EU: Lighting manufacturers penalised for cartel

The European Commission has imposed a €27 million penalty on two suppliers of car lighting for operating a cartel, contrary to Article 101 of the Treaty on the Functioning of the European Union. Automotive Lighting and Hella have to pay €16.3 and €10.4 million respectively for their part in the cartel. A third cartel member, Valeo, escaped a financial penalty, which the Commission indicated woulod have been over €30.5 million, because it revealed the existence of the cartel.

Reuters says that the parties discussed quotes for tenders and negotiation strategies and exchanged information on the status of negotiations with customers regarding price increases.

The EU press release is here.

IAAF calls guilty verdict against Kia a 'major victory' for IAM | Professional Motor Mechanic

Professional Motor Mechanic reports an appeal decision in Sweden which IAAF has hailed as a major victory for the independent sector. In December 2012, the Market Court in Sweden had ruled (MD 2012:13) that exclusivity clauses in Kia's 7-year warranty contracts breached competition rules. If the customer breached the terms, the warranty was not void - it was reduced to three years (although whether the terms remained the same is not clear). The company was ordered to allow its customers to choose independent repairers as well as authorised ones, and was fined SEK 5 million. Three years later the Supreme Court in Stockholm dismissed Kia's application for leave to appeal and for a retrial.

Manufacturers are generally prohibited from refusing to honour a vehicle's warranty on grounds only that it has been serviced by a non-authorised repairer or non-original parts have been fitted. Kia's warranty required servicing to be carried out by an authorised workshop. The Association of Swedish Car Parts Wholesalers (SBF), the Swedish member of FIGIEFA, reported the matter to the Competition Authority, which declined to take action. The SBF then took legal action against the manufacturer in the Market Court, which granted an injunction against Kia under Chapter 3, section 2 of the Competition Act - a provision which enables a party to obtain an injunction to bring an infringement to an end, when the Competition Authority has decided not to proceed. (Of course, that's a different matter from the Competition Authority deciding that no infringement has been committed: it might well decide not to proceed for other reasons, perhaps - I'm guessing here - because there is insufficient public interest, although this shouldn't have been a case where that was a good reason for not devoting resources to it.) In essence, it allows a private interest to take action where the public body hasn't.

Section 2 does not enable the party bringing the action to claim damages, but it does deal directly with the problem - and there remains the possibility of a follow-on action for damages anyway. The Market Court has decided a number of cases - 14, according to the CELEC report, which is now three years old: and the petitioner has been successful in "several" of them.

The Market Court took the view - unsurprisingly, I think - that the relevant market for servicing and repairs was a brand-specific one. It decided that the condition in the warranty had serious foreclosing effects because independents were excluded from competing: one of the objects of the condition was to restrict competition. It would be prohibited under Article 101 TFEU and the equivalent provision in the Swedish competition law.

Prof Henriksson of the Center [sic] for European Law and Economics (CELEC) questions whether it is correct to view the agreement between Kia and its authorised repairers as restricting competition because of the condition imposed on customers. It's an interesting point, although it might be answered by scrutinising the authorised repairer agreement. If Kia have been clever, though, I guess the agreement will be silent on the matter and the restriction will be imposed through the back door, by deterring consumers from going elsewhere. Perhaps the AR agreement says that dealers will not honour warranties in the prescribed circumstances - or in practice they will be prevented from doing so, within the framework of the AR agreement, by the fact that they won't get paid for their work.

Prof Henriksson also asks whether this is indicative of a difference of opinion between the competition authority and the court about what amounts to a breach of the prohibition. That seems unlikely: Christer Liljenberg, Chairman of SBF, is quoted by FIGIEFA as saying that the competition authority had indicated that it did seem to be a breach.

Mercedes fined 350 million yuan ($56 million) for price fixing in China

The National Development and Reform Commission in Jiangsu province in eastern China (close to Shanghai) fined Daimler's Mercedes-Benz 350 million yuan ($56 million) for a pricing monopoly there. The fine is the highest imposed yet on carmakers probed by the government last year for antitrust violations, and this is the last case arising from those investigations. Some Mercedes dealers were reportedly fined 7.7 million yuan in addition.
The NDRC said the carmaker had set minimum sales prices for E-class and S-class cars, and for some spare parts, and given warnings to dealers who did not comply. It had violated anti-monopoly law, damaging fair market competition and harming consumer rights. The regulator said in an official statement: "The investigation found Mercedes-Benz and its dealers in Jiangsu came to and carried out monopoly agreements to cap the lowest sales prices of E-class, S-class models and certain spare parts." Had infringements in other provinces also been found, the fine could have been much greater.
As we have reported in the past, China has been clamping down on the sector, punishing foreign automakers for price fixing for the first time last year when it fined the Chinese venture of Volkswagen and a sales unit of Fiat Chrysler Automobiles' Chrysler division a combined $46 million. The regulator has denied that it is discriminating against foreign companies.
Last year, China found 12 Japanese parts-makers guilty of price fixing and imposed fines totalling 1.24 billion yuan, the biggest antitrust penalties in the China since new rules came into effect seven years ago.
The story is on the Automotive News Europe and Financial Times websites.

EU: Tighter control of anti-competitive agreements

The European Commission has tightened up on small agreements that restrict competition. For years various iterations of its Notice on agreements of minor importance (referred to by recalcitrant legal Latin-speakers as the de minimis exception) condoned agreements between parties so small as to have, effectively, no market power. Their activities would rarely have an appreciable effect on competition, although the exception never allowed the cardinal sins of price fixing and market sharing, the effect of which is always deemed to be appreciable.

The Notice has to be renewed from time to time, like much competition legislation, because markets evolve over time. The latest Notice (25 June), or more precisely the Guidance that comes with it, gives a free pass to agreements between competitors (actual or potential) whose market share does not exceed 10 per cent, and between non-competitors whose share does not exceed 15 per cent. Nothing new there. How to measure market share remains a bit of a mystery, explained in further guidance from the Commission: franchised dealers will always be considered to have a high market share, because broadly speaking (and of course it is not quite what the block exemption says) they enjoy fairly exclusive rights in their locality.

Importantly, though, the new Notice (and the Guidance) extend the non-exception for hardcore restrictions to cover all restrictions which have the object of restricting competition. It will still avail agreements which have that effect but which were not created with a view to achieving it, a distinction which might be difficult to draw in practice.

This change makes good sense, as focusing only on price fixing and market sharing was always a rather narrow approach. It will still be possible to gain exemption from the prohibition (a different matter from exception), but the Commission does make clear in its guidance that it is very unlikely that an agreement aimed at restricting competition (as opposed to that merely being an ancilliary effect) will qualify for exemption – it is unlikely to produce a benefit for consumers, and will inevitably impose restrictions which are not indispensable to the achievement of its objectives. Businesses which might previously have thought they were safe might have to think again.

The Notice applies only to the application of EU competition rules: but national competition laws form a seamless part of the EU-wide regulation of anticompetitive conduct, and the Guidance is expressly aimed at national competition authorities and courts as well. We have our own, slightly different, de minimis rule in the UK, but it should no longer be relied upon for “restrictions by object”.

Spain: competition authority launches proceedings concerning price-fixing in car market

Following an investigation in July (see this press release), the CNC, Spain's national competition authority, has initiated proceedings against several car manufacturers and their dealers for price-fixing and exchanging commercially sensitive information, and against some others for exchanging information only. Auditors and data processing companies also seem to be in the frame. The press release (in Spanish) is here, and there is also a report from Reuters.

Running the press release through Google Translate reveals little more information, other than a list of vehicle manufacturers and dealers who are under investigation, and that the authorities have 18 months in which to complete the exercise.

Commission brings wire harness cartelists to book

Alex Haffner, of Dentons as the firm is now, spoke at the Motor Law conference this year about the world-wide action being taken against cartels in the car parts industry. In this guest post, he brings us up-to-date with recent developments ...

On 10 July, the European Commission announced that it had imposed fines totalling €141 million on four Japanese car parts suppliers. The fines relate to the operation of five separate price-fixing and bid-rigging cartels for the supply of wire harnesses to Toyota, Honda, Nissan and Renault.

Wire harnesses are the "central nervous system" of a car and transmit electrical power throughout a vehicle. The Commision's investigation, which began with unannounced "dawn raid" inspections of the cartelists in February 2010, found that the companies concerned had coordinated the prices and allocation of supplies of wire harnesses. Contacts between the cartelists took place in both Japan and the EEA. Some of those contacts were designed to rig the tenders carried out by the car manufacturers over a significant period (in the case of Toyota, for more than nine years).

One parts supplier, Sumitomo, received full immunity as it was the first company to confess to its participation in the cartels to the Commission - it otherwise would have received a €291 million fine. The other companies also received reductions in their fines of between 20 and 50 per cent because they too subsequently acknowledged their participation in the cartels and their liability for them. This so-called "settlement procedure" helped to speed up the Commission's investigation significantly.

Somewhat surprisingly, this is the Commission's first cartel decision of 2013. Of greater interest to the automotive industry, though, is that it represents the first of what are likely to be a number of European decisions concerning cartel activity in car parts supply. Investigations are already ongoing into allegations of similar practices in respect of occupant safety systems, ball bearings, thermal systems and lighting.

The Commission's full decision will be published in due course. In the meantime, those affected by the cartelists' actions are likely to be considering how they might be able to obtain damages from them. Last month, the Commission adopted proposals for a Directive which aims to make it easier for such "follow-on" actions to get off the ground in Europe, where take-up has been slow compared to other countries such as the US and Canada. Several follow-on claims have already been launched in those jurisdictions following fining decisions issued by the local competition authorities.

Antitrust: Commission consults on review of safe harbour for minor agreements ("De Minimis" Notice)

The Notice on Agreements of Minor Importance has always been a key document in EU competition law (and EC competition law before it). It defines what agreements (and other arrangements) are too small to be worth bothering with, because they can safely be assumed not to affect competition, or at least not appreciably. Specialised car manufacturers can rely on the Notice to save them from having to comply with the block exemption. Now the Commission is consulting on a new Notice: here's what its press release says.

The European Commission invites comments on a proposal to revise its guidance notice for assessing when minor agreements between companies are not caught by the general prohibition of anticompetitive agreements under EU competition law. The proposal aims at updating the present Notice, in particular taking into account recent developments in the case law of the European Court of Justice (ECJ*). Comments can be submitted until 3 October 2013. In light of these comments, the Commission will then adopt a new notice in
2014.
Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits agreements that are aimed at or result in appreciable restrictions of competition. The current De Minimis Notice (adopted in 2001) defines, with the help of market share thresholds, what the Commission considers not to be an appreciable restriction of competition (see IP/02/13 ). It creates a safe harbour for companies whose market shares do not exceed 10% for agreements between competitors or 15% for agreements between non-competitors. If an agreement contains a hardcore restriction, that is, a very serious restriction for which there is a presumption of anti-competitiveness, the companies cannot benefit from the safe harbour.
The Commission's proposal is aimed at ensuring consistency with other recently amended competition rules, in particular the 2010 Vertical and Horizontal Block Exemption Regulations (see IP/10/445, MEMO/10/138, IP/10/1702, MEMO/10/676) and with an ECJ ruling of December 2012 (case C-226/11 Expedia). 
Questions from a French court in the Expedia case raised the issue of whether agreements aimed at restricting competition (restrictions having an anti-competitive "object") can be considered as "de minimis" and therefore fall outside the scope of Article 101(1). The Expedia judgment has established that a restriction with an anticompetitive object constitutes, by its very nature, an appreciable restriction of competition. The proposal therefore clarifies that agreements containing a restriction by object are always seen as an appreciable restriction of competition.

The consultation documents are available at: http://ec.europa.eu/competition/consultations/2013_de_minimis_notice/index_en.html

* It annoys me when lawyers lazily give the Court of Justice the adjective "European". It annoys me a great deal more when another European Union institution does so. The Court is properly called the Court of Justice of the European Union, but that title refers to the institution which consists of two courts, the General Court (which we used to call the Court of First Instance, which made it a bit easier to understand what it was for) and the Court of Justice - just that, which is utterly confusing but must be respected as best we can. Valentine Korah always used to call the Court of Justice "the Community Court", so I wonder whether she'd now call it the "Union Court"? I shall try to find out.

Dealers cannot be prevented from selling online

My friends at Dreyfus & associés in Paris have blogged about an important decision of the Autorité de la concurrence in a matter involving Bang & Olufsen and their selective distribution network. B&O tried to stop dealers selling online, and were (not very surprisingly) hit with a penalty of €900,000. The blog posting is here: http://blog.dreyfus.fr/2013/02/online-selling-inseparable-from-selective-distribution-bang-olufsen-heavily-penalized/. Do read it! Alternatively, you might prefer http://blog.dreyfus.fr/2013/02/la-vente-en-ligne-indissociable-de-la-distribution-selective-lourde-sanction-pour-bang-olufsen/.

Mercedes-Benz and three dealers to pay £2.6 million for competition law breaches

The OFT announced today that Mercedes-Benz and three of its commercial vehicle dealers, Ciceley, Road Range and Enza, have admitted infringing competition law and agreed to pay fines totalling £2.6 million. Another dealer, Northside, will benefit from the leniency policy that encourages whistle-blowing without which cartels would be difficult to detect. The infringements involve classic cartel activity: market sharing, price coordination and exchange of commercially sensitive information, not necessarily all at the same time. However, there is no mention of criminal charges, which are a possibility where cartels are involved: a Mercedes executive was arrested when the investigation into the cartel was started, but never charged (see earlier post here).

You can read the full press release issued by the OFT here.

Penalties for competition infringements rocket

The Office of Fair Trading has published new guidance on penalties (press release here) under which the amount of a financial penalty for breaching the prohibitions in the Competition Act 1998 goes up from a hefty maximum 10 per cent of "relevant turnover" to 30 per cent. When the Act first came into operation, which to me still seems quite recently, the then Director General of Fair Trading, John Bridgman, told a seminar I attended that the penalties would be "eye-watering". The new maximum sounds as if it would cause blood to flow ... The redeeming feature remains that the penalty has to be proportionate to the seriousness of the breach and the damage it causes, and it is rare for a penalty to come anywhere near the maximum, and then only in flagrant cases of price-fixing, market sharing or predatory pricing.

Commission investigating possible wiring harness cartel

There are investigations going on in several parts of the world (the US and Japan, for two) into cartels in the automotive parts sector. Now the European Commission has opened an investigation into suspected cartels for the supply of wiring harnesses in the European Economic Area. The Commission will, it says, now "treat this case as a matter of priority, without prejudging the outcome of the investigation". The full press release is here.

German authorities put GM and Peugeot under microscope

Reuters reports that the Bundeskartellamt, the German Federal Cartel Office, is going to look more closely at the proposed link-up between GM and Peugeot. It will undertake a Phase II investigation, which can take three months, as the initial investigation did not allow long enough. The Office is particularly concerned about the effect of the alliance on car parts suppliers.

OFT issues statement of objections in CV competition case

Price co-ordination, market sharing and exchange of sensitive commercial information are alleged in a statement of objections issued today by the Office of Fair Trading against Mercedes Benz and five of its dealers. Press release here.

Should the block exemption be less generous to independent spares?

An article from law firm Reed Smith here argues that the way the block exemption deals with independent spares is out of step with the realities of a market in which people hold on to their cars for longer. In particular, because the Commission starts from the (rebuttable) assumption that authorised networks will have more than 30 per cent of the market, because the markets for spares and repairs are brand-specific, the block exemption will never apply. The article calls this "favouritism" towards the independent sector, and argues that manufacturers and their networks need to be able to recoup from the aftermarket what they don't make on the primary market when they sell vehicles.

Twas ever thus, wasn't it? I remember a few years ago hearing Prof Garel Rhys explaining how cross-subsidisation between was never a good idea: vehicle sales, parts sales and maintenance and repair have to stand on their own feet, and that is what the Commission is trying, with the blunt instruments at their disposal, to achieve.

US price-fixing case: Denso executive will plead guilty

Automotive News reports that a Japanese executive with component maker Denso is going to pay a $20,000 fine and do a year and a day in prison for his part in the bid rigging scandal involving heater control panels. The Department of Justice press release is here.

Competition law reforms announced

The Competition Commission and the Office of Fair Trading into a single Competition and Markets Authority will be merged, the government announced last week. The widely-expected changes will, if all goes according to plan, be fully implemented by April 2014, making the competition lawyer's favourite - indeed, only - joke (originally "why is there only one Monopolies Commission?") worth cracking again. The new body's name doesn't quite have the same ring to it, though.

The Government also proposes to amend the existing criminal cartel offence to abolish the requirement that an individual must act "dishonestly" to be guilty of the offence. This requirement is considered to have severely inhibited the successful prosecution of the offence, though on the other hand it does mean that only a very serious case will get to court. Abolition could lead to increased criminal prosecution and convictions of cartelists in the UK, but we are still out on a limb in Europe where other countries have no criminal cartel offences.

No criminal prosecutions for truck cartel (but that's not the end of the story)

Some months ago (in volume 12 number 5, to be precise) we reported that the OFT had launched an investigation into allegations of price-fixing in the truck market, and as part of that exercise an individual had  been arrested. In December the OFT announced that it was not going to charge him:

The OFT commenced a criminal cartel investigation under the Enterprise Act 2002 into suspected cartel activity in the UK involving commercial vehicle manufacturers in September 2010. Following a thorough investigation it has been determined that there is insufficient evidence for any individual to be charged with the cartel offence. Accordingly, that case has been closed. 

The OFT then - ominously? - adds:

The OFT's Competition Act investigation is continuing.

Commission investigates BMW and VW state aid

The European Commission has opened a formal investigation into German aid to BMW and Volkswagen. Here is the press release.

Competition investigations in the parts sector

Antitrust scrutiny of parts-makers is increasing, throughout the world, the Financial Times reports. I mention some of this in the latest Motor Law, which incidentally will be in the post to subscribers in a day or two. The  story in the newsletter mentions investigations being carried out by the European Commission and the US Department of Justice which seem to be focussed on Autoliv and TRW and in particular on safety-related parts.

Of course, the motor industry has always attracted the attention of the competition authorities, which is why it has its own block exemption regulation. The Commission is presently engaged in an investigation into price-fixing in the truck industry, too. This is part of a general picture of increased enforcement activity across the board, and perhaps what is happening in the motor industry is just a proportionate share of that increased activity - but it feels like it's more than that. The FT report says that the US authorities are investigating cartel activity in the auto electronics industry, though the paper says that they declined to comment further: no doubt we will hear more about it in due course. There is also an investigation into suppliers of wiring harnesses (what were called "looms" when and friend and I replaced the one in my Frogeye in 1977), involving the Japanese competition authorities and concentrating on suppliers in that country.

This comes on top of financial penalties imposed by the Commission on members of a cartel of glass makers a couple of years ago. Car makers are pursuing damages against them. That will be an interesting case to follow, as civil claims for damages arising from competition breaches have never lived up to expectations.

The FT has some possible reasons for this increased scrutiny. There has been a great deal of consolidation in the parts market in recent years: Autoliv - hardly a household name - has made 11 acquisitions since 2000, the paper says, and I wouldn't be surprised if there weren't some others small enough to get under the radar. Another merger has just been approved: Commission approves acquisition of ThyssenKrupp Metal Forming by Corporación Gestamp, both suppliers to the automotive sector.The paper also points out that the four glass cartel members controlled 90 per cent of the market - and quotes an industry lawyer saying that it's  much easier to create a cartel when the market is concentrated in the hands of a few suppliers.

On top of all that, government aid to the motor industry during the GFC has attracted the attention of competition authorities, and globalisation of the industry has led the authorities to exchange information with increased urgency. There's also the simple fact that a car remains a big consumer purchase, so any dodgy behaviour in the market is likely to have a big impact on consumers' wallets.

It's timely, therefore, that the Office of Fair Trading has issued new guidance for businesses on how to comply with competition law, including a new film to replace the amazingly hammy one they did to introduce the new (1998) Act - which despite an update to include the cartel offence (the joins were very obvious) was distinctly long in the tooth. Having a compliance programme in place is an essential part of minimising the impact of the competition rules - not only by ensuring that you don't break them, but also by providing an opportunity to minimise penalties if it all goes wrong and you do fall foul of the rules, perhaps through the unauthorised actions of an employee. When I run awareness and compliance training courses (which I would naturally be very pleased to do for you, if the terms are right) I always stress to people that just the disruption to your business if you are investigated is enough to be worth investing a lot in avoiding.

Postscript: Automotive World reports that the Fair Trade Commission in Japan is investigating seven suppliers, including Denso.

Turkey: Competition Board fines car and CV businesses over cartel

Turkey's Competition Board recently concluded its investigations in the Turkish motor vehicles sector and imposed record fines, according to an article on Mondaq (free subscription) by Gönenç Gürkaynak of ELIG, Attorneys-at-Law, who  represented Mercedes-Benz Türk A.Ş.

The Authority launched an investigation against 23 passenger car and light commercial vehicle companies in September 2009, suspecting that a cartel was being operated contrary to the Competition Law. The  undertakings it investigated were suspected of having discussed future pricing policies, stock data, sales targets and sales strategies. 

The Board decided that the investigated undertakings violated Article 4 of the Competition Law (in similar terms to Article 101 of the Treaty on the Functioning of the European Union and Chapter 1 of the UK's Competition Act 1998) and imposed financial penalties on 15 undertakings, totalling approximately 277 million TL. This is by far the largest amount of fine that has ever been imposed by the Board.