#2811053

(i) Why is competition law increasingly more important for Norwegian undertakings? (ii) Competition law and horizontal cooperation agreements

Industrijuristseminaret 2011 Advokat Beret Sundet

Outline

#2811053 • Why is competition law increasingly more important for Norwegian undertakings?

◦ Considerable risk that infringements are detected ◦ Potentially severe sanctions • Horizontal cooperation agreements ◦ The prohibition on anti-competitive agreements ◦ Types of horizontal cooperation agreements • Information exchange • Joint bidding • Trade associations • Standardisation agreements • Purchasing agreements • Specialisation agreements • R&D agreements • Commercialisation agreements 2

#2811053

(i) Why is competition law increasingly more important for Norwegian undertakings?

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Overview

How are competition law infringements detected? Sanctions for competition law infringements 4

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Cartels or “hard core” cooperation between competitors prohibited in most jurisdictions

• An increasing number of countries have adopted rules prohibiting cartels ◦ Price fixing - agree or coordinate prices, price ranges, price increases or discounts ◦ Exchange of current or future price information ◦ Market sharing - allocate geographic areas, customers/customer groups or products/services ◦ Output limitation ◦ Bid rigging • ”Similar” rules in more than 100 countries • Active enforcement of competition law • “Effects-based jurisdiction” ◦ Norwegian undertakings may be investigated and sanctioned irrespective of • • • where the anti-competitive actions take place destination of the products- or services concerned nationality of the parties 5

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Norwegian undertakings and individuals may be subject to (simultaneous) investigations from several competition authorities

• Authorities with competence to use coercive means in Norway ◦ Konkurransetilsynet ◦ Påtalemyndigheten ◦ EFTA Surveillance Authority (ESA) ◦ [European Commission / DG Comp] • National competition authorities inside and outside the EEA area 6

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Norwegian undertakings sanctioned or investigated by ”foreign” competition authorities

• Odfjell/Stolt-Nielsen and others ◦ Price fixing/market sharing by four parcel tanker companies ◦ Odfjell settled with the US DoJ • • Accepted a fine of USD 42,5 million Bjørn Sjaastad, CEO, and Erik Nilsen, vice president, settled for four/three month in prison ◦ Stolt-Nielsen granted conditional amnesty from prosecution and fines for violation of U.S. antitrust laws • • • • Co-operated with the US DoJ Antitrust Division under its Corporate Leniency Program The conditional amnesty revoked in 2003 for lack of full cooperation Stolt-Nielsen retained conditional amnesty in 2007 after several years of legal battle Legal costs estimated to exceed NOK 1 billion • SAS Cargo ◦ Price fixing between 15 airline companies from 2002 to 2006 ◦ Fines • • MUSD 56,5 by US antitrust authorities MEUR 70 by the EU-commission 7

Norwegian undertakings sanctioned or investigated by ”foreign” competition authorities (2)

#2811053 • • • • • ◦ ◦ ◦ Det Norske Veritas DNV and nine other members of the International Association of Classification Societies ‘IACS’ were raided by the Commission in January 2008 Allegations that the members of IACS reduced competition through horizontal cooperation and by reducing competition from non-IACS members through the application of IACS' membership criteria and limiting non members access to the results of IACS' technical work. The case was closed with a Commitment decision in October 2009 ◦ ◦ ◦ Nexans Press release 3 February 2009 ”An investigation of Nexans, along with other international cable manufacturers, has been undertaken by competition authorities in Spain, Japan, South Korea, and the United States, as well as by the European Commission concerning in particular high voltage activities of the Group.” Investigation ongoing.

◦ ◦ Tomra Abuse of dominance – exclusivity agreements and loyalty rebates DG Comp’s fine: MEUR 24 ◦ ◦ ◦ Posten Norge AS Abuse of dominance – exclusivity agreements with certain retail groups and outlets ESA’s fine: MEUR 12,89 On appeal to the EFTA-court ◦ ◦ ◦ Color Line ESA sent Statement of Objections December 2009 Exclusivity agreements with harbour facilities in Sandefjord and Strømstad Investigation ongoing 8

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Overview

How are competition law infringements detected?

Sanctions for competition law infringements 9

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Authorities with sophisticated detection methods

• Reactive methods ◦ Complaints (competitors, customers, agencies, employees) ◦ External information (whistleblowers, informants) ◦ Amnesty/leniency programs (immunity from fines, reduction of fines) • Proactive methods ◦ Sector inquiries - use of economics (analyses of market structure, price patterns) ◦ Industry monitoring (press & internet, infiltration, tracking informants) ◦ Agency cooperation 10

Leniency

#2811053 • Most countries have adopted leniency programmes • Such programmes ◦ Encourage undertakings to report and put an end to illegal behaviour and to cooperate with the competition authorities ◦ Contribute to detecting cartels ◦ Destabilise cartels • Leniency programmes have contributed to the detection of a number of cartels ◦ US: about 20 leniency applications each year ◦ Japan: 150 leniency applications in 2006 subsequent to the entry into force of a leniency programme ◦ EU: 11 out of 12 cartels sanctioned in 2009 initiated through leniency ◦ Norway: 6 leniency applications in 2010 11

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Leniency under EU and Norwegian competition law

• Immunity (full leniency) ◦ An undertaking may be given immunity/full leniency if it, on its own initiative, is the first to submit evidence that is sufficient to obtain approval for dawn raid prove an infringement of the prohibition on anti-competitive agreements ◦ Full leniency will not be granted if the undertaking: • does not fully cooperate with the Competition Authority; • • does not end its participation in the infringement; or has sought to coerce other undertakings to participate in the infringement • Reduction of fines (partial leniency) ◦ The undertaking must provide evidence of the alleged infringement which represents significant added value with respect to the Competition Authority’s ability to prove a violation of the competition rules ◦ The first undertaking to provide significant added value will benefit from a reduction of 30-50 % of the fine that would otherwise be imposed ◦ The second undertaking benefits from a reduction of 20-30 % ◦ Subsequent undertakings that provide significant added value benefit from a reduction of up to 20 % 12

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Case COMP/39258 - Airfreight

Company

Lufthansa Swiss International Air Lines Martinair Japan Airlines Air France KLM Cathay Pacific Airways LAN Chile Qantas Air Canada SAS Cargolux British Airways Singapore Airlines 0

Fine MEUR

0 29 500 35 700 182 920 127 160 57 120 8 220 8 880 21 037 70 167 79 900 104 040 74 800 20% 20% 20% 20% 20% 15% 15% 15% 10% 0 %

Leniency in %

100% 100% 50% 25% 13

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Wide powers of investigation and sophisticated methods and tools

• Requests for information ◦ Simple requests ◦ By decision • Unannounced inspections ◦ Enter premises ◦ Examine documents and files ◦ Seize evidence – NCA only ◦ Take copies of evidence – ESA/EU Commission ◦ Seal premises • Case T-141/08, E.ON, EUR 38 million fine for breach of seal ◦ Ask for explanations of facts and documents and to record the answers ◦ Legal privilege • In-house lawyers: Norway / EU • Take statements ◦ Privilege against self-incrimination not applicable • Inspection of other premises (homes) 14

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International cooperation

• Bilateral cooperation ◦ E.g. Agreement between the Government of the USA and the European Commission regarding the application of their competition laws • Multilateral cooperation ◦ International competition network ◦ OECD ◦ WTO ◦ Agreement between Norway, Sweden, Denmark and Iceland on cooperation on competition law enforcement • Types of cooperation • Coordinated inspections/investigation • Exchange of information 15

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Competition law overview How are competition law infringements detected?

Sanctions for competition law infringements

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Overview of sanctions for competition law infringements

• Public enforcement ◦

Fines

• Administrative fines/Criminal fines • Undertakings/Individuals ◦

Imprisonment

◦ Termination of infringement ◦ Interim measures ◦ Structural remedies • Private enforcement ◦

Damages

◦ Injunctions ◦ Interim injunctions ◦ Nullity 17

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Fines

• Fines can be imposed on undertakings both for procedural and substantive infringements • The infringements must have been committed intentionally or negligently • Very large fines imposed for participations in hardcore cartels and abuse of dominance • In absolute amounts, the fines imposed by the Norwegian Competition Authority have, so far, been relatively moderate compared to the fines imposed by DG Comp ◦ Fines imposed by the NCA should, in principle, reflect the level of fines imposed for competition law infringements in the EU • Were the NCA to discover and sanction a long-lasting hardcore cartel in a large market, significantly higher fines than those which have been imposed to date can be expected 18

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Calculation of fines by DG Comp 2006 Guidelines on the method of setting fines

• Basic principles ◦ Gravity and duration • Basic amount ◦ The proportion of the value of sales (up to 30 %) in the last business year of goods or services affected by the infringement in the relevant geographic area ◦ Cartel infringements: ”generally set at the higher end of the scale” ◦ x multiplied by the number of years of participation in the infringement ◦ + additional amount of between 15 % and 25 % of the value of sales is included in the fine ”in order to deter undertakings from entering into horisontal price fixing, market-sharing and output limitation agreements” • Aggravating circumstances ◦ Recidivism: up to 100 % increase for repeated infringements ◦ Leadership/Instigator ◦ Refusal to co-operate or obstruction of investigation (e.g. destruction of documents) • Legal maximum ◦ 10 % of total annual turnover of total (worldwide) sales of all products, not only those concerned in the infringement 19

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Year

2008 2009 2009 2007 2001 2007 2008 2010 2008 2010

DG Comp: ten highest fines for cartel infringements, per undertaking Undertaking

Saint Gobain E. ON GDF Suez

Case

Car glass Gas Gas

Amount in €

896.000.000

553.000.000

553.000.000

ThyssenKrupp Elevators and escalators F.Hoffmann-La Roche AG Vitamins 479.669.850

462.000.000

Siemens AG Pilkington Ideal Standard Sasol Ltd Air France/ KLM Gas insulated switchgear Car glass Bathroom fittings Candle waxes Airfreight (cargo) 396.562.500

370.000.000

326.091.196

318.200.000

310.080.000

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US: Ten highest fines for cartel infringements, per undertaking Undertaking

F. Hoffmann-La Roche, Ltd. (1999) LG Display Co., Ltd LG Display America (2009) Société Air France og Koninklijke Luchtvaart Maatschappij, N.V. (2008) Korean Air Lines Co., Ltd. (2007) British Airways PLC (2007) Samsung Electronics Company, Ltd.Samsung Semiconductor, Inc. (2006) BASF AG (1999) CHI MEI Corporation (2010) Hynix Semiconductor Inc.(2005) Infineon Technologies AG (2004)

Product

Vitamins LCD-screens

Amount (mill. USD)

USD 500 USD 400 Air transport (Cargo) Air transport (Cargo and passengers) Air transport (Cargo and passengers) DRAM Vitamins LCD-screens DRAM DRAM USD 350 USD 300 USD 300 USD 300 USD 225 USD 220 USD 185 USD 160

Geografic area

International International International International International International International International International International

Country

Switzerland Korea France (Société Air France) Netherlands (KLM) Korea UK Korea Germany Taiwan Korea Germany #2811053 21

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Civil damages claims

• Companies violating the competition rules risk civil damages claims from customers and competitors • Objectives ◦ Compensation, deterrence • The ECJ has established a right to damages for infringements of EU/EEA competition law ◦ Case C-453/99, Courage v Crehan, para 26: ”The full effectiveness of Article [101 TFEU] (…) would be put at risk if it were not open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition.” • The success of civil damages claims will depend on the relevant national rules with regard to procedural and substantive issues such as access to evidence, standing, class actions, fault, passing-on-defence, etc.

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Civil damages claims (2)

#2811053 • Infringements of the prohibitions on anti-competitive agreements and abuse of dominance will normally be sufficient to establish liability ◦ Follow-on damages claims • Injured parties: customers and competitors • Causation • Quantifying damages ◦ US - treble damages • Passing-on defence • Class actions • Time-bar • Example – SAS Cargo ◦ Paid US $ 13.9 million to settle class action lawsuits in the US 23

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Other consequences for companies

• Loss of reputation and ”goodwill” • Legal costs • Interruption of day-to-day business and management • Spend resources on finding, presenting and/or explaining documents and electronic files • Inspections • Interrogations • Witness examinations • Debarment from bidding on future projects 24

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Examples – media coverage

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Sanctions against individuals

• In many jurisdictions competition law infringements are criminal offences ◦ Norway, USA, UK, Brazil, Canada, France, Hungary, Estonia, Romania, Slovenia, Japan, South-Korea etc.

• Fines ◦ US (up to USD 1 million) ◦ Brazil (up to 50 % of the fine imposed on the company) ◦ France (up to EUR 75 000 ◦ Norway (no upper limit, but in practice significantly lower than e.g. US) ◦ In some jurisdictions (Egypt, Jordan Ireland, Canada) individuals may receive the same fines as the company • Imprisonment ◦ Up to ten years (USA) ◦ Up to six years (Norway) ◦ Up to five years (Brazil, Canada, Hungary and Ireland) ◦ Up to four years (France) ◦ Up to three years (Japan and South Korea) 26

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Other consequences for individuals

• Inspections • Interrogations • Witness examinations • Ban from leaving the country • Diciplinary sanctions, including dismissal 27

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Example – former vice-president SAS Cargo

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(ii) Competition law and horizontal cooperation agreements

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Horizontal cooperation agreements

Introduction

Information exchange Joint bidding / bid rigging Trade associations Standardisation agreements Purchasing agreements Specialisation agreements R&D agreements Commercialisation agreements 30

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Introduction

• Horizontal cooperation - cooperation between actual or potential competitors ◦ Actual competitors: companies active on the same relevant market ◦ Potential competitors: a company is treated as a potential competitor of another company if, in case of a small but permanent increase in relative prices it is likely that it, within a short period of time, would undertake the necesary additional investments to enter the relevant market • Companies that form part of the same ”undertaking” are not considered competitors • Strong economic incentives for undertakings to participate in horizontal cooperation can lead to substantial economic benefits (share risk, save costs, increase investments, pool know-how, enhance product quality and variety etc) • Section 10 Norwegian Competition Act / Article 53 EEA / Article 101 TFEU ◦ Provides the legal framework for an assessment of whether the cooperation is compatible/non-compatible with competition law • • 14 December 2010: The Commission adopted new Guidelines on horizontal cooperation agreements http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52011XC0114(04):EN:NOT 31

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Section 10 Norwegian Competition Act / Article 53 EEA / Article 101 TFEU

• Two-step analysis • Section 10 (1) / Article 53 (1) EEA / Article 101 (1) TFEU ◦ prohibits all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their distortion of competition

object or effect

the prevention, restriction or • Section 10 (3) / Article 53 (3) / Article 101 (3) TFEU sets out an exception rule provided four cumulative conditions are satisfied: ◦ (a) The agreement must contribute to improving the production or distribution of goods or contribute to promoting technical or economic progress; ◦ (b) Consumers must receive a fair share of the resulting benefits; ◦ (c) The restrictions must be indispensable to the attainment of these objectives, and; ◦ (d) The agreement must not afford the parties the possibility of eliminating competition in respect of a substantial part of the products in question.

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Anti competitive ”object”

• Restrictions of competition by ”object” are those that by their very nature have the potential to restrict competition. • It is not necessary to examine the actual effects of an agreement on the market once its anti-competitive object has been established • Regard must be taken to the content of the agreement, the objectives it seeks to attain, and the economic and legal context of which it forms part • Horizontal agreements ◦ Price fixing - agree or coordinate prices, price ranges, price increases or discounts ◦ Exchange of current or future price information ◦ Market sharing - allocate geographic areas, customers/customer groups or products/services ◦ Output limitation ◦ Bid rigging • (Vertical agreements) ◦ Resale price maintenance ◦ Export bans ◦ Absolute territorial protection 33

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Anti competitive ”effect”

• If an agreement does not restrict competition by its ”object”, it must be examined whether it has appreciable restrictive effects on competiton • Account must be taken of both actual and potential effects • The agreement must have, or be likely to have, an appreciable adverse impact on at least one of the parameters of competition such as price, output, product quality, product variety or innovation • The undertakings must have, or obtain, some degree of market power ◦ i.e. the ability to profitably maintain prices above competitive levels for a period of time ◦ Proxy: market shares > 20-30 % ◦ Other factors: stability of market shares over time, entry barriers, countervailing power of buyers/suppliers 34

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Exemptions

• Section 10 (3) / Article 53 (3) / Article 101 (3) TFEU • Individual cases ◦ The burden of proof rests on the undertakings claiming that the criteria qualifying for an exemption are satisfied ◦ ”Sliding scale” - The greater the restriction of competition, the greater the efficiencies and the pass-on to consumers must be to qualify for an exemption • Block Exemptions ◦ New Block exemption on R&D agreements ◦ New Block exemption on specialisation agreements 35

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Horizontal cooperation agreements

Introduction

Information exchange

Joint bidding / bid rigging Trade associations Standardisation agreements Purchasing agreements Specialisation agreements R&D agreements Commercialisation agreements 36

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Information exchange

• Exchange of information between actual or potential competitors may be contrary to the prohibition on anti-competitive agreements ◦ ”Object or effect” ◦ Future conduct regarding future prices and quantities – anti-competitive ”object” ◦ Other sensitive information • Different forms of information exchange ◦ Directly between competitors ◦ Through a common agency (e.g. trade association) ◦ Through third parties (market research organisation, suppliers, customers) • Information exchange can take place in different contexts ◦ Pure information exchange ◦ In the context of a cooperation agreement 37

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Information exchange (2)

• The main concern is the exchange of strategic information that facilitate coordination of companies’ competitive behaviour • Illegal information exchange does not have to be reciprocal ◦ A situation where only one undertaking discloses strategic information to its competitors who accept it can be contrary to competition law • Illegal information exchange can take place on a single occasion • The competition authorities do not have to prove that the exchange of information has affected the undertakings’ market conduct ◦ When an undertaking receives strategic data from a competitor, it will be presumed to have accepted the information and adapted its market conduct accordingly unless it responds with a clear statement that it does not wish to receive such data 38

”Strategic information”

#2811053 • Data that reduces strategic uncertainty in the market • Aggregated vs individualised (company level) data ◦ Benchmarking • Historic data vs data that is indicative of future conduct • Public data vs non-public information ◦ Data received from customers/suppliers • Types of ”strategic information” ◦ Prices (actual prices, discounts, increases, reductions, rebates) ◦ Customer lists ◦ Production costs ◦ Quantities ◦ Turnovers ◦ Sales ◦ Capacities ◦ Qualities ◦ Marketing plans ◦ Investments 39

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Example

• Case C-8/08, T-Mobile Netherlands ◦ Reference for a prelimiary ruling in proceedings between T-Mobile Netherlands and the Netherlands competition authority ◦ The proceedings concerned a decision by the NCA in which five mobile operators were fined for exchanging confidential information at a single meeting with the aim of restricting competition • Held ◦ ”each economic operator must determine independently the policy which he intends to adopt on the common market” ◦ ”this requirement of independence does not deprive economic operators of the right to adapt themselves intelligently to the existing or anticipated conduct of their competitors,” ◦ ”it does, none the less, strictly preclude any direct or indirect contact between such operators by which an undertaking may influence the conduct on the market of its actual or potential competitors or disclose to them its decisions or intentions concerning its own conduct on the market (…)””there is a presumption of a causal connection between the concerted practice and the conduct of the undertaking on that market, even if the concerted action is the result of a meeting held by the participating undertakings on a single occasion” 40

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Horizontal cooperation agreements

Introduction Information exchange

Joint bidding / bid rigging

Trade associations Standardisation agreements Purchasing agreements Specialisation agreements R&D agreements Commercialisation agreements 41

Bid rigging

#2811053 • Bid rigging occurs when actual or potential competitors collaborate on responses to invitations to tender for the supply of goods and services • Bid rigging limits price competition between the parties and automatically infringe competition law • Types of bid rigging ◦ Bid suppression • A party agrees not to submit a bid so that another party can win the contest ◦ Cover bids • A party agrees to submit a bid with an excessive price ◦ Bid rotation • The parties take turns bidding on different contracts ◦ Subcontract bid rigging • A company agrees not to submit a bid, so that another party can win the contest, on the condition that the company will receive a subcontract 42

Examples

• V2009-17, Grunnarbeid / Gran & Ekran ◦ The NCA held that the parties cooperation in relation to a tender for the rehabilitation of five municipal bridges in Nord Trøndelag in 2007 was contrary to Section 10 of the Norwegian Competition Act ◦ According to the NCA, the cooperation had led to a common understanding as to which party should give the lowest bid, and which party should bid without intending to win (cover bid) ◦ The NCA imposed a fine of MNOK 7 ◦ The decision upheld by Sør-Trøndelag tingrett ◦ Appealed #2811053 • Other Norwegian examples ◦ V2008-18, Håkonrune Rør AS og Oslo VVS – total fine MNOK 750 000 ◦ V2009-7, Taxi Midt-Norge – total fine NOK 300 000 43

Examples (2)

#2811053 • Asfaltsmålet , MD 2009:11, Swedish market court • Cover bids and bid suppression in relation to public procurement contracts in the Swedish asphalt market between 1998 and 2001 • The undertakings involved received the following fines ◦ NCC AB: MSEK 200 (Marknadsdomstolen) ◦ Skanska Sverige AB: MSEK 170 (Stockholms tingsrätt) ◦ Vägverket: MSEK 50 (Stockholms tingsrätt) ◦ Peab Sverige AB: MSEK 40 (Marknadsdomstolen) ◦ ◦ Peab Asfalt AB: MSEK 33,42 (Marknadsdomstolen) ◦ Kvalitetsasfalt i Mellansverige AB: MSEK 2,5 (Stockholms tingsrätt) ◦ Sandahls Grus & Asfalt MSEK 2,5 (Marknadsdomstolen) ◦ Peab Asfalt Syd AB: MSEK 1,5 (Marknadsdomstolen)

Total: MSEK 500

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Legitimate joint bidding

#2811053 • Joint bidding between non-competitors (neither actual nor potential) is not prohibited ◦ The contracting party should, however, always be informed of the cooperation • Joint bidding on projects the parties are unable to carry out individually ◦ Normally not restrictive of competition, unless the parties could have carried out the project with less stringent restrictions or with fewer participants ◦ Relevant factors: technical capabilities, capacities, resources, funding, know-how ◦ Parties’ ability to bid individually must be assessed in relation each project ◦ Each party must assess its own ability before contacting the other ◦ Information exchange-spillover effects • Joint offers requested by customer ◦ On the customers own initiative • Sub-projects ◦ The invitation to tender or solicitation is broken down into various sub-projects ◦ Joint bidding on the entire project may reduce competition on the sub-projects, even where the parties are not actual or potential competitors on the same sub projects ◦ Joint bidding may nevertheless be exempted provided the cooperation leads to efficiencies that outweigh the restrictive effect on competition 45

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Subcontracts

• Subcontracting agreements between competitors do not fall under the prohibitions on anti-competitive agreements, if they are ◦ limited to individual sales and purchases on the merchant market ◦ without any further obligations, and ◦ without forming part of a wider commercial relationship between the parties • Subcontracting agreements between competitors

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Horizontal cooperation agreements

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Trade associations

Standardisation agreements Purchasing agreements Specialisation agreements R&D agreements Commercialisation agreements 47

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Trade associations

• Article 101 TFEU - ”Decisions by associations of undertakings” • Legitimate functions ◦ Training/education ◦ Government contact/lobbying ◦ Marketing/promotion • Anti-competitive practices ◦ Medium for cartel - organisation, operation, monitoring ◦ Recommendations, i.e. with regard to price-setting • • even non-binding recommendations if intended to determine, or likely to have the effect of determining the members conduct ◦ Information exchange Collect and disseminate commercially sensitive information ◦ Exclusion of non-members from competitive opportunities • 2008 study by the Swedish Competition Authority ◦ 1/3 of 479 Swedish trade associations engaged in conduct that could be contrary to the competition rules 48

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Examples

• V2009-15, Norges turbileierforbund ◦ The NCA held that Norges Turbileierforbund, in its membership magazine, had encouraged its members to increase their prices contrary to Section 10 of the Norwegian Competition Act.

◦ Norges Turbileierforbund had,

inter alia

, launched a campaign called ”FEMHUNDRINGEN” ◦ The NCA imposed a fine of NOK 400 000 • UK Tractors ◦ Eight UK manufacturers and importers of tractors opreated, through the Agricultural Engineers Association, an information exchange agreement called the UK Agricultural Tractor Registration Exchange ◦ The information revealed aggregate industry information, information concerning sales of each manufacturer and their market shares for various geographical areas and imports and exports between different territories ◦ The European Commission held that the agreement on the exchange of information infringed Article 101 TFEU, and ordered the members of the agreement to put the infringement to an end ◦ The decision was upheld by the General Court in Case T-35/92, John Deere v Commission 49

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Horizontal cooperation agreements

Introduction Information exchange Joint bidding / bid rigging Trade associations

Standardisation agreements

Purchasing agreements Specialisation agreements R&D agreements Commercialisation agreements 50

Standardisation agreements

#2811053 • Standardisation agreements have as their primary objective the definition of technical or quality requirements with which current or future products, production processes, services or methods may comply ◦ standardisation of different grades or sizes of a particular product ◦ technical specifications in product or services markets where compatibility and interoperability with other products or systems is essential. ◦ terms of access to a particular quality mark or for approval by a regulatory body ◦ standards on environmental performance of products or production processes • Different forms of standardisation agreements ◦ Consensus based standards by recognised bodies ◦ Consortia ◦ Agreements between independent undertakings 51

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Economic effects of standisation agreements

• Standardisation agreements may lead to efficiencies ◦ Enhance quality, provide information, ensure interoperability and compatibility ◦ Increase competition • Standardisation agreements may also reduce competition ◦ Reduce price competition ◦ Foreclosure of innovative technologies ◦ Foreclosure of competitors by preventing effective access to the standard 52

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Legal assessment of standardisasion agreements

• Restrictions of competition by ”object” ◦ Standards aimed at excluding actual or potential competitors ◦ Standards to prevent or delay new technology ◦ Trade associations which put pressure on third parties not to market products that do not comply with the standard ◦ Restricted access to the standards • Restrictions of competition by ”effect” ◦ Market shares of the goods and services based on the standard ◦ Are the members free to develop alternative standards?

◦ Is access to the standard available on fair, reasonable and non-discriminatory terms?

◦ Is participation in the standard-setting process open to all stakeholders in the market?

• Exemption ◦ Efficiencies that outweigh the anti-competitive effects 53

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Standard terms

• Potential anti-competitive effects ◦ Limit product choice and innovation ◦ Restrict price-competition ◦ Foreclosure of competitors • Restrictions of competition by ”object” ◦ Refusal to give competitors access to standard terms, the use of which is necessary to be able to compete on the market ◦ Standard terms which influence the prices charged – recommended prices, rebates, calculation methods etc • Restrictions of competition by ”effect” ◦ As long as participation in the establishment of standard terms is unretricted, the terms are non-binding and effectively accessible for all, standard terms are unlikely to restrict competition ◦ Standard terms which define product characteristics may limit product choice and innovation ◦ Standard terms which lead to an allignment of other key parameters of competition 54

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Examples

• Case 39416, Ship Classification ◦ Commission commitment decision under Article 9, Reg 1/2003, to address concerns that the International Association of Classification Societies (IACS) may have infringed Article 101 TFEU and Article 53 EEA ◦ The concern was that the IACS might have prevented other classification societies (CS) from • Joining IACS • Participating in the process of elaboration of IACS’ technical standards • Having full access to background documents with regard to the application of IACS’ technical standards ◦ This behaviour could prevent market entry of non-IACS members, thereby restrciting competition ◦ The members of IACS offered commitments to meet the Commission’s concerns ◦ By decision pursuant to Article 9, Reg 1/2003, the commitments were made binding upon the undertakings 55

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Examples (2)

• Case IV/31.458 – X/Open Group ◦ Commission decision granting an individual exemption under Article 101 (3) TFEU regarding mebership to the X/Open Group ◦ The X/Open Group developed open industry standards for Unix operating systems and applications ◦ Membership to the X/Open Group was subject to majority decision, and limited to major manufacturers with UNIX expertise and a European presence ◦ The Commission held that membership of the group conferred an appreciable competitive advantage on the members vis à-vis their competitors ◦ The restriction of admission of new members therefore resulted in an infringement of Article 101 (1) TFEU ◦ The Commission, nevertheless, found that the agreement qualified for an exemption pursuant to Article 101 (3) TFEU, because ”[t]he members are the best to ascertain and weigh the advantages and disadvantages of admitting a new member for the efficiency of the work of the Group” 56

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Horizontal cooperation agreements

Introduction Information exchange Joint bidding / bid rigging Trade associations Standardisation agreements

Purchasing agreements

Specialisation agreements R&D agreements Commercialisation agreements 57

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Purchasing agreements

• • • ◦ ◦ ◦ Different types of joint purchasing arrangements Joint controlled company Association/alliance Contractual arrangement ◦ Joint purchising may lead to efficiencies Creation of buyer power leading to lower prices, better quality products that are passed-on to final consumers ◦ ◦ ◦ ◦ Joint purchasing may restrict competition Reduced competition between the parties on the downstream selling market Collusion on the downstream market No pass-on of benefits to customers Foreclosure of competing purchasers by limiting their access to upstream suppliers 58

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Legal assessment of purchasing agreements

• • • ◦ ◦ Restrictions of competition by ”object” Tool to engage in a disguised cartel • Price fixing, output limitation, market sharing on the downstream selling market Fixing the purchase prices is not a restriction of competition by ”object” ◦ ◦ ◦ Restrictions of competition by ”effect” Market power • Unlikely that market power exists if the parties to the joint purchasing arrangement have a market share below 15 % on both the purchasing and selling markets • Market power on the selling market may cause restrictive effects on this market • Market power on the buying market may foreclose other buyers Collusion • Common costs Information exchange ◦ ◦ ◦ Exemption Lower purchase prices Reduced transaction costs Reduced transportation and storage costs 59

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Example

• Case C-250/92, Gøttrup-Klim Grovvareforeninger and others v Dansk Landbrugs Grovvareselskab ◦ Reference for a preliminary ruling in proceedings between 37 local cooperative associations specialising in the distribution of of farm supplies and DLG ◦ DLG was a cooperative society whose object was to provide its members with farm supplies, including fertilizers and plant protection products, and to negotioate the best prices for its members ◦ The dispute concerned a clause precluding DLG’s members from holding membership of any other form of cooperative organisation in competition with DLG ◦ The ECJ held that dual membership to competing cooperative purchasing associations would jeopardise both the proper functioning of DLG and its contractual power in relation to producers ◦ The clause forbidding DLG’s members from holding membership of any other cooperative was therefore not caught by Article 101 (1) TFEU, so long as the prohibition was restricted to what was necessary to ensure the proper functioning and contractual power of the cooperative 60

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Horizontal cooperation agreements

Introduction Information exchange Joint bidding / bid rigging Trade associations Purchasing agreements Standardisation agreements

Specialisation agreements

R&D agreements Commercialisation agreements 61

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Specialisation agreements

• Types of ”specialisation agreements" • Unilateral specialisation agreement ◦ an agreement between two parties which are active on the same product market ◦ one party agrees to fully or partly cease production of certain products or to refrain from producing those products and to purchase them from the other party • Reciprocal specialisation agreement ◦ an agreement between two or more parties which are active on the same product market, ◦ two or more parties on a reciprocal basis agree to fully or partly cease or refrain from producing certain but different products and to purchase these products from the other parties • Joint production agreement ◦ an agreement by virtue of which two or more parties agree to produce certain products jointly 62

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Economic effects of specialisation agreements

• Specialisation agreements may lead to efficiencies ◦ contribute to improving the production or distribution of goods, ◦ especially where the parties have complementary skills, assets or activities, because they can concentrate on the manufacture of certain products • Specialisation agreements may reduce competition ◦ Limit competition between the parties ◦ Foreclosure where the parties to the specialisation agreement are vertically integrated 63

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New Block Exemption on specialisation agreements

• Commission Regulation that Block Exempts certain types of specialisation agreements from the prohibition on anti-competitive agreements • Market share threshold ◦ The combined market share of the parties must not exceed 20 % on any relevant market • ”Hardcore restrictions” ◦ The Block Exemption does not apply to specialisation agreements which have as their object: • (a) the fixing of prices when selling the products to third parties with the exception of the fixing of prices charged to immediate customers in the context of joint distribution; • (b) the limitation of output or sales with the exception of: (i) provisions on the agreed amount of products in the context of unilateral or reciprocal specialisation agreements or the setting of the capacity and production volume in the context of a joint production agreement; and (ii) the setting of sales targets in the context of joint distribution; • (c) the allocation of markets or customers 64

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Specialisation agreements not covered by the Block Exemption

• • • ◦ Restrictions of competition by ”object” Agreements which involve price-fixing, limiting output or sharing markets or customers • • Except where: the parties agree on the output directly concerned by the production agreement, provided that the other parameters of competition are not eliminated; or a production agreement that also provides for the joint distribution of the jointly manufactured products envisages the joint setting of the sales prices for those products, and only those products, provided that that restriction is necessary for producing jointly, meaning that the parties would not otherwise have an incentive to enter into the production agreement in the first place.

◦ ◦ Restriction of competition by ”effect” Market power • • • • Combined market share < 20 % - Block Exempted Combined market share > 20 % - individual assessment Market concentration Entry barriers Nature of the specialisation agreement • Production agreements which also involve commercialisation functions, such as joint distribution or marketing, carry a higher risk of restrictive effects on competition than pure joint production agreements. ◦ Exemption Efficiencies that outweigh the anti-competitive effects 65

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Examples

• IV/26.437 – Jaz/Peter (1977) ◦ Both companies, Jaz and Peter, manufactured clocks ◦ The parties agreed that Peter would specialise in the manufacture of large mechanical alarm clocks and Jaz would specialise in pendulum clocks and electrical alarm clocks ◦ The parties further agreed that each would supply the other with their products and spare parts, to exchange know-how, and not to buy from third parties products they could obtain from the other ◦ The Commission held that the agreement infringed Article 101 (1) TFEU ◦ The agreement, nevertheless, satisfied the conditions for an exemption under Article 101 (3) TFEU, because it allowed each of the parties to concentrate entirely on manufacturing those products for which it had bigger and better manufacturing facilities than its partner • Jaz had increased production by 400 %, Peter had increased production by 250 % 66

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Horizontal cooperation agreements

Introduction Information exchange Joint bidding / bid rigging Trade associations Purchasing agreements Standardisation agreements Specialisation agreements

R&D agreements

Commercialisation agreements 67

R&D agreements

#2811053 • R&D agreements vary in form and scope ◦ Cooperation agreements ◦ Joint ventures ◦ Joint improvement of existing technologies ◦ Joint research, development and marketing of new products • R&D agreements may create efficiencies ◦ promote technical and economic progress ◦ the parties contribute complementary skills, assets or activities to the cooperation • R&D agreements may restrict competition ◦ reduce or slow down innovation ◦ reduce competition between the parties outside the scope of the agreement ◦ collusion 68

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New Block Exemption on R&D agreements

• Conditions for exemption ◦ All the parties have full access to the final results of the joint R&D for the purposes of further R&D, as soon as they become available ◦ Where the research and development agreement provides only for joint R&D, each party must be granted access to any pre-existing know-how of the other parties, if this know-how is indispensable for the purposes of its exploitation of the results ◦ Any joint exploitation may only pertain to results which are protected by intellectual property rights or constitute know-how and which are indispensable for the manufacture of the contract products or the application of the contract technologies • Market share threshold and duration of exemption ◦ Non-competitors • The exemption shall apply for the duration of the R&D agreement • Where the results are jointly exploited, the exemption shall continue to apply for 7 years from the time the contract products or contract technologies are first put on the market within the internal market.

◦ Competitors • The exemption shall apply for the duration of the R&D agreement only if, at the time the research and development agreement is entered into, the parties combined market shares do not exceed 25 % • The exemption shall continue to apply as long as the combined market share of the parties does not exceed 25 % on the relevant product and technology markets 69

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Hardcore restrictions

• • • • • • • The restriction of the freedom of the parties to carry out research and development independently or in cooperation with third parties in a field unconnected with that to which the research and development agreement relates or, after the completion of the joint research and development, in the field to which it relates or in a connected field ◦ The limitation of output or sales Exceptions ◦ The fixing of prices when selling the contract product or licensing the contract technologies to third parties Exceptions The restriction of the territory in which, or of the customers to whom, the parties may passively sell the contract products or license the contract technologies, with the exception of the requirement to exclusively license the results to another party The requirement not to make any, or to limit, active sales of the contract products or contract technologies in territories or to customers which have not been exclusively allocated to one of the parties by way of specialisation in the context of exploitation The requirement to refuse to meet demand from customers in the parties’ respective territories, or from customers otherwise allocated between the parties by way of specialisation in the context of exploitation, who would market the contract products in other territories within the internal market The requirement to make it difficult for users or resellers to obtain the contract products from other resellers within the internal market 70

R&D agreements not covered by the Block Exemption

#2811053 • Restrictions of competition by object ◦ R&D agreements restrict competition by object if they do not truly concern joint R&D, but serve as a tool to engage in a disguised cartel (price fixing, output limitation or market allocation) • Restrictions of competition by effect ◦ Most R&D agreements are unlikely restrict competition • Agreements relating to R&D at an early stage, far removed from the exploitation of possible results • ◦ R&D agreements between non-competitors the parties are not able to carry out the necessary R&D independently, for instance due to technical capabilities • R&D cooperation which does not include joint exploitation of possible results by means of licensing, production and/or marketing • R&D directed at an entirely new product ◦ R&D agreements are only likely to restrict competition where the parties have market power • combined market share < 25 % covered by the Block Exemption • the stronger the combined position of the parties, the more likely the R&D agreement can cause restrictive effects on competition • • R&D directed towards limited improvement R&D which includes joint exploitation • Exemption 71

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Example

• ◦ ◦ ◦ ◦ ◦ IV/34.252 – Philips/Osram Joint venture agreement between Philps and Osram regarding the manufacture and sale of certain lead glass tubing for lamps The joint venture would be based in Philips’ current facilities The Commission considered that since Philips already produced lead glass and Osram had the financial, technical and research capabilities to set up a new facility to produce lead glass, the joint venture eliminated at least potential competition from Osram The agreement was held to appreciably restrict competition within the meaning of Article 101 (1) TFEU However, since the agreement rationalised production by allowing Osram to eliminate its obsolete facilities, Philips to relocate production, enabled a concentration of R&D activities and the achievment of economies of scale, the Commission held that the criteria in Article 101 (3) TFEU were satisfied 72

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Horizontal cooperation agreements

Introduction Information exchange Joint bidding / bid rigging Trade associations Purchasing agreements Standardisation agreements Specialisation agreements R&D agreements

Commercialisation agreements

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Commercialisation agreements

• Cooperation between competitors in the selling, distribution and/or promotion of products • Commercialisation agreements may lead to economies of scale or scope • Such agreements may also lead to price fixing, output limitation, market sharing or information exchange 74

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Legal assessment of commercialisation agreements

• Restrictions of competition by ”object” ◦ Agreements limited to joint selling generally have the object of coordinating the procing policy of competing manufacturers or service providers ◦ Market sharing, output limitation • Restrictions of competition by ”effect” ◦ A commercialisation agreement is not likely to restrict competition if it is necessary to allow a party to enter a market it could not have entered individually ◦ Market power • Unlikely that market power exists if the parties have a combined market share not exceeding 15 % • The greater the market power, the more likely the agreement will restrict competition ◦ Collusion – high degree of commonality of costs ◦ Information exchange • Exemption ◦ Reduced transport costs ◦ Reduced duplication of resources and facilities ◦ Access to capital, technology 75

Example

#2811053 • Case COMP/C-2/38.173 – Joint selling of the media rights to the FA Premier League ◦ Commission commitment decision concerning the agreement between the clubs participating in the English Premier League competition to sell media rights to that competition jointly through the FA Premier League ◦ The Commission’s concern was that the joint selling agreement deprived media operators and British football fans of choice, led to higher prices and reduced innovation ◦ The FAPL submitted provisional commitments to the Commission, including a commitment that no single broadcaster would be allowed to buy all of the packages of live match rights from 2007 onwards ◦ By decision, pursuant to Article 9 of Reg 1/2003, the Commission required the joint seller to • organise an open and competitive bidding process • un-bundle the rights in six smaller, and more evenly balanced, packages • guaranteeing that no purchaser could buy more than five of the six TV rights packages 76