Brussels Brief - November 28, 2008
November 28, 2008
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KEY DEVELOPMENTS
Pharmaceuticals – Competition: Commission Dawn Raids Pharmaceutical Companies on Eve of Sector Report
Laura Zadunayski
The European Commission has confirmed that on 24 November 2008, Commission officials started inspections at the premises of a number of pharmaceutical companies in several EU Member States. These inspections, also known as dawn raids, are a preliminary stage in an investigation of suspected anti-competitive practices. It is believed the main focus of these inspections is the suspected use by pharmaceutical companies of tactics such as: (i) using minor product changes to win extra patent life for medicines, a process also known as “strategic patenting” or “evergreening”; and (ii) using litigation to block cheap generic rivals.
According to the Commission, these inspections are not related to the series of investigations initiated in January, or to the ongoing sector competition inquiry, the preliminary report of which is due to be published on 28 November 2008. However, the Commission has acknowledged that information acquired during the sector inquiry has helped it to identify where may action need to be taken.
Energy – Competition: Commission Accepts Commitments in Relation to German Electricity Market
Leigh Smith
On 26 November 2008, the European Commission ended its investigation into the German electricity market by accepting commitments from E.ON, a German electricity company. The investigation was initiated in 2006 as a follow up to its competition inquiry into the energy sector.
The Commission’s investigation, which focused on E.ON’s alleged abuse of its dominant position, resulted in two allegations. First, the Commission argued that E.ON had deliberately not offered for sale power production where it would have been economically rational to do so. Second, E.ON was said to favour its own electricity production affiliate in relation to its operation of the electricity balancing market. The Commission considered both forms of behaviour to have the effect of artificially increasing prices.
Consequently, E.ON has committed to divest approximately 5,000 MW of generation capacity and its transmission system business. The Commission, after consulting interested parties, is satisfied that these commitments are sufficient to allay its competition concerns. The purchasers of these assets are subject to the approval of the Commission.
The significance of the assets E.ON will divest has been hailed as unprecedented by the Commission. 20 per cent of German generation capacity will become available to competitors, with the expectation that consumers will benefit directly from increased choice and a more competitive market.
Food & Beverage – Competition: ECJ Rules Irish Beef Processors’ Agreement Anti-Competitive
Vasilios Bousis
Following a referral from Ireland’s Supreme Court, the European Court of Justice (ECJ) has ruled that an agreement between Irish beef processors to reduce production capacity for beef and veal amounts to a restriction of competition. It is therefore incompatible with EC Treaty rules prohibiting agreements and restrictive business practices.
The Beef Industry Development Society (BIDS) was formed in 2002 by the ten principal processors of beef and veal in Ireland to rationalise the processing industry, following recommendations outlined in government reports. One of BIDS’ aims was to reduce the total capacity of the industry by 25 per cent, after a government market study found that overcapacity could lead to a decline in profitability. To achieve its objective, BIDS formed an arrangement by which certain members were to leave the processing industry, to decommission their processing plants and to respect a two-year non-compete clause. In return, they would be compensated by the remaining members of BIDS.
In its ruling, the ECJ did not expressly exclude that a reduction in overcapacity could result in economies of scale among processors staying in the industry. However, the defendants failed to prove under Article 81(3) of the EC Treaty that these positive effects outweighed the negative effects associated with reductions in capacity. The ECJ ruling is important because it confirms that agreements between competitors to restrict capacity or production represent serious restrictions of competition that very often harm consumers and are therefore serious breaches of the EU competition rules.
Finance – State Aid: Commission Approves State Guarantees for Fortis and Dexia Rescues
Jacques Pieters
In the wake of the global credit crisis, a number of EU Member States found it necessary to take certain aid measures with regard to the banking sector. These measures, some of which had to be decided on and implemented within a very short timeframe, ranged from a temporary State guarantee for some types of deposits, to the partial nationalisation of banks.
It is clear that a number of these support measures risk contravening EU rules on State aid, as the Treaty limits the possibility for such measures to remedy a serious disturbance in the economy of a Member State. To help Member States deal with possible issues arising from these limitations, the European Commission has published a guidance document on aid measures for banks hit by the financial crisis. (See Brussels Brief, 17 October 2008). These guidelines enumerate a number of principles to be followed by a Member State when aiding a troubled bank. The principles focus mainly on: (i) the non-discriminatory nature of support schemes; (ii) the time and scope limitations on aid measures; (iii) sufficient private sector contribution; (iv) anti-abuse measures; and (v) proper follow-up.
On 20 November 2008, in light of these principles, the Commission approved a number of measures taken by Belgium (and other countries) in support of Fortis and Dexia. These measures include a Belgian State guarantee for short and mid-term loans taken out by Fortis Bank and a more extensive State guarantee scheme by Belgium, France and Luxembourg for loans taken out by Dexia.
The Commission has yet to decide on a number of other measures taken by Belgium with regard to Fortis Bank on 6 October 2008, including capital injection and its expedited sale to BNP Paribas.
Transport – Mergers: Commission Approves Acquisition of MAV Cargo by Rail Cargo Austria
Contact Philip Bentley
The European Commission has approved the proposed acquisition of Hungarian company, MAV Cargo, by the Austrian company Rail Cargo Austria (RCA), a subsidiary of the State-owned Austrian railway company OBB. Both companies are active in the provision of rail freight transport and freight forwarding services. The Commission was particularly concerned that the deal would lead to the merger of the two largest competitors for freight services on the Austrian and Hungarian markets. To remedy these concerns, RCA cut its ties with GySEV, a company owned by the Austrian and Hungarian States that operates its own railway and provides railway and freight services in Hungary and Austria. The Commission was satisfied that the commitments provided concerning GySEV would remedy any competition concerns through the creation of an independent player and a competitor to the new entity created by the merger.
NEXT WEEK’S EVENTS
Monday 1 December – Friday 5 December 2008
COUNCIL MEETINGS
Competitiveness Council (1 – 2 December 2008)
Ecofin Council (2 December 2008)
Environment Council (4 – 5 December 2008)
COURT OF JUSTICE
Judgments
Agriculture
C-391/07 Glencore Grain Rotterdam
Citizenship of the Union
C-221/07 Zablocka-Weyhermüller
Environment and consumers
C-317/07 Lahti Energia
Free movement of goods
C-249/07 Commission v Netherlands
Freedom of movement for persons
C-151/07 Chatzithanasis
C-84/07 Commission v Greece
Freedom to provide services
C-330/07 Jobra
Opinions
Competition
Joined Cases C-125/07 P, C-133/07 P, C-135/07 P, C-137/07 P Erste Bank der österreichischen Sparkassen v Commission
Intellectual property
C-59/08 Copad
Social policy
C-537/07 Gómez-Limón
Joined Cases C-378/07, C-379/07, C-380/07 Angelidaki and Others
COURT OF FIRST INSTANCE
Judgments
Intellectual property
T-212/07 Harman International Industries v OHMI - Becker (Barbara Becker)
T-67/07 Ford Motor v OHMI (FUN)
State aid
T-362/05 Nuova Agricast v Commission
T-363/05 Cofra v Commission
