sales, the distinction between sales made as a result of active marketing and “passive sales” made as a result of the consumer taking the initiative.

In addition, the proposed amendments address certain conditions imposed in relation to Internet sales, such as a requirement imposed by a supplier that the distributor should have a "brick and mortar" shop before engaging in Internet sales.

Commission Statement

Of the proposed revision, EC Competition Commissioner Neelie Kroes stated:

"Competitive and efficient distribution are essential for consumer welfare and for our economy. The review launched today aims to ensure that the assessment of supply and distribution agreements under the competition rules takes account of recent market developments, namely further increased market power at the level of buyers and new forms of distribution including the opportunities brought by the Internet."

The Commission invited interested parties to submit comments about the proposed revisions by September 28, 2009.

A press release on the proposal appears here on the European Union’s Europa web site. Further information on the proposal—and instructions on how to submit written comments—appear here.