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Thursday, 28 March 2013

OFT issues five infringement decisions in the distribution of Mercedes-Benz commercial vehicles investigation

The OFT has issued the decisions that we have been expecting. Press release no 30/13 of 27 March 2013  says:
The OFT today issued decisions finding that Mercedes-Benz and five of its commercial vehicles dealers infringed competition law and has imposed fines totalling over £2.8 million.
Each of the five decisions relates to separate infringements that took place over different periods between March 2007 and January 2010, involving different parties. The nature of the infringements varies but all contain at least some element of market sharing, price co-ordination or the exchange of commercially sensitive information.
These decisions follow settlements with Ciceley, Enza, Mercedes-Benz and Road Range announced in February under which these parties admitted breaching the law and agreed to pay a fine and co-operate with the OFT. Northside, which also admitted infringing competition law, has avoided a fine under the OFT's leniency policy. The remaining dealer, H&L Garages, did not settle with the OFT and the two infringements it was involved in were not therefore part of settlement.
Today's announcement brings the OFT's investigation to a conclusion. The full decisions will be published on the OFT website later this year.
So we still don't get to see the details: this is merely a formality, as far as the outside world is concerned.

Tuesday, 12 March 2013

Penalty clauses

A common problem in contract drafting is avoiding writing a liquidated damages clause that manages not to be a penalty. I thought the touchstone was whether it was a genuine pre-estimate of loss - an honest attempt to put a value on the damages that would be suffered if there were a breach. Not so. In Cavendish Square Holdings Ltd v El Makdessi [2012] EWHC 3582, a case on a restrictive covenant in a share sale agreement (a breach of which meant that future instalments need not be paid and the seller would have to sell the rest of the shares at a lower valuation) the High Court decided the matter on the alternative "commercial justification" test. The court held that the adjustment of consideration would reflect the loss of goodwill. The provisions were not extravagant or oppressive and the purpose was not to deter breach. The provisions had been negotiated on a level playing field (and yes, those words do appear in the judgment).

So, the commercial justification test is more flexible than the old genuine pre-estimate one, although I have a feeling that the one will often include the other - that the commercial justification for a dodgy clause is that it does represent the loss that might be suffered. But there will be cases that go the other way too: and the key element in deciding what is a penalty and what isn't must be whether it is designed to deter breach or not.

There's another point to watch out for: in the case, the consideration adjustment clause was held to be a penalty because it covered a loss which had already been compensated, by damages for breach of fiduciary duty. So make sure you don't include anything that looks like double counting!

March happenings

On 6 March, the report on the BIS consultation on implementing the consumer rights directive was published.

The deadline for implementing the late payments directive is 16 March. Legislation has already been passed and will come into effect on the day.

The end of March sees the conclusion of the Law Commissions' consultation on unfair terms and the definition of "exempt term" in consumer contracts, and its report and recommendations to government. The government will respond by the end of May. The result will feed into the Consumer Rights Bill, the government's flagship consumer protection measure.

That other block exemption

There is, of course, more than one block exemption, though in the motor industry it is possible to lose sight of all but one of them. To many people, strange as it may seem, the most important one is on technology transfer agreements - the regulation which started off, many years ago, as the patent licensing block exemption and the related (but later) know-how licensing one, which were later merged.

Now the Commission is preparing a new TT block exemption, and guidelines. It won't be very different from the old one, which expires on 30 April, but there will be a change to the key definition which sets the regulation's scope, to include agreements that containg provisions relating to the purchase of products or the assignment of other intellectual property rights, provided that these are "directly and exclusively" related to the production of the contract products.

Also, the 20 per cent market share threshold will apply to agreements between non-competitors where the licensee owns technology which it only uses for inhouse production and which is substitutable for the licensed technology.

The Commission also proposes to revise the current excluded restrictions, to catch all exclusive grant-backs.

There is much more that could be said about this - but I'm working on the assumption that readers will either not be interested enough to read more, or will have found what they need elsewhere. A topic, I think, for my IP blog instead.
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Sunday, 10 March 2013

Queensland: specific legislation for motor dealers

Australian law firm, Holden Redlich, report that the Queensland Government is proposing to repeal the Property Agents and Motor Dealers Act 2000 (Qld) and split it into four separate industry specific Acts. No doubt both motor dealers and estate agents will be relieved no longer to be lumped in with the other. The idea is to reduce red tape and unnecessary duplication: but what government does not claim to be doing that? Four acts in place of one might be seen to be a multiplication of regulation.

Of course, over here the mere idea of having legislation on the activities of motor dealers is pure fantasy ...
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Friday, 1 March 2013

Motor Law conference report

We are greatly obliged to Motor Law's good friend Steve Hamilton of Auto Retail Manager for writing this report of proceedings at Motor Law's 2013 conference, and to Frank Dumbleton for the photos ...


Block Exemption and the car market
Joseph Vogel, a French avocat specialising in competition and distribution law, said most manufacturers appeared to be sticking with the qualitative and quantitative system that has been dominant under the existing regime – at least for now, and partly due to the fragile nature of the economy. “Manufacturers recognise that now is not the time to be making major changes,” he said.
Looking at the new clauses and obligations that were likely to feature in new dealer agreements, he said that overall there was generally less protection for retailers. For example, he said, most agreements have retained the two-year notice period, but the need to give good reasons for termination has gone.
Obligations around the transfer of contract business (i.e. if a dealer wants to sell to another dealer) have gone from most contracts – and that is a good thing, Mr Vogel said. Similarly, the possibility of opening a secondary outlet no longer exists in most contracts.
The requirement for referring to arbitrators or independent experts is no longer a condition, but remains in most contracts – albeit often limited to disputes about objectives.
Brand exclusivity can be enforced if a network has less than a 30% market share, usually for a period of up to five years.
Many networks are currently in the transition phase towards setting up a new distribution system and one way of doing that, according to Mr Vogel, is to terminate all contracts with two years’ notice, simply on the grounds of the need to adapt. Alternatively, a manufacturer could propose a new contract, or an amendment to distributors, and only terminate if there is a refusal to accept the changes.

Block Exemption and the aftermarket
Should spare parts be treated as brand-specific? That was the question posed by Marjorie Holmes of Reed Smith, and the answer will determine the nature of the contract that manufacturers can write with their dealers and repairers.
If you take the brand-specific view, she said, you have automatically defined a narrow market and inevitably the vehicle manufacturer will be deemed to have a dominant position – which automatically gives rise to competition law problems.
However, if you take a more generous view of spare parts and include all the generic manufacturers in the market as well, then the vehicle manufacturer’s position is much smaller.

Block Exemption FAQs
Barrister Jonathan Turner looked at the EC’s FAQ document on Block Exemption, noting where they go further than the competition regulations (such as the supply of parts to independent repairers), and where they are perhaps more lenient (for example on making bonuses or rebates for captive parts conditional on the sourcing of captive parts).
On the subject of supplying technical data to tool manufacturers, he said he would be nervous about restricting the supply of information about a new multi-brand tool on the market. And while the FAQs say a requirement to use specified electronic tools or equipment for servicing or repairs would be unlikely to lead to a breach of EU competition rules, Mr Turner said he was unsure about this – if it is more than five years it is probably anti-competitive, he said.
However he warned that the courts could take a different view on some issues, given that judges tend to operate based on the merits of the parties involved and not necessarily on the best interests of consumers.

Cartel investigations in the parts market
The world’s biggest ever competition law investigation is focused on the parts industry right now, Alex Haffner of SNR Denton said, involving a co-ordinated approach across different jurisdictions.  Australia is the latest country to come on board with regard to the supply of wire harnesses, and others are expected to join.
Ultimately, Mr Haffner said, it could lead to lower Original Equipment prices.
Japanese executives have already admitted that procurement processes have been rigged for more than the past ten years. Most manufacturers will have been affected, and follow-on actions for damages have already started.
In the USA for example, total fines of more than $800 million have been levied (including $471m against Yazaki) against suppliers of wire harnesses, thermal system controls, instrument panels and automotive bearings, and a number of executives have been jailed. There are also various investigations pending, in the areas of safety equipment, brakes, bearings and fuel systems.
Within the EU, no formal sanctions have yet been imposed, but formal proceedings have been instigated against some wire harness makers. There have also been some ‘dawn raids’ in relation to other car parts, including safety systems, ball bearings and thermal systems. Leon AG, for example, has confirmed that it is under investigation.
Mr Haffner suggested that, within Europe, the UK could become the forum of choice for would-be complainants – and that while the big losers in all this have been the car makers, because their procurement processes were rigged, potentially anyone who has bought a car in the past ten years could be in line for damages.
Summing up, he highlighted the risks involved in exchanging information, for example in collaborative ventures. Even bilaterally exchanged information between two suppliers could be enough for the authorities to take an interest, he said, adding that car makers would have to look at how they run their procurement processes. We could see non-price comparators like quality and innovation playing a larger role.

The return of copyright protection for car parts?

Patent attorney David Musker (Jenkins), a long-standing conference favourite, took as the title of his talk "Section 52 and all that", reviewing the history of copyright protection in designs for car parts from the Morris Marina to the recent Star Wars case in the Supreme Court (Lucasfilms v Ainsworth). Section 52 of the Copyright, Designs and Patents Act 1988 would be repealed when the Enterprise and Regulatory Reform Bill becomes law - a reform required by EU designs law. It would not mean the return of copyright to the car spares industry, because section 51 is the provision that prevents BL v Armstrong coming back to haunt us - but there is no guarantee that it will not fall victim to some similar tidying-up exercise. Meanwhile, the so-called "repair clause" (Article 110 of the Community Designs Regulation) has been considered by the courts, in BMW v Round, and found wanting, leaving the UK's "must match" clause still governing designs for replacement parts and the old Ford case still good law.

The connected car
IHS Automotive recently predicted that by the end of next year, for some of the bigger brands, “every vehicle they sell will offer some sort of connectivity” via internet screens installed on the dashboard, and looking further ahead several companies are working on driverless vehicles.
Adam Aldred of Addleshaw Goddard predicted that not only will we soon be able to stream movies from the web to the car, but that car promotions would start focusing on the apps that are available to go with certain models, for instance to aid the driver or to keep other passengers entertained. 
Given that today’s smartphones, for example, are out of date within a few months, marrying what’s happening technologically with the lifespan of the typical car will be a big challenge for manufacturers, Mr Aldred said. But rather than create an environment in which the technology could be updated for subsequent owners, he said it might be in the manufacturers’ interest for their products to become obsolete within a few years – potentially eliminating the used vehicle market.
He also said that, because of concerns about hacking, manufacturers would have to ensure that the multi-media element was separate from the vehicle’s critical systems, and that the issue of driver errors due to distractions would have to be addressed. It is a criminal offence to use a mobile phone while driving (unless it is hands-free) so where, he mused, will the law draw the line with in-vehicle infotainment?
On the subject of location-based services such as remote diagnostics/repairs provided in future by OEMs and roadside assistance operators, Mr Aldred said that data protection could be a sensitive issue.

The changing face of motor finance
Responsibility for the regulation of consumer credit will move from the OFT to a new regulator, the Financial Conduct Authority, from April 2014, although there will be a transition period that runs into 2016. The initial consultation runs from April to June this year.
The licensing regime will change and businesses will need to re-apply, Stephen Dawson of Shoosmiths said, adding that although there was very little detail at present the deadlines are set in stone and that the Treating Customers Fairly guidelines give a good indication of the regulator’s expectations.
He said retailers needed to look at the aspects of their business that might be affected, and at the relationship with their captive finance house. Are your policies and procedures up to date, for example?
The FCA will be a very pro-active body and will be able to move much more quickly than the OFT has in the past, Mr Dawson stressed.
He also had some good news for the industry with regard to electronic signatures on finance documents. “By 2014, every captive will be doing it,” he said. “From a legal point of view, they need to be no less effective than a handwritten signature and I am certain they pose no issue or risk.”
He said the best method of capture would be software solutions based around an electronic pad with a stylus in the showroom. Not only is it quicker and more convenient for customers, it also means a faster payout and lower costs for retailers. “It’s the future for sure,” he said.
Consumer law update
Adrian Watts of WattsLegal brought the conference to a close with an overview of some significant trends and cases in consumer law over the past 12 months.
These included FSA v Digital Satellite Warranty Co, where the Supreme Court affirmed that FSMA authorisation was required for contracts assuming ‘risk of loss attributable to insured person’ (regardless of whether it is an obligation to repair/replace or reimbursing the cost of doing so); and R v Derby Car & Van Contracts, concerning the sale of pre-registered vehicles. A car was initially registered in the name of a third party to obtain a fleet discount, but was not registered in the customer’s name until up to six months later. Because this information was not disclosed, it left the customer exposed to offences under the Vehicle Excise Act and could also prejudice any insurance claim they made.
A delegate asked whether there would be any scope in writing conditional contracts, but according to the DVLA, Mr Watts said, “de-registration is not an option”.
He also addressed the log-awaited implementation of the Consumer Rights Directive, and the Consumer Bill of Rights which will introduce individual recourse and refunds for misleading statements and high-pressure sales tactics. 
Referring to the creation of a new raft of enforcement bodies this year and next, he said a lot more people would start representing themselves in person but that they would be given less leeway in court than perhaps they are today.