Industrijuristseminaret 2011 Advokat Beret Sundet

1. (i) Why is competition law increasingly more important for Norwegian undertakings? (ii) Competition law and horizontal cooperation agreements Industrijuristseminaret 2011Advokat Beret Sundet #2811053

2. Outline • 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 #2811053

3. (i) Why is competition law increasingly more important for Norwegian undertakings? #2811053

4. 1. Overview 2. How are competition law infringements detected? 3. Sanctions for competition law infringements #2811053

5. 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 #2811053

6. 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 #2811053

7. 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 #2811053

8. Norwegian undertakings sanctioned or investigated by ”foreign” competition authorities (2) • 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 #2811053

9. 1. Overview 2. How are competition law infringements detected? 3. Sanctions for competition law infringements #2811053

10. 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 #2811053

11. Leniency • 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 #2811053

12. 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 % #2811053

13. Case COMP/39258 - Airfreight #2811053

14. 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) #2811053

15. 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 #2811053

16. 1. Competition law overview 2. How are competition law infringements detected? 3. Sanctions for competition law infringements #2811053

17. 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 #2811053

18. 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 #2811053

19. Calculation of fines by DG Comp2006 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 #2811053

20. #2811053 DG Comp: ten highest fines for cartel infringements, per undertaking

21. #2811053 US: Ten highest fines for cartel infringements, per undertaking

22. 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. #2811053

23. Civil damages claims (2) • 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 #2811053

24. 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 #2811053

25. Examples – media coverage #2811053

26. 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) #2811053

27. Other consequences for individuals • Inspections • Interrogations • Witness examinations • Ban from leaving the country • Diciplinary sanctions, including dismissal #2811053

28. Example – former vice-president SAS Cargo #2811053

29. (ii) Competition law and horizontal cooperation agreements #2811053

30. Horizontal cooperation agreements 1. Introduction 2. Information exchange 3. Joint bidding / bid rigging 4. Trade associations 5. Standardisation agreements 6. Purchasing agreements 7. Specialisation agreements 8. R&D agreements 9. Commercialisation agreements #2811053

31. 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 #2811053

32. 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 object or effect the prevention, restriction or distortion of competition • 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. #2811053

33. 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 #2811053

34. 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 #2811053

35. 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 #2811053

36. Horizontal cooperation agreements 1. Introduction 2. Information exchange 3. Joint bidding / bid rigging 4. Trade associations 5. Standardisation agreements 6. Purchasing agreements 7. Specialisation agreements 8. R&D agreements 9. Commercialisation agreements #2811053

37. 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 #2811053

38. 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 #2811053

39. ”Strategic information” • 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 #2811053

40. 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” #2811053

41. Horizontal cooperation agreements 1. Introduction 2. Information exchange 3. Joint bidding / bid rigging 4. Trade associations 5. Standardisation agreements 6. Purchasing agreements 7. Specialisation agreements 8. R&D agreements 9. Commercialisation agreements #2811053

42. Bid rigging • 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 #2811053

43. 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 • 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 #2811053

44. Examples (2) • 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 #2811053

45. Legitimate joint bidding • 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 #2811053

46. 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 subsequent to one of the parties winning a tender may be compatible with competition law (unless subcontract bid rigging) • Subcontracting agreements between actual or potential competitors prior to submitting a tender will likely be considered anti-competitive #2811053

47. Horizontal cooperation agreements 1. Introduction 2. Information exchange 3. Joint bidding / bid rigging 4. Trade associations 5. Standardisation agreements 6. Purchasing agreements 7. Specialisation agreements 8. R&D agreements 9. Commercialisation agreements #2811053

48. 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 #2811053

49. 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 #2811053

50. Horizontal cooperation agreements 1. Introduction 2. Information exchange 3. Joint bidding / bid rigging 4. Trade associations 5. Standardisation agreements 6. Purchasing agreements 7. Specialisation agreements 8. R&D agreements 9. Commercialisation agreements #2811053