Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Wrapping up the week / Case T-427/08, CEAHR v Commission

with 3 comments

This week was full of news, some of which we didn´t echo here. This is a quick overview of what has happened since Monday:

The European Commission adopted its new guidelines on horizontal agreements and, as anticipated on this blog -aren´t we good at this?  -,  appointed Kai Uwe Kühn as DG COMP´s Chief Economist.

The General Court issued two  important competition-related judgments.  In case T-141/08 the Court upheld the Commission´s decision sanctioning E.ON with a 38 million euro fine for the breach of a seal during a dawn-raid. Of a greater substantive interest  is the Judgment in case T-427/08, discussed below.

On the “Google front”, the Conseil de la Concurrence issued the formal opinion commented here; the Commission took over the investigation of two additional complaints that been lodged before the Bundeskartellamt (which, as stated by the Commission´s spokespeople, won´t change the nature of the ongoing investigation). Unrelated to the investigation, but equally interesting,  is a blog post written by Google´s Deputy General Counsel replying to a call for stricter antitrust scrutiny over Google´s acquisitions.

Gossip column: Nico was  undeservedly promoted to the category of Professor. Also,  it became known yesterday that Damien Geradin, a longtime co-author of his, is leaving Howrey and joining Covington&Burling (and stay tuned: similar news will be coming soon..).

Case T-427/08, CEAHR v Commission

So much for the headlines, let´s move on to a most welcome substantive development from the General Court.

The complaint: The European Confederation for watch repairers associations lodged a complaint before the Commission alleging that watch manufacturers had engaged in agreements and/or concerted practices and/or abused their dominant position by refusing to continue to supply spare parts to independent repairers.

The Commission´s decision rejecting the complaint. Now, guess on what grounds the Commission rejected the complaint… yep: lack of Community interest. The rejection decision arrived at that conclusion noting that (i) the complaint concerned a market of  limited size and economic importance; (ii) there was no evidence suggesting the existence of an infringement, and that it was likely that the selective distribution schemes were covered by the block exemption for vertical agreements; (iii)  it had reached the prima facie conclusion that repair services and spare parts did not constitute independent relevant markets and rather had to be assessed within the wider market for luxury watches; (iv) the allocation of more resources to the investigation wasn´t likely to allow the Commission to identify an infringement; and (v) national authorities and courts are well placed to deal with such complaints.

The Judgment. The judgment starts by emphasizing that the Commission´s discretion in the examination of complaints is not unlimited, and undertakes the review, one by one, of the reasons put forward by the Commission to justifify the alleged lack of community interest. In doing so, the Court provides valuable guidance on various fronts.

(This will be a bit lengthy; if you´re interested, keep on reading)

– Market definition in aftermarket settings

The GC firstly sheds light on the appropriate application of the principles governing market definition to aftermarkets. The Court decided to deal with this issue first, given that its conclusions in this regard were likely to affect its assesment of the rest of the contested decision. In spite of acknowledging that complex economic assessments are subject to limited review, the judgment went on to review extensively the Commission´s statements in relation to market definition. After referring to the ends and means of market definition and to the criteria set out in case law as well as in the Notice on market definition regarding aftermarkets, the Court observed that the said criteria had not been adequately taken into consideration by the Commission. In particular, it noted that the decision had not established that consumers (both new consumers and those who already own a luxury watch) had the possibility to avoid a moderate increase in price increases for spare parts by switching to another primary product (see notably paragraphs 94-96, 102 and 118). The fact that potential purchasers could arguably choose freely between several brands in the primary market was not considered relevant by the Court “unless it is established that that choice is made, among others, on the basis of the competitive conditions on the secondary market” (paragraph 105). In sum, the Court insists on the  criterion that for there to be a distinct secondary market, it must be shown that a price increase in secondary products/services won’t be able to affect the volume of sales in the primary market in such way as to render such increase unprofitable.

The judgment then extracts the consequences of this manifest error of assessment committed by the Commission. To the extent the contested decision was built on the assumption that there was a single market for luxury watches, reparation services and spare parts, its findings on the low probability of the existence of an infringement were also quashed (for instance, the Commission had relied on that market definition when arguing that the 30% threshold in Regulation 2790/99 would be met by the agreements, which could therefore benefit from the block exemption). This  does not mean that the outcome of the Commission´s market definition was necessarily wrong, but rather that the reasoning leading to it was flawed. 

The Commission´s discretion to reject complaints

What appears to me to be the greatest contribution of the judgment is the strict scrutiny of the Commission´s assertion of the lack of Community interest and the clarification of the circumstances under which a complaint shall not be rejected without further examination.

Having stated that the Commission´s main considerations were vitiated by insufficient reasoning, failure to take account of relevant factors and manifest errors of assessment, the Court examined the sole remaining ground, which related to national authorities and courts being well placed to deal with the complaint (which, in a way, is the idea underpinning the, now arguably nuanced, Automec doctrine)

The Court noted that the conduct at stake affected various national markets and that, consequently, “the decision of a single national authority or court could not make good the impairment of competition” (paragraph 155; I view this as totally logical: had a single authority intervened against those practices, the effects of its decision would have surely had spill-over effects affecting all other Member States). In paragraph 174 the GC states that its case law endorsing prior rejections by the Commission under the argument that others were well placed “concerned situations in which the extent of the practices complained of were essentially limited to the territory of a single Member State and proceedings had already been brought before those authorities or courts“. Moreover, it argued that “even if the national authorities and courts are well placed to address the possible infringement (…) that consideration alone is insufficient to support the Commission´s final conclusion that there is no sufficient Community interest“.

The General Court´s test here – which emphasizes  the Commission´s task of safeguarding the proper functioning of the common market-  is to assess whether “action at European Union level could be more effective than various actions at national level” (paragraph 176).  Given that there were reasons to believe that EU action would be more effective in this case, and as a consequence of all the considerations above, the Commission´s decision was annulled by the Court.

As I said, this is a most welcome judgment.  Indeed, whereas previous case law imposed upon the Commission the burden of  “considering attentively all the matters of fact and of law which the appliccant brought to its attention“, the General Court  has, by virtue of its in-depth review,  turned those words -until now a mere formality- into a real, practical, obligation.

Written by Alfonso Lamadrid

17 December 2010 at 8:46 pm

3 Responses

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  1. The exact same case was before Judge Chen in Superior Court, San Francisco USA, but shamelessly settled by the plaintiff’s attorneys.

    Please see the site http://www.andre-fleury.com and check out my last motion, which was denied and the attorney’s conduct.
    It seems that your Court is more aware of the problem of parts availability to watchmakers than our Court.

    For all of us watchmakers operating in the US, this case result is extremely important. Watchmakers can’t work without parts. Over 50 companies here mostly Swiss are restricting the sale of their parts. The US case is now in the hands of the Federal Trade Commission and the International FTC. Hopefully they will act appropriately.
    For all of us watchmakers we need a win and be able to purchase parts, regardless of where the win would be.

    Regards

    Andre Fleury
    Swiss Watch Co

    Andre Fleury

    13 February 2011 at 2:05 am

  2. Dear Alfonso: I have a doubt regarding this Richemont or CEAHR case:
    If I am not mistaken the General Court has effectively ordered the Commission to retake its investigation. However, I´ve learnt that the Spanish Authority is investigating the case (?) In light of your experience with the CNC: how can that be so? Don´t you think this makes very little sense?

    EGD

    3 May 2011 at 11:32 am

    • Dear EGD,

      I´m afraid I cannot be of much help here since I´m directly involved in the case. As much as I´d love to comment on it (believe me, there would be a lot of stuff to comment on) I´d rather wait until more information becomes public. Sorry!

      Alfonso Lamadrid

      3 May 2011 at 11:53 am


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