Greece: Fiat dealers asked to waive rights

The transition from one block exemption to the next has always been troublesome, although we seem to have got past the technique of terminating the entire network and offering reappointment to some or all of them. However, this time round Fiat Group Automobiles Hellas S.A. (FGAH) seem to have excelled themselves. Determined, it seems, to enter fully into the spirit of the new regulation, which of course contains nothing in the way of dealer protection, they are requiring their dealers to waive any accrued rights that they might have under the old Regulation.

They have sent out a letter of intent, in English as well as in Greek, which requires dealers to waive their rights against FGAH in relation to their existing agreements and the termination of those agreements. On 31 January next year, dealers will be required to declare that they have no claims against Fiat arising from the existing agreements and their termination, and irrevocably to waive any claims they do have.

Greek FIAT dealers are not amused. They consider the importer's and the manufacturer's actions unacceptable. The Greek car market, in common with much of the Greek economy, is in crisis, and dealers fear that FGAH is intending sometime probably next year (hence the date mentioned in the letter) to transfer the import contract to a third party. Waiving claims to protection from termination with that in prospect is not an attractive proposition for the dealers (though for the importer, in anticipation of handing over the franchise, it makes commercial sense to clear the decks).

Moreover, under Greek law I am told that a dealer may very possibly have a claim for a goodwill indemnity on termination based on the commercial agents directive (Directive 86/653 EC) and the Greek law which implements it, Presidential Decree 219/91. Recent Greek Supreme Court judgments (139/2006 and more recently 15/2013 and 16/2013, although I am not convinced that the first of those links is to the right case) indicate that dealers are more likely than not entitled to a goodwill indemnity. The Fiat letter seems to be designed to ensure no such claims will be possible, notwithstanding that Article 19 of the Directive specifies that the parties may not derogate from the indemnity and compensation provisions (Articles 17 and 18) before the contract is terminated. It would also rule out claims for sunk costs.

The commercial agents directive has been mooted by CECRA and the European Distribution Lawyers as an alternative source of protection for dealers, given the removal of their protection in the latest block exemption. But it could never serve such a purpose directly, for the simple reason that dealers are not and never have been commercial agents. At best, the directive could provide a model to be used to create a European equivalent, perhaps, of the dealers day in court acts found throughout the United States. What the Greek Presidential Decree says I do not know, but if it extends commercial-agents-style protection to dealers, it goes beyond what the directive requires, and I cannot see that a EU point involving Article 19 can arise - which is not to say that the Decree itself contains no such provision, just that if it does it's a home-grown Greek thing.

Fiat's action makes the conclusion of the new contract conditional upon the acceptance of unrelated terms and obligations, and takes undue advantage of the situation in which dealers who have significant sunk investments find themselves, especially in a crisis market with no alternatives. Lawyers acting for dealers contend that this approach is illegal under Greek law, so we might find ourselves watching this for quite long time.

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.

Hughes, R. v [2013] UKSC 56 (31 July 2013)

Hughes, R. v [2013] UKSC 56 (31 July 2013)  drives a coach and horses through the offence created by section 3ZB of the Road Traffic Act 1988, of causing death while driving while unlicensed, disqualified or uninsured. The defendant was driving, faultlessly though without insurance and with only a provisional licence (so I imagine that any insurance policy that might have been around was not going to help), along the A69 from Carlisle to Newcastle when a car came towards him on the wrong side of the road and collided with his vehicle. The other driver was under the influence of heroin, which he had apparently taken to overcome the fatigue that had been brought on by working a series of 12-hour night shifts at Largs power station in western Scotland before undertaking a round trip to Newcastle, some 200 miles each way, of which he was about 30 miles into the return leg. He was killed.

Clear enough who was at fault, but what about the the unfortunate driver whose camper van was hit? Section 37B says

A person is guilty of an offence under this section if he causes the death of another person by driving a motor vehicle on a road and, at the time when he is driving, the circumstances are such that he is committing an offence [under various sections dealing with being unlicensed etc].

He was not, you will note, prosecuted for driving without insurance or on only a provisional licence. The Recorder ruled that he had not committed the offence, because he had not caused the death: but the Court of Appeal followed an intervening case, R v Williams [2010] EWCA Crim 2552; [2011] 1 WLR 588, and decided that, in law, Mr Hughes was considered to have caused the death of the other driver.

The Supreme Court observed that a driver may not have insurance because he chose not to pay the premium, because he overlooked a renewal notice, or because he misunderstood the cover that was in place. Various degrees of culpability apply, but section 37B condemns drivers in all three categories equally. Parliament's intention, when inserting the new section (and its neighbour) in 2006, was to fill the gap between the offences of dangerous driving and causing death by dangerous driving - or, looking at it another way, the yawning gap between 2 years and 14 years, the maximum penalties for the two offences. Or, to look at it yet another way, a typical knee-jerk reaction by the government to create new, half-baked offences instead of dealing with the manifest shortcomings of what was already on the statute book.

However, it was plainly not just to punish an uninsured (etc) driver if a suicidal pedestrian were to run out in front of him, or a homicidal driver ram his car. Where, then, should the line be drawn? The offence should not impose a greater penalty than the underlying offence (driving without insurance, etc) where the difference is a matter for which the defendant is not culpable. Professors Sullivan and Simester ([2012] Criminal Law Review 754) described this as a colourable attempt to pass off strict liability as something else: the Supreme Court thought this was a pejorative description, but an accurate one. The Court thought that it must follow from the use of the expression "causes…death…by driving" that section 3ZB requires at least some act or omission in the control of the car, which involves some element of fault, whether amounting to careless or inconsiderate driving or not, and which contributes in some more than minimal way to the death. It is not necessary that such act or omission be the principal cause of the death. The appeal was allowed, and section 37B looks pretty lame.

Volkswagen Aktiengesellschaft v Garcia & Ors [2013] EWHC 1832 (Ch) (25 June 2013)

Car security isn't what it was when I was young. Leaving aside the fact that my old Frogeye didn't even have door locks (although there was a lock on the bonnet, so that might have foiled a thief, who'd have had to be pretty mad to go for a bright orange car in the first place)  let alone an immobiliser, even the locks on cars of that era left a lot to be desired. On a camping holiday with a schoolfriend and his family, he locked the keys to his Cortina GT in the boot, but his father (who ran a Ford dealership, although he himself drove a very exotic BMW 3.0CSi) opened it with the key to his caravan.

Nowadays, although there are still mechanical aspects to vehicle security, it's an area which has a great deal more to do with electronics. It was to protect the algorithm that lies at the heart of the security system it uses (along with several other manufacturers), the Magamos Crytpo chip, that Volkswagen found itself in court last week (Volkswagen Aktiengesellschaft v Garcia & Ors [2013] EWHC 1832 (Ch) (25 June 2013)).

The facts were quite simple. A handful of academics had "attacked" (as they say in the field) that security system, and discovered some flaws. The vehicle manufacturers who stood to be embarrassed by those flaws might, you'd think, be grateful, but the academics proposed to deliver a paper at a conference, and in doing so would reveal the key algorithm to the world. In the name of "responsible disclosure" they had not simply gone ahead and done this: they had talked to the proprietor of the confidential information concerned. But they hadn't talked to VW, not until much nearer the date of the conference (which was last week, hence VW's need to seek an interim injunction).

To do this, the academics used a program called Tango Programmer, produced by an organisation called Scorpio, which is based in Bulgaria, and purchased by the academics for €1,000. There is some discussion in the judgment of how the program was devised, and where its authors found the Megamos Algorithm, which they might have arrived at by "chip-slicing" - cutting open the chip and examining the gates under a microscope. The important question was whether the software was legitimate or not. As the judge observed, "Just because it comes from Bulgaria does not mean it is illegitimate." And the fact that the website (not available when I went looking for it the other day, but back on line now) was written in "broken English" did not persuade him. In fact the website looks plausible, and the products shown on suggest that this is a business of some substance; it appears to be a limited company, and the strangest thing about it is its location bang in the middle of Bulgaria.

There was an issue about VW's right to sue. The algorithm was devised by Thales, who were not initially a party to the action, but the judge added them as a "proper and necessary" party, saying that it was likely within the meaning of Cream Holdings Ltd & Ors v. Banerjee & Ors [2004] UKHL 44 (14 October 2004) that "the confidentiality in the Megamos Crypto algorithm belongs to them", which is an interesting way to express it. This point did not stand in the way of an injunction being granted: Thales had standing to sue, but the judge held that VW did too, as they had a legitimate interest in being a co-claimant.

There is an old Jacob J case, Mars UK Ltd v Teknowledge Ltd [1999] EWHC 226 (Pat) (11 June 1999), [1999] 2 Costs LR 44, [1999] EWHC 226 (Pat), [2000] FSR 138, on reverse engineering, in which he held that it was not a misuse of confidential information to reverse engineer a product you had bought even to obtain information encrypted for security. The present case was argued on the basis that that case had been correctly decided, though that is in dispute, and (of course) it was the claimants' submission that it did not apply because the Scorpio Programmer software was not legitimate. The judge ended up relying on the "murky" origins of the program and the lack of effort on the part of the defendants to ascertain whether it had been produced by legitimate reverse-engineering or otherwise, and on that basis he held that there would be a breach of confidence. Should an injunction be granted to prevent publication? Not merely to save VW's blushes, said Mr Justice Birss, considering Article 10 of the European Convention, section 12(3) of the Human Rights Act, and the Cream Holdings judgment (but not American Cyanamid, which he said was clearly not the right test in the circumstances), which gave the guidance that the standard for not allowing publication is a flexible one, and that the court should be "exceedingly slow" to make interim orders if it is not satisfied that the claimant will probably succeed at trial.

Thales or VW would, he thought, probably succeed at trial, so that hurdle was cleared. Then the balance of public interest and the public interest defence fell to be considered. Freedom of expression and academic freedom were very important, but the epidemic of car crime that would be unleashed if the algorithm were published was more important. The software is sold by someone who understands that it can facilitate crime: there's a disclaimer that says (sic)

All devices and software developed by Scorpio-LK Ltd. are designed and sold with legal purpose to enchance and help people working in the sphere of car repairs and maintenance. The company doesn't take responsibility for any misuse of our products for illegal purpuses. Hence persons misusing our products for illegal purpuses bear their own responsebility for such acts.

And elsewhere:

Scorpio-lk Ltd accepts no responsibility for misuse of software for illegal purposes. The purchased softawre can only be used to repair vehicle immobilisers. On purchase of software client accepts responsibility for software use rendering Scorpio-lk Ltd unaccountable for illegal use.

The English, incidentally, seems no more broken than that of many native speakers. But the judge concluded that the claimants would probably be able to show that the software was not legitimate, and the defendants should have appreciated that.

The judge granted the injunction sought by VW, requiring "redaction" (the trendy alternative to "editing") of the paper they had written. They could still impress their peers by showing that they had derived the algorithm, and the claimants could remedy the problem identified with it: win win. The judge clearly came to the view that the defendants' protestations about "reasonable disclosure"  were nothing more than self-justification, and not the actions of responsible academics - a harsh view, but consistent with their reluctance to take even a few simple steps to ascertain where Scorpio-Lk Ltd had found the algorithm.

The judgment has been criticised by Prof Ross Anderson at Cambridge University, who is quoted in Automotive News Europe. He makes the valid point that the bad guys will not be prevented from doing what they have been doing all along - and the good guys won't know what the problem is. I'm not sure I understand his point: the important thing is that VW and Thales know, and can fix the weakness.

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.

Trading Stadards assumes responsibility for approving Codes

With the OFT being shuffled out of the consumer protection area, responsibility for codes of practice has passed to the Trading Standards institute, whose new Consumer Codes Approval Scheme was launched on 21 June. It takes over the nine approved codes of practice, including of course the biggest (and oldest, and best), Motor Codes.

There's a piece about it on the Guardian's website here, too, and probably many others too.

Commission proposes legislation to facilitate damage claims by victims of antitrust violations

The Commission has adopted a proposal for a directive on compensation for victims of antitrust violations, such as cartels. The press release, and links to further information, is here.