“Competition whose motive is merely to compete, to drive some other fellow out, never carries very far. The competitor to be feared is one who never bothers about you at all, but goes on making [their] own business better all the time.”
-Henry Ford
We are delighted to present Issue 3 of the Competition Magazine, our annual Year in Review edition. Delving into the complex world of competition law and litigation, this edition navigates the ever-evolving competition landscape, from litigation funding and AI, to cartels and ESG, tackling a broad range of geographies and jurisdictions. This edition boasts articles from leaders in the Competition law and litigation space, providing current and cuttingedge perspective on key issues facing today’s practitioners. This issue represents a culmination of a successful year within the burgeoning TL4 Competition community, and we would like to extend our sincere thanks to our contributors, community partners, and readers. We hope you enjoy the issue.
The ThoughtLeaders4 Competition Team
Paul Barford
Founder/ Managing Director 0203 398 8510
email Paul
Danushka De Alwis Founder/Chief
020 7101 4191
Helen Berwick
Commercial Director Competition
0203 433 2281
email Helen
Chris Leese Founder/Chief Commercial Officer
7101 4151 email Chris
Peter Miles
Head of Event Production & Community Director 020 3481 8843
email Peter
CONTRIBUTORS
Chris Ford, Blackhawk Network
India Fahy, Bryan Cave Leighton Paisner
Edward Coulson, Bryan Cave Leighton Paisner
Jason Alvares, Bryan Cave Leighton Paisner
Cento Veljanovski, Case Associates
Eleanor Leedham, Charles Lyndon
Stephen Littleford, Charles Lyndon
Rebecca Harnby, Charles Lyndon
Tom Davey, Factor Risk Management
Mohsin Patel, Factor Risk Management
Stijn Huijts, Geradin Partners
Sam Williams, Economic Insight
Sophie Bleaney, Economic Insight
Tom Elder, Economic Insight
Sarah Breckenridge, Erso Capital
Sarina Williams, Linklaters
Rachel Pearson, Linklaters
Eleanore Di Claudio, Simmons & Simmons
Rachel McAdams, Sky Discovery
Joseph Moore, Travers Smith
Tim Knight, Travers Smith
Hugh Tait, Woodsford
Jordan Howells, Woodsford
Dr. Tim Reuter, BRG
George Christodoulides, Bryan
Cave Leighton Paisner
Ben Bolderson, Bryan Cave
Leighton Paisner
Pierre Bichet, European Commission
Iñigo Cortina Lira, Hogan Lovells
Mélanie Bruneau, K&L Gates
Antoine de Rohan Chabot, K&L
Gates
Andrew Morrison, Macfarlanes
Dr. Fabian Badtke, Noerr
Dr. Henner Schläfke, Noerr
Helen Griffiths, Fountain Court Chambers
Stefan Nigam, TransPerfect
Diana Martínez, Linklaters
Mario Sáenz, Linklaters
Dr. Miroslava Marinova, University of East London
60-SECONDS WITH: CHRIS FORD SENIOR DIRECTOR, B2B BLACKHAWK NETWORK
Q Imagine you no longer have to work. How would you spend your weekdays?
A As an avid sports fan (particularly golf, rugby and cricket) I would travel the world supporting our international teams. The Lions in New Zealand, England in the West Indies and the Ryder cup in America are a few on my bucket list.
Q What do you see as the most important thing about your job?
A Relationships. I often refer to myself as a Chief Connections Officer, getting the right people talking about the right level of detail to make things happen.
Q What’s the most exciting thing you have done in your career?
A Establishing the Blackhawk Networks (BHN) Payments For Good division. COVID arrived, central government needed support with distributing their Household Support Fund digitally, across the UK. BHN not only created a solution, but also dedicated a team of passionate people that now process millions of e-codes annually, enabling disadvantaged families the ability to buy everyday items like food and clothing.
Q What has been the best piece of advice you have been given in your career?
A Don’t wait for perfection before getting started!
Q What is one important skill that you think everyone should have?
A Emotional Intelligence.
Q What book do you think everyone should read, and why?
A Stephen Covey’s – 7 Habits of Highly Effective People – useful for work situations but also for a range of personal decisionmaking events we all go through in life.
Q Dead or alive, which famous person would you most like to have dinner with, and why?
A Steve Jobs, who was the co-founder, chairman, and CEO of Apple. I’d like to find out what drove him to keep going in the early days, well before the incarnation of the iPhone.
Q What is the best film of all time?
A Snatch – partly due to it being based in my old stomping ground of Bethnal Green.
Q What advice would you give to your younger self?
A Spend more time with the people you love. Work to live rather than always living to work!
Q What is one work related goal you would like to achieve in the next five years?
A To see damages being paid to consumers, across the UK and Europe, using alternative payment solutions. Hopefully far quicker than the next 5 years!
NEXT GEN DISCLOSURE
A LOOK AT RECENT APPROACHES IN THE CAT AND THE ROLE FOR AI TECHNOLOGY
Introduction
In “Better Together: Creative Case Management by the CAT”, Edward Coulson, Lindsay Johnson and India Fahy explored a number of creative approaches to case management that have been adopted by the UK’s specialist Competition Appeal Tribunal (‘CAT’) in seeking to grapple with the explosion of the number of damages actions before it. We explained how case management by the CAT is fast-developing and far from settled in its approach.
As the CAT seeks to grapple with the challenge of resolving multiple cases relating to the same infringement, almost invariably including a flurry of individual claims, as well as collective actions, it has become increasingly apparent that when it comes to disclosure no one size fits all and the CAT is also feeling its way to the correct approach to managing disclosure in complex damages actions.
In this article, we explore a number of different approaches to disclosure
Approaches To Disclosure
Competition damages actions often involve very complex disclosure issues, as a result of factors such as the number of parties and issues involved, the historic nature of the conduct concerned, and the availability of documentary evidence and data. Such cases typically involve extremely
voluminous disclosure and concerns have been expressed by the CAT and by parties on all sides about the disproportionate cost of providing and reviewing disclosure.
It is fair to say that the CAT has seen a need for close case management in such cases and has taken a ‘hands-on’ approach to managing disclosure. In the CAT’s Disclosure Ruling in the ‘First Wave’ of Trucks1, it was explained that the CAT will tailor disclosure orders to what is proportionate in each individual case and disclosure in a damages claim such as Trucks requires close case management by the CAT. The Disclosure Ruling outlined certain broad principles that are applied by the CAT, including for example that disclosure will only be ordered if it is limited to what is reasonably necessary and proportionate bearing in mind a number of aspects of the particular action. It is evident from the evolution of different approaches to disclosure that the courts are willing to explore all options for resolving cases efficiently and reducing the enormous cost of disclosure.
Authored by: India Fahy (Associate), Edward Coulson (Partner) and Jason Alvares (Forensic Technology Senior Manager)Bryan Cave Leighton Paisner
recently adopted by the CAT and how advancements in technology may be leveraged by the CAT to overcome disclosure challenges.
The range of options being explored in competition cases can perhaps be best observed by looking at the differences between the approach of Smith J, President of the CAT, in Genius Sports2 in the High Court, which the President has described as a regime of “overinclusive” disclosure, and the approach currently being trialled in the CAT, which the President has described as “a nondisclosure-based process”.3
iv) Each Receiving Party should be fully informed as to the nature of the electronic review that has been conducted;
v) At the conclusion of each party’s review, there will be a corpus of documents that exclude the unequivocally irrelevant and a further review to filter the documents further on grounds of relevance should not take place;
Genius Sports
In Genius Sports, Smith J ordered a bespoke regime involving an “overinclusive” approach to disclosure of documents between the parties, with only “unequivocally irrelevant and privileged documents” to be excluded from the disclosure exercise, leaving the receiving party to review the documents itself. Smith J made this order on the basis that there was a risk that under a standard approach, relevant documents would be omitted, and on the basis that “massive over-disclosure” “no longer gives rise to the “real risk that the really important documents will get overlooked.. rather, the electronic filtering of documents gives rise to the real risk that really important documents are not looked at by any human agent”4
Smith J’s explanation of the process can be summarised as follows:
i) Each party would identify to the other precisely what documents would be subject to an electronic search and would swear an affidavit identifying custodians, repositories and collections of documents to be searched, together with any date ranges that would be applied to exclude or include material;
ii) In defining the universe of documents to be searched, each Producing Party should err on the side of over-inclusion;
iii) The object of the electronic review is to filter out documents that are irrelevant on the Peruvian Guano test, not to identify relevant documents;
2 [2022] EWHC 2637 (Ch)
vi) In order to identify privileged material, to be excluded from disclosure, Smith J indicated that whilst an “eyeball” review would be best, it’s unlikely to be feasible and accordingly what is likely to be appropriate is an electronic search targeted specifically at the identification of privileged material, which is then reviewed by a human agent.
vii) There should be no filtering on grounds of confidentiality –confidential material must be produced to the Receiving Party. Smith J indicated that confidential material would be protected in a number of ways, beyond CPR 31.22 (the rule applicable in High Court proceedings that prohibits the party receiving disclosure from making collateral use of it5), including, for example, through the use of auditable access to disclosure platforms, with parties obliged to keep a record of who accesses what document and when.
In a recent speech, Smith J reflected on this approach and remarked that:
The point is that whilst everybody trusts an “eyeball” review by a professional and regulated team, no-one trusts the other side’s electronic search processes.
And for good reason: the algorithmic “black boxes” that exist now (AI; concept grouping; etc. – keywords are so passé!) are robust in different ways in terms of the generosity or otherwise of their relevant document production, and the party receiving disclosure is entitled to understand how well the process has worked.”6
In the particular case before him, Smith J concluded that the solution, which “is not a one size solution – and some would say it is not a solution at all”, was the receiving party being permitted to run the process themselves and carry out whatever searches they wish, understanding that excessive costs would not be recoverable.
“Non-disclosure-based process”
Smith J has explained the impetus for what he terms the ‘non-disclosurebased process’ as being that, in competition cases, “what we want is data without the disclosure. Probably collated by experts, from materials held by the parties, but using a nondisclosure-based process”7
Such an approach has recently been adopted in a number of cases before the CAT, including in the Boyle v Govia8 and McLaren v MOL9 collective actions and Smith J has suggested that this approach, which is being trialled in the CAT, could be rolled out more broadly. In both cases, Smith J expressed significant doubt about the efficiency and proportionality of traditional disclosure exercises in collective actions and instead stressed the importance of an expert-led approach, with experts being provided with “data and information, not reams of documents (whether paper or electronic) that must be sifted and analysed and turned into usable data and information”. In such a case, Smith J explained that one party’s expert should articulate the need for data or information, and for that data or information to be produced by the expert on the other side. The CAT recognised that it may be necessary for an ‘audit’ to be called for but, in the first instance, data should be regarded as reliable. Such an approach does not exclude the disclosure of documents but rather shifts the focus to disclosure of data and information, through an expert-led process.
From an order for “massive overdisclosure” in Genius Sports to trialling a “non-disclosure-based process” in the
3 “Procedural Issues Relating to Disclosure, with Particular Reference to the Permanent Adoption of the “Disclosure Pilot”: Speech by Sir
4 [2022] EWHC 2637 (Ch), para 10
5 The equivalent provision in the CAT’s rules is Rule 102.
6 “Procedural Issues Relating to
8 Case No: 1404/7/7/21
9 Case Nos: 1339/7/7/20 and 1528/5/7/22
14 June 2023
Speech by Sir Marcus Smith, 14 June 2023
CAT would seem to be quite a jump but it is apparent that Smith J is prepared to explore a range of options to identify the most efficient approach in a given case. For example, both Boyle v Govia and McLaren v MOL are collective actions, which makes claimant side disclosure particularly challenging and justifies a different approach to disclosure being employed.
The Expanding Role of Technology
The options at both ends of the spectrum raise very significant considerations for parties to competition litigation. In the case of “massive overdisclosure”, parties will be concerned to ensure that, for example, privileged material is protected from disclosure, and in the case of “non-disclosure”, parties will be concerned to ensure that the process of selection and production of the data is transparent and robust.
Technology of course already plays an integral role in disclosure in almost all major litigation before the UK courts but how may developments in artificial intelligence and machinelearning be leveraged to assist the CAT in grappling with the challenges before it and the parties in managing the approaches to disclosure ordered?
Predictive coding, a form of artificial intelligence (‘AI’) tool, emerged in the early 2010s and our firm, BCLP, was successful in the first contested application before the High Court for disclosure to be carried out using predictive coding in 2016.10
In the years since, there has been a rapid acceleration of uptake in the acceptance and use of AI and data
analytics in litigation and significant growth in data volumes and evolution of data types. As we have seen data volumes grow and types evolve, there has also been a spike in the number of bespoke software applications being created to try and tackle challenges faced by parties in litigation, as well as refinement and improvement of current feature-rich tools and algorithms to improve the enrichment and throughput of the results. For example, we have seen the use of Continuous Active Learning (known as CAL) assist in managing the review of extremely voluminous datasets in a defensible manner. CAL is a process of active learning, where key and relevant documents are prioritised by the technology for further review by human agents, with documents that are similar to those that have been coded by human agents as not relevant being de-prioritised.
increasingly reliant on technology and data, might we ever reach a point when it is necessary or desirable for the Tribunal to have, as it often has an expert economist on the panel, a data expert on its panel?
Until recently, when people have referred to the use of AI in disclosure, such references have typically been to the use of tools such as predictive coding and CAL. However, it is inevitable that this is only the beginning. Companies are increasingly storing data in a manner which results in larger, unstructured, datasets. This presents challenges for human agents seeking to conduct cost effective reviews of disclosure, without the assistance of AI tools to sort and interpret the data.
This is particularly so, as Smith J has alluded to, in competition cases where millions of datapoints are used to model overcharges and rates of pass-on, for example.
As the parties grapple with challenges posed by creative disclosure case management approaches ordered by the courts, parties will likely turn to the wide range of technologies for cost-effective and proportionate solutions. For example, a party concerned about protecting privileged information from disclosure under an ‘over-inclusive’ disclosure process will not be reliant on more traditional options, such as keyword searches, and can instead explore options such as pattern recognition and concept grouping to assist with the process. Concept grouping is a very powerful tool when it comes to identifying documents which are likely to either be relevant or not relevant:
At the other end of the spectrum, parties grappling with the challenge of the ‘nondisclosure-based process’ will similarly need to find new ways of ensuring that the data they receive has been robustly selected and produced. In McLaren v MOL11, the President suggested that the parties may wish to consider the use of a “data consultant… Someone – an organisation that is retained by all of the parties to assist in the synthesis of data”, to ensure that data has been properly produced and is reliable.12 As parties, and the courts, become
As the CAT becomes increasingly focused on data, it is inevitable that parties will need to turn to increasingly advanced new forms of AI to increase the efficiency and efficacy of disclosure reviews.
AI already has and will continue to change the way in which parties approach disclosure in complex damages actions and will be an important tool for the CAT in seeking to alleviate costs issues, whilst preserving the integrity of the disclosure process. It is not inconceivable, for example, that cognitive computing evolves to the point at which the CAT may itself ask a form of AI technology a natural language question about what the data shows or what data is most relevant to a particular issue.
As technologies develop, we may see an increased need for data experts and data consultants to assist both the parties and the CAT with adjusting to new ways of approaching disclosure issues.
Initally published with TrialView.
ECONOMISTS IN THE DOCK CAN THEY EVER BE INDEPENDENT?
Authored by: Cento Veljanovski (Managing Partner) - Case Associates
Economists are getting a bad rap in the Competition Appeal Tribunal (CAT). In Royal Mail & BT v DAF1 all the parties’ economists were said to lack independence, gave biased and unreliable evidence, refused to acknowledge legitimate differences, and offered conclusions that favoured ‘the commercial interests of their clients.’
Most of the Tribunal’s ire was directed at the DAF’s economist who was said to ‘lack independence,’ ‘candour’ and ‘curiosity.’
Having admitted that he had not bothered to ask his client why it had participated in a 14-year cartel, nonetheless, saw fit to file a ‘plausibility report’ which claimed that DAF had done nothing wrong. The Tribunal described this evidence as ‘made up,’ not based on any facts on how the cartel worked and took an ‘extreme position’ which was partially reneged under cross-examination. The Tribunal went on to observe:
Perhaps that is an inevitable consequence of the adversarial process, and one should expect a party to have an expert that supported their case. But we consider that there should have been more recognition, on certain issues, of the scope for a range of possible results and of the reasonableness of the other expert’s opinion. As they are aware, the experts’ primary duty is to assist us in understanding the factors behind their differing conclusions, rather than defending the conclusions which favored their respective clients’ positions.
This is disappointing given that an expert is required to comply with the expert witness rules and signs a declaration that he or she owes an overriding duty to the court to provide independent, unbiased, and proportionate opinion evidence. It is also worrying since unlike the High Court the Tribunal usually sits with an economist member able to assess the economic evidence. One would have thought the reputational effects would have given the experts pause to be more open.
It is little comfort that the problem of expert witness bias is not new nor confined to economists or competition litigation. It has been around for over a century in common law jurisdictions. And it is also a concern that despite the reforms following the Ikerian Refer2 and the adoption of the Woolf Report3 recommendations which led to the codification of the expert witness rules in subsequent versions of the CPR354 and increased case management by the courts the ‘unconscious bias’ of expert witnesses persists. The reason is obvious and stated in Royal Mail - it is an ‘inevitable consequence of the adversarial process.’ The expert is retained by one party to the dispute to advance its interests.
It is my experience that economists acting as experts do not set out to be biased. They earnestly apply economics to a real-world problem and give it its best shot. Nonetheless, they are ‘hired guns’ in the sense that they will be selected after they agree that they can assist the client. However, this occurs well before they know all the facts and have completed their analysis. The propinquity to and the one-sided discussions with the client and its lawyers inevitably result in the long-recognised ‘unconscious bias’ of experts as they start looking for supporting evidence and discounting that which is not. And to be clear independence means ‘that the expert would express the same opinion if given the same instructions by an opposing party.’5 The problem is exacerbated by judges who. despairs that the President of the CAT Sir Marcus Smith, do not enforce the rules of evidence – they wave much expert evidence through to be dealt with at trial by giving it less or no weight rather than ruling it inadmissible.6 If judges are not strict about the rules of evidence, you can be sure the parties’ lawyers and experts will not. However, I would question whether strict adherence to the rules of evidence is appropriate in competition cases, but that is for another day.
and the same statistical techniques came to starkly different estimates. The defendant’s expert found zero overcharges: the claimants’ estimated overcharges of between 6.7% and 14.7%; the Tribunal said it was 5% using the ‘broad axe’ principle. This was in the face of the CAT seeking agreement on methodology, the data to be used, and encouraging the economists to resolve differences to avoid what it described as the ‘passing ships in the night’ syndrome. Yet this effort failed – true, the ships did not pass in the night they simply set opposite courses. The experts used different variables and specifications to generate the result that favoured their respective clients.8 So, despite the lofty views of many economists as to the superiority of econometrics, the practice falls far short.
Econometrics has the potential to assist but at the same time, it diverts the focus of the trial and consumes both the litigants and CAT’s resources without generating greater clarity and, more importantly, assisting the Tribunal.
The best the Tribunal could say was that the econometric evidence was ‘not futile’.
Why the econometrics failed
Royal Mail raises many issues but here I will focus on econometric evidence, which is the core of the evidence given by the experts and potentially useful to the CAT. Royal Mail is the second of the only two cartel damage judgments so far which has dismissed the econometric evidence as unreliable.7 What emerged in Royal Mail (and which was occurring in the parallel CAT trucks case of Ryder Dawson v DAF which settled a week after Royal Mail) is that the parties’ experts using the same data, the same statistical package
Elusive solutions
Experts will continue to disagree and exhibit bias. The courts accept this and where possible penalise the miscreants by giving their evidence no weight hoping that this will deter the more overt abuses. Yet the problems in the CAT are getting more complex
and difficult to control. The Tribunal now deals with multiple and multi-party collective actions along the industry’s supply chain extending over decades involving teams of experts focused on the same and different issues such as overcharge, pass-on, mitigation and offsets, volume effects, and so on. Above all this evidence largely deals with hypotheticals – what would have happened to prices in the absence of the cartel.
The CAT is taking a more managerial and interventionist approach to control proceedings. In my view it is going to have the consolidate and limit the expert evidence, the practice of report ‘ping-ponging’; insist on genuine cooperation between experts, require Joint Statements to be short and focused, and make more extensive use of the hot tub.
Declaration: The author was not involved in Royal Mail but was an expert witness in Ryder & Dawson v DAF where he was given leave by the CAT to evaluate the econometric and accounting evidence of the parties on behalf of an affected indirect purchaser.
5 Civil Justice Council, Protocol for the Instruction of Expert to Give Evidence in Civil Claims, June 2005, para 4.3.
6 Sir Marcus Smith, ‘Lawyers come from Mars, and economists come from Venus – Or is it the other way around? Some thoughts on expert economic evidence in competition cases’ 18 Competition Law Journal 1 (2019) 3.
7 BritNed Development Ltd v. ABB AB and ABB Ltd [2018] EWHC 2616 (Ch).
8 See general C. Veljanovski, Cartel Damages – Principles, Measurement and Economics, OUP 2020.
A FRUITFUL OUTCOME
LESSONS FROM GUTMANN V APPLE ON PRE-CERTIFICATION DISCLOSURE
Pre-certification disclosure in collective proceedings
While the Competition Appeal Tribunal (“Tribunal”) has broad powers to order pre-certification disclosure “on any terms it thinks fit1,” and at any stage of the proceedings2, it has typically been reticent to exercise these powers. To date, the issue of pre-certification disclosure has largely been developed in the context of proposed defendants seeking information related to proposed claimants’ funding arrangements, and in particular, insurance premia and excess provisions for solicitors’ fees.3 These applications have been unsuccessful due to “strategic sensitivity”4 in that they would “show a certain insight into the risk that is being attributed to the success or failure of the litigation.”5
The instances in which the Tribunal has made such orders include: disclosure of instructions to third parties; survey
1 The Competition Appeal Tribunal Rules 2015, s. 89.
designs and methodologies; Travelcard agreements between TfL and defendant train operating companies; data regarding Boundary Fares sales on an annual basis;6 and generic information about opt-in class members, such as their sectors, domiciles, and size.7 These were ordered to be disclosed on the basis that they were “helpful” in understanding the issues,8 or important in determining the common issues and suitability of collective proceedings. The limited ways in which pre-certification disclosure has been ordered is understandable in circumstances where the test for certification requires a low evidentiary threshold, and the Tribunal’s Guide to Proceedings states clearly that “the Tribunal does not encourage requests for disclosure as part of the application for a Collective Proceedings Order (“CPO”)9”. This area may be ripe for change, however, as recent decisions in Gutmann v. Apple Inc. and ors10 suggest the circumstances under which pre-certification disclosure may be ordered have expanded.
2 Pursuant to the Tribunal’s general case management powers under s. 53(1) of the Competition Appeal Tribunal Rules 2015.
Gutmann v Apple
Mr Gutmann is the Proposed Class Representative (“PCR”) in proposed opt-out collective proceedings against Apple, and has brought a claim on behalf of 23.8 million UK consumers alleging losses as a result of Apple’s concealment of a throttling feature that was surreptitiously installed on various iPhone models. At a hearing on 2 May 2023, the Tribunal adjourned the question of certification and expressed the provisional view that there appeared
3 See Coll v. Alphabet Inc. & ors, Kent v. Apple Inc. & Apple Distribution International Ltd., and Gutmann v. First MTR South Western Trains Limited & another.
4 Kent v. Apple Inc. Apple Distribution International Ltd., [2021] CAT 37, para 19(2).
5 O’Higgins v. Barclays Bank PLC & ors., transcript dated 6 November 2019, page 19, lines 15-17.
6 Gutmann v. First MTR South Western Trains Limited & another.
7 Commercial and Interregional Card Claims I Limited (“CICC1”) v. Mastercard Incorporated & ors., [2023] CAT 1, para 35-42.
8 Gutmann v. First MTR South Western Trains Limited & another, transcript dated 9 April 2019, page 23, line 30.
9 The Competition Appeal Tribunal Guide to Proceedings 2015, s. 6.28. 10 Gutmann v Apple Inc., Apple Distribution International Limited & Apple
Authored by: Eleanor Leedham (Of Counsel), Stephen Littleford (Associate) and Rebecca Harnby (Intern) - Charles Lyndon
to be a lack of evidential support for the PCR’s pleaded claim, particularly in relation to the technical aspects of the throttling feature and the impact on device performance.
The presiding question of the Chair was whether “there is an evidential basis for supporting the case as currently pleaded11,” leading him to enquire whether “there are documents of narrow compass which would assist [the PCR] to plead, without going to a full disclosure exercise?12”
Having a sufficient, prima facie evidential basis for any claim is essential and, without one, the doors to the Tribunal’s gatekeeper function simply cannot be opened. Pre-certification disclosure allays these evidential concerns and holds the key to make good that which may not be sufficient. The Tribunal’s Order of 25 May 2023 demonstrates this very point: that the PCR “be permitted to make an application for pre-certification disclosure of documents regarding the evidential basis for the proposed claims”13
What followed from Mr Gutmann’s application was one of the most expansive orders for pre-certification disclosure that we have seen to date in collective proceedings in the Tribunal. The Tribunal ordered Apple to disclose documents from four known repositories, and to disclose two identifiable documents sought by the PCR. This disclosure allowed Mr Gutmann to amend his pleadings with more particularity, lend further support to his claim, and succeed in obtaining a provisional collective proceedings order following the re-listed certification hearing in September14. The disclosure did not convince the Tribunal that the throttling feature rendered the iPhones substandard, but it provided enough of an evidential basis to find that Mr Gutmann stands a “reasonable prospect” of showing this at trial, where it is expected that further relevant documents will be available.15
But why did the Tribunal choose sua sponte to invite Mr Gutmann to bring this application and to make such an extraordinary order for pre-certification disclosure? What are the factors in this case that led the Tribunal to take this view, and how might this decision influence future applications?
Why was pre-certification disclosure
ordered?
The Tribunal’s decision to order precertification disclosure appears to be driven by two main factors: (1) the ‘inequality of arms’ between the parties; and (2) the extensive requests for disclosure that had previously been made by the PCR.
The Tribunal recognised during the first certification hearing that the PCR was in a position of having extremely limited access to information and evidence that supported his case. He relied on publicly available data, reports, and regulatory findings from within the UK and abroad to make his case, but what he needed to support the technical claims that came under question from the Tribunal was strictly within Apple’s possession and therefore out of reach. This is what the PCR referred to, and the Tribunal later acknowledged, as the inequality of arms between the parties. The lack of availability of critical information held by Apple created a situation where the PCR was at risk of falling short of the low evidentiary bar at the certification stage, not because the claim lacked merit or a legal basis, but because there was little known publicly about the technical profile of the throttling feature at the centre of the claim. Instead of striking out the claim, the Tribunal saw the value in allowing the PCR to bring a targeted disclosure application to remedy this issue.
11 Transcript of the Adjourned Certification Hearing dated 2 May 2023, page 30 lines 16-17.
12 Ibid, page 30 lines 19-20.
13 Order of the Chair dated 25 May 2023, para 1.
14 Judgment for the Application for a Collective Proceedings Order dated 1 November 2023.
15 Gutmann v. Apple Inc. & ors., [2023] CAT 67, paras 41-42.
The second factor is the fact that the PCR had repeatedly and consistently requested disclosure of documents through correspondence since filing the CPO application. These requests spanned over nearly 18 months and expressly focused on documents or data referred to in regulatory proceedings and Apple’s own witness statement, produced for the purpose of explaining why the throttling feature was introduced and broadly what effect it had.
In other words, the PCR was not going fishing with his previous requests, but rather grounded these requests in facts put forward by regulators or by Apple itself.
The Tribunal took notice of these previous requests which, once identified by the PCR, formed the basis of his disclosure application following the adjourned certification hearing in May 2023. This application was heard by the Tribunal on 28 June 2023, after which it ordered that the relevant technical documents be disclosed into the confidentiality ring in July, where they could be relied upon by the Mr Gutmann at the relisted certification hearing in September.
It remains to be seen whether the Tribunal has now warmed to the idea of pre-certification disclosure and appreciates its value in assisting with its gatekeeper function, or whether this was a unique and distinguishable case that is unlikely to be replicated. What we do know is that future claimants are likely to find themselves with a similar imbalance of information and may draw on the lessons learned from these proceedings to take another bite at the apple.
THE END OF LITIGATION FUNDING?
THE IMPACT OF PACCAR V COMPETITION APPEAL TRIBUNAL
Authored by: Tom
The PACCAR judgment (PACCAR v Competition Appeal Tribunal) has sent shockwaves through the UK legal sector, prompting calls for an urgent review of third-party financing.
The effect of the majority judgment in PACCAR is that Competition Appeal Tribunal (CAT) opt-out claims funded by Litigation Funding Agreements (LFAs), which claim a percentage recovery of the damages, are impermissible.
Indicating quite how game changing this judgment has proved to be, the first dispute to reach the courts since the PACCAR ruling (Therium Litigation
Funding v Bugsby Property) led to a High Court judge granting an asset preservation order on behalf of litigation funder Therium pending arbitration between Therium and property company Bugsby, on the basis that ‘mature consideration and full argument’ was required in light of PACCAR.
Therium had made a claim against Bugsby for its refusal to pay Therium following a successful litigation relating to London’s Olympia Exhibition Centre, after Bugsby maintained that the PACCAR ruling had made its litigation funding agreement with Therium unenforceable.
In light of the PACCAR judgment, one would expect that many opt-out funded claims no longer have a valid funding arrangement. Since the CAT will only permit a collective claim if satisfied that it is appropriately funded, funders and
lawyers will have to try to rescue the position in opt-out claims by engineering a funding agreement which is not a Damages-Based Agreement (DBA). If that is not possible then it is likely that the CAT could not properly certify the claim and it would collapse.
Davey (Director) and Mohsin Patel (Director) - Factor Risk Management
More practically, if a funder is only advancing cash on the assumption that they will get a percentage back, funds will not be provided until funders obtain a legally watertight arrangement in place. This will mean that funders will want to make sure the agreement is either not a DBA, or that it complies with existing regulations.
Such a situation arose in the context of a DBA dispute in Lexlaw v Zuberi, but it does depend on the problem and the solution. If the problem is the LFA does not give reasons for the percentage then severance will not help. If, rather, the percentage is offensive or too high, then severance might work, but it is surely better to amend and reinstate the funding agreement.
The bigger issue might be commercial attractiveness, as often a funder only agrees to fund a claim on the basis that the risk is outweighed by a healthy percentage return and, if that isn’t available, they may be less attracted to the claim.
Where a funder has already committed funds to a case, they should typically seek to agree a sensible alternative pricing structure, but this assumes a willing and agreeable claimant.
Many LFAs allow funders to recoup the costs outlay plus the greater of a fixed multiple or a percentage of damages; both capped at recoveries (to make it non-recourse). Recovering a multiple of the outlay does not naturally seem to be “determined by reference to the amount of the financial benefit obtained” which is how a DBA is defined, yet if the outlay is £250k and the claim only ends up recovering £1m, a liability to pay the funder a multiple of 5 but capped at the damages could fall within this scope. This is due to the fact that the amount paid, the capped £1m, is determined by reference to the amount of the benefit obtained (the £1m damages). That would potentially mean the agreement has to satisfy the DBA regulations, even though it is a multiple based funding agreement.
A DBA is a deal between a funder/ firm and the recipient of those services whereby the recipient makes a payment if they obtain a financial benefit in relation to those services, which is defined by reference to the financial benefit. The recipient is normally seen as the client with the cause of action, however if a funder is paying money
to the firm, and the firm is on a DBA and so receives a qualifying benefit, it seems that the arrangement between the funder and firm might itself be a DBA and therefore will have to satisfy these regulations.
In terms of cases that have now resolved, through settlement or judgment, where claimants received litigation funding under an LFA which would now fall within the definition of a DBA, clearly there is a risk that they may seek to unwind those arrangements to the detriment of the funder.
Indeed, some officeholders may well consider they are duty-bound to attempt to do so. No doubt funders would have strong arguments to make as why a claimant should be stopped from making such a claim, not least that without their funding there would have not been any recovery from which to make payment. The position, however, is certain to be litigated.
The level of consternation expressed since the PACCAR decision suggests that the repercussions of this judgment are widespread and will have significant consequences on how funders approach funding for cases going forward. Whilst many funders are seemingly more relaxed than others and take the view that the decision impacts form over substance, there is no doubt that the PACCAR judgement has been an unwelcome development and adds an element of uncertainty with which the industry could well do without - a backwards step for funders, lawyers and claimants in the UK.
In non-opt-out proceedings, parties might just decide to redraft the LFA so it does comply with the DBA regulations. The regulations are painful, but plenty of lawyers work on a DBA basis and it is hard to see why funders cannot do the same.
60-SECONDS WITH: STIJN HUIJTS PARTNER
Q Imagine you no longer have to work. How would you spend your weekdays?
A The great thing about being part of a boutique firm is that it is exciting to build something new with likeminded lawyers. I’m not sure I would give that up if I no longer had to work. But perhaps I would take a bit more time to go on some cool trips with my family, support charities, and do pro bono work.
Q What do you see as the most important thing about your job?
A Being involved in some of today’s most complex and challenging questions in competition law, like Google Ad Tech, or our work defending a company in European Commission Article 102 case.
Q What’s the strangest, most exciting thing you have done in your career?
A As someone from the Netherlands, it was both strange and exciting to advise the UK government on the consequences of Brexit for the competition regime when I was still at the CMA. Though it strayed into the surreal when I was discussing UK interests with my Flemish counterpart at the European Commission, in Dutch.
Q What has been the best piece of advice you have been given in your career?
A There are various variations on the theme of “don’t assume anything”, the best one being “Vertrauen ist gut, Kontrolle ist besser”, which was some important advice in my early years as a lawyer from a German colleague. As a true competition lawyer, she is a staunch free markets advocate, so she was dismayed to
learn that the German phrase is ascribed to Lenin. Perhaps she should opt for the Reagan version, “Trust, but verify”?
Q What is one important skill that you think everyone should have?
A
The ability to put yourself in someone else’s shoes, whether its your client, a colleague or the other side in a case. A blinkered view is the worst trait in a lawyer in my opinion.
Q What book do you think everyone should read, and why?
A I really enjoyed reading “When we cease to understand the world” by Benjamin Labatut, as it took me way out of my comfort zone (and I’m still not sure I understand all of it). It crosses the border between fiction and non-fiction, trying to explain the mind-boggling world of quantum physics and other scientific inventions.
Q Dead or alive, which famous person would you most like to have dinner with, and why?
A To be honest, I would rather have dinner with good friends, none of whom are famous.
Q What is the best film of all time?
A “La Vita è Bella” holds a special place in my heart.
Q What advice would you give to your younger self?
A Life is too short to drink bad wine.
Q What is the most significant trend in your practice today?
A For most clients, competition law was always mainly a compliance matter. What we see more recently is that it has become front and centre not only within the legal departments of our clients but even in the Boardroom. It has become key in strategic decision making, both in terms of risks and of opportunities, which makes it fascinating to be a competition lawyer today.
Q Do you have any hidden talents?
A I play the drums, but I’m not sure my skills qualify as a hidden talent.
Q What is one work related goal you would like to achieve in the next five years?
A To continue to build our firm into an international boutique for complex competition cases, delivering meaningful results for our clients.
THE EFFECT ON CARTELS OF THE EUROPEAN COMMISSION’S REFORMED FINE GUIDELINES
In June 2006, the European Commission (EC) reformed its 1998 guidelines on the method for imposing fines upon firms that violate antitrust laws; specifically, Articles 81 and 82 of the Treaty.1 The changes provided a clearer framework for the EC to follow when setting fines and also endorsed harsher penalties on firms engaged in cartels. There were three key ways that the 2006 guidelines differed from the previous (1998) ones:
1. The revised guidelines took into account the duration of the infringement; stipulating that fines may be based on up to 30% (depending on the gravity of the infringement) of a firm’s value of commerce (VoC), multiplied by the number of years for which the infringement occurred. Previously, fines could only be up to 10% of a firm’s annual turnover (the duration was not considered).
2. A one-off ‘entry-fee’ (between 15% and 25% of a firm’s VoC) was introduced to further deter illegal behaviour. It is charged irrespective of the duration of the infringement.
3. Repeat offenders were punished more severely, with their fine uplift increasing from 50% to 100% of the initial basic amount, which is comprised of (i) and (ii).
The EC’s motivation for these changes was twofold: (i) to improve transparency of its fine setting; and (ii) to increase the deterrence effect. The EC’s reasoning was that firms who understood the fine setting mechanisms more clearly (and recognised that fines could be more severe) would less likely engage in anticompetitive behaviour.
By reviewing its cartel judgements2 between 2001 and 2022, we evaluate whether the 2006 guideline changes have had their intended effect of deterring companies from engaging in anticompetitive behaviour.
Subsequently, we divided the data into pre-2006 (2001-2006) and post-2006 (2007-2012) periods.
What does economic theory predict the effect would be?
Industrial economics provides a framework to analyse a given firm’s optimal strategy with regards to collusion. Intuitively, the optimal strategy is the one in which the lifetime benefit of colluding exceeds the cost, with the cost simply being the absence of the increased profits from colluding. The theory considers a range of factors, such as: (i) the market structure in which firms operate; (ii) the discounting factor that firms use to value their future cash flows in present terms; and (iii) the frequency of interaction between firms.3 However, it fails to acknowledge the ‘fine cost’ of the illegal behaviour, perhaps due to the complexity and historic inconsistency of fine setting.
1 ‘Competition: Commission revises Guidelines for setting fines in antitrust cases.’ European Commission Press Corner (2006). Available at : https://ec.europa.eu/commission/ presscorner/detail/en/IP_06_857 (Accessed on:1st November 2023)
2 ‘Competition Policy.’ European Commission. Available at: https://competition-policy.ec.europa.eu/cartels/cases_en (Accessed on:1st November 2023)
3 ‘Cartel size and collusive stability with non-capitalistic players.’ Delbona, F.; Lambertini, L; (2014)
Authored by: Sam Williams (Co-Founder, Director & CEO), Sophie Bleaney (Analyst) and Tom Elder (Consultant)Economic Insight
Nonetheless, we anticipate that firms will consider the ‘fine cost’ of a cartel, should the risk of participation materialise.
As such, a firm will determine this cost by evaluating its own cartel with regards to its: (i) severity; (ii) duration; (iii)whether it is a repeated offence; and (iv) whether fellow cartelists have already, or are likely to, ‘whistle blow’ (because cooperation with the EC can lead to leniency benefits). In light of the reformed guidelines, which have ultimately increased this cost across all aforementioned factors, we would expect fewer firms to enter into cartels, assuming the benefits of doing so remain the same, ceteris paribus.
It has also been argued that increasing fines not only deter the formation of cartels, but also changes their characteristics.4 We discuss two mechanisms through which characteristics could change below.
• The number of firms in a cartel. We have investigated this and found that the average number of firms reduced from 4.9 (pre-2006) to 3.7 (post-2006). This either means that: (i) cartels are operating in markets of the same concentration as before, but hold a smaller market share; or (ii) cartels are operating in increasingly concentrated markets, thus fewer firms are required to hold the same market share.
(e.g. no commonality of duration, industry, severity) of cartel charged decades after the fact – but because it is only a small number, it is unlikely to significantly change our results.
In light of the above, our findings should not be over-interpreted. Nonetheless, the available data is consistent with the EC’s 2006 reforms having the intended effect of fewer, and shorter, cartels.
Our findings
As mentioned above, the 2006 guidelines give rise to harsher fines for cartelists, intended to act as a greater deterrent to collusion. We would expect these more punitive fines to coincide with a decline in the number of cartels, all else equal. Our analysis confirms this hypothesis: the graph below shows the number of active cartels per year declining notably in the EC’s jurisdiction, following the change in guidelines.
Figure 1: Number of active cartels pre- and post- 2006 guidelines
Source: Economic Insight Analysis of EC Data
• The size of each cartelist. The EC itself had acknowledged that their former guidelines were “too low for large companies, particularly ones in long-lasting cartels covering a large volume of products”.5 The logic here being that larger, more diverse, companies have significant assets and scope to absorb fines and adapt their operations accordingly (making them somewhat resistant to smaller fines). To determine whether the 2006 guidelines better deterred larger firms from forming cartels, we would need to analyse the market value of cartelised sales over time. Due to data restrictions however, we have not been able to conduct the appropriate analysis to confirm whether this was the case.
Whilst we can make the above inferences from our analysis, it is important to bear in mind other causative factors of cartels - and the present data limitations:
• The post-2006 period has been heavily influenced by the financial crisis. Economic recessions are known to impact cartels; so the findings of our analysis could be conflating the effect of the change to the guidelines with other variables, including macroeconomic factors.
• The data sample is more complete for the pre-2006 period, compared to the post-2006 period. Cartels can only be charged after-the-fact (and, the longer the period of time that has passed, the more likely they are to be discovered and charged). As such, it is possible that a greater proportion of the pre-2006 cartels will be in our data than the post-2006 cartels. There is no consistent pattern on the type
4 ‘Competition: Commission revises Guidelines for setting fines in antitrust cases.’ European Commission Press Corner (2006). Available at : https://ec.europa.eu/commission/ presscorner/detail/en/IP_06_857 (Accessed on:1st November 2023)
5 ‘Fines for breaking EU Competition Law’. European Commission; (2011). Available at: https://competition-policy.ec.europa.eu/system/files/2021-01/factsheet_fines_en.pdf (Accessed on 2nd November 2023
UK COMPETITION APPEALS TRIBUNAL
OVERCOMING THE PROCEDURAL CHALLENGES FOR ALL STAKEHOLDERS
Authored by: Sarah Breckenridge (Investment Manager) - Erso Capital
In his speech to the Cambridge Forum on UK Competition Litigation1 in September 2023, CAT President Sir Marcus Smith ended with what he described as a “cautionary note”:
‘As recent appellate decisions have shown, the collective proceedings regime in this country is still in its infancy, and fragile… For the CAT’s part, we recognise that collective actions give rise to procedural challenges that are orders of magnitude harder than those which arise in “ordinary” bilateral litigation.’
The fragility and the out-of-the ordinary procedural challenges he identified will be familiar to anyone involved in bringing a collective action in the
courts or the CAT in recent years. Long before issue of a claim, significant time, energy, and cost will be spent on project management of procedure, finance, communication, alongside the legal case theory and structure of the class. Caution does need to be exercised for all stakeholders. The effort and sunk cost may be for nothing if the case is ultimately stymied by those “harder” procedural challenges.
It has been suggested that, as a novel jurisdiction, the CAT is one in which “experimentation” with procedure may be unwise2. The converse view is that a novel jurisdiction is precisely where experimentation/innovation should be allowed. Over time its rules and practices are moulded to best fit the requirements of class-led competition actions and to meet the policy objectives of the Tribunal. It may even help inform the development of wider non-competition collective actions in England and Wales. Over the past year, the CAT has grappled with various hard procedural challenges; the decisions made may ease the progress of collective actions in the coming years.
Carriage as a preliminary issue
In the CAT, the risk of a competing claim (especially if both are proposed as opt-out) obtaining the CPO following a carriage dispute is a huge one. In May 2023, in Pollack v Google3 the CAT, cognisant of the need to balance costs control with “ensuring the continued viability of the collective proceedings regime at all”, ordered that carriage should be determined as a preliminary issue, thus leaving only one claim to incur the costs and time of going forward to a certification hearing.
1 The fill speech, on Collective Proceedings and Fungible Contracts is available on COLLECTIVE PROCEEDINGS AND FUNGIBLE CONTRACTS (catribunal.org.uk)
2 O’Higgins FX Class Representative Limited [2020] CAT 9; and 1572/7/7/22 Claudio Pollack v Alphabet Inc. and others; 1582/7/7/23 Charles Arthur v Alphabet Inc. & OthersJudgment (Case Management: Handling of Carriage Disputes) | 26 May 2023 (catribunal.org.uk) at [3] 3 1572/7/7/22 Claudio Pollack v Alphabet Inc. and others; 1582/7/7/23 Charles Arthur v Alphabet Inc. & Others - Judgment (Case Management: Handling of Carriage Disputes) | 26 May 2023 (catribunal.org.uk) at [12]
The Tribunal did not consider that the questions emanating in a carriage hearing would predispose it one way or another for a subsequent certification hearing. That was deemed likely to be the position in the case of most carriage disputes. However, at the hearing in October 2023 the CAT was in fact asked by the Pollack and the Arthur parties to consider an Amalgamation Application -whether, rather than determining carriage, the two claims could be consolidated and brought by a new Proposed Class Representative, Ad Tech Collective Action LLP (of which the two former PCRs are members). The CAT has so ordered. Those who were hoping to see whether carriage can practically be untangled from certification will have been disappointed. The opportunity for a preliminary hearing on carriage is still available, but this is one hard procedural difficulty where all stakeholders have been left waiting to see the theory played out in practice.
Parties preparing for certification will give more attention to the economic theories and methodologies through to trial. This frontloading of expert work (and cost) is desirable to avoid cumbersome procedural difficulties –and risks later on which might be caused by imprecise economic evidence and unmanageable final hearings. The Pro-Sys model may assist the Tribunal in overcoming hard procedural challenges, but it has an obvious financial impact on early stage legal budgets. That additional risk is one which proposed class representatives, lawyers and funders will need to accommodate when considering issuing or supporting new claims.
The challenge for funding
The number of collective actions issued in the CAT demonstrates that funders are willing to support claims in this novel jurisdiction despite its unknowns. Nevertheless, procedural issues surrounding carriage, expert evidence and the ultimate distribution of awards will be material factors in funders’ consideration of whether to support a claim. The more clarity, the better equipped funders will be to identify realistic budgets and make decisions on supporting claims.
The continuing blind spot
Increased emphasis on economic experts
There has been significant emphasis on the role expert economists play in competition infringement collective actions – the idea that competition law “depends for its very identity on economics”4 was one of the foundation stones for the CAT itself.
Accordingly, in 2023 decisions such as Gormsen v Meta Platforms5 and Commercial and Interregional Card Claims6 cases there has been an increased scrutiny – and willingness to reject –the economic evidence prepared for certification on the basis that it must meet the Canadian Pro-Sys “blueprint” test.
Challenges of a magnitude harder than ordinary litigation are inevitable when the CAT is first required to deal with damages awards and distribution of them. Whilst parties may be informed by claims management and distribution practices in other more developed jurisdictions, critical questions are at large: how hands-on will the Tribunal itself be? How might an aggregate award be fairly but efficiently divided across a class? How might findings on harm affect decisions on distribution?
The first settlement (against one defendant) in an opt-out CAT claim7 was reported at the time of writing, and the CAT will be asked to approve it at a hearing at the end of 2023. Will that provide answers? Competition lawyers will be watching with interest but given the claim will continue against the remaining defendants, the Class Representative is proposing that the settlement funds should be held in escrow rather than distributed. It may still be some time yet before we have clarity on the key procedural issues around distribution which so many are asking for.
Funders are in the business of risk but there can only be so much appetite at an individual funder level for cases which can take unexpected (and costly) turns. The resolutions described above will not of themselves reduce the cost for a funder embarking on a case, but they should at least reduce the number of unknowns.
At a time when funders are also grappling with their own procedural challenge – notably the Supreme Court’s judgment8 that funding agreements may be classified as DBAs, which are prohibited for CAT collective actions- more certainty over the procedure of cases on their way to trial can only be a positive.
SLICING THE PIE FAIRLY
THE CAT’S APPROACH TO ESTABLISHING DOWNSTREAM PASS-ON
Judges are no strangers to the perpetual complications with quantification of losses. But with multiple parties competing for a bigger slice of the pie, how can the judiciary ensure that the slices are distributed equitably?
One of 2023’s key contributions to the developing tapestry of pass-on case law was the Competition Appeal Tribunal’s (“CAT”) decision in Trucks.1
The main issues before the CAT were whether the claimants paid an inflated price for trucks because of DAF’s competition infringement and, if so, whether damages should be reduced because the claimants mitigated their losses. One defence that DAF raised was that the claimants passed
the overcharge downstream to their customers (defined as ‘supply passon’ by the Tribunal). The majority in the CAT found that, given the lack of factors creating a proximate causative link between the overcharge and the claimants’ supplies to their customers, much stronger factual causation would be needed to make-out legal causation. No such strong factual causation was made out on the facts. The majority found that DAF had not shown that customers’ prices would have been lower on the balance of probabilities, or that the legal causation test was made out.2
However, the majority paused to consider the possibility of downstream customers as claimants against DAF, and said that it would obviously be preferable for any such claims to be litigated together. Whilst they could not rule out any further claims being brought, and its findings would not be binding on further claimants, it was obvious that any such claimant
would have difficulties in light of the conclusions in the judgment. Since the majority had come to the conclusion that the overcharge had not been passed-on, the majority were also clear that the claimants were not being overcompensated.3
Derek Ridyard, in the minority, decided that causation had been made-out, but it would have been contrary to the principle of effectiveness to set-off the passed-on amount. That ultimately informed his decision that the pass-on should not be offset against the overcharge (because the individual claims would be too small to be viable)4
1 Royal Mail Group Limited v DAF Trucks Limited and Others; BT Group PLC and others v DAF Trucks Limited and Others [2023] CAT 6 (“Trucks”).
2 Trucks, paragraph 688.
3 Trucks, paragraph 688 – 690.
4 Trucks, paragraph 728 – 734.
Authored by: Sarina Williams (Partner) and Rachel Pearson (Associate) - Linklaters
Although the Tribunal members reached their conclusions by different routes, the Tribunal was unanimous in deciding that there should be no reduction from the claimants’ damages for supply pass-on. It was a just and fair outcome that DAF should be liable to pay the claimants the whole overcharge without deduction for supply passon or any other form of mitigation.5
In addition, all members of the Tribunal agreed that supply pass-on should not be a defence available to a defendant such as DAF, in the sense that the issue was actually one of who DAF should pay damages to (not whether it should pay damages at all).6 In his minority judgment, Mr Ridyard had suggested ways that this issue may be resolved in future, which the other judges agreed may be worth exploring.7 Mr Ridyard recognised that “this is a difficulty that is likely to arise in many future cases”, and but that he did “not know how to resolve this dilemma”.8 Options he suggested included making full payment to the claimants, but exploring the possibility of setting aside 75% with a view to making payments to downstream claimants, or requiring claimants to identify a proportion as an offset when presenting projections of their reasonably incurred costs. Ultimately, it is important that there is broad consistency of outcomes between related cases, and that the law reflects the economic reality of the factual situation.
Interchange fees also continue to spin-off decisions in relation to passon, caused by case management headaches with multiple players in the supply chain involved in private litigation. On the one hand, merchants
5 Trucks, paragraph 753 – 754.
6 Trucks, paragraph 754.
7 Trucks, paragraph 754.
8 Trucks, paragraph 734.
9 1517/11/7/22 (UM).
10 1266/7/7/16.
are suing Visa and Mastercard in the Merchant Interchange Fee Umbrella Proceedings,9 whilst in the collective proceedings against Mastercard,10 Mr Merricks represents a class of consumers. The Tribunal is keen to ensure that any losses are not double counted, and that the various claimant parties are claiming from the same ‘cake’. Common sense dictates that “if half the cake is absent, then you ought not to be paying more than 50 per cent”.11
how pass-on should be approached in early 2024. The diverging approaches proposed by the parties is indicative of the complexity of this issue in multiparty proceedings, but the parties and the Tribunal do need to get their skates on, given that the clock is ticking until the substantive trial on pass-on issues in late 2024.
Following the CAT’s decision on 6 July 202212 (which found that, prima facie, demonstrating pass-on by the use of econometric evidence and by relying on existing studies of pass-on rates was the correct approach to adopt), the parties were back in the CAT in May 2023 for the sequel.
Whilst some parties continued to favour the econometric approach, other parties preferred a more traditional sampling approach.
The CAT’s decision of 5 October 202313 asked the parties’ experts to reconvene and determine the areas of agreement and disagreement in relation to proposed methodologies, to be further ventilated at a third case management hearing in relation to
The CAT is increasingly required to engage with the merits of passon methodology at an early stage of proceedings, with cases like McLaren14 shining a light on substantive examination of methodology at the certification stage of proposed collective proceedings. The Court of Appeal indicated that the CAT should have used the “opportunity to lay down early guidance for other cases as to how consumer pass on disputes should be prepared and case managed”, particularly given that “the issues arising in this case are likely to reflect issues arising in other similar cases”15
Absent certainty and a clear common direction of travel from the outset, there is a risk that extensive evidence will be gathered which passes as ships in the night. Whilst parties may be unhappy with their preferred methodology being rejected, the CAT needs to grasp the nettle and provide some guidance as to how these complex issues should be approached, as the alternative uncertainty is far worse. A clear and cohesive methodology (even if it’s not the one you advocate for) is surely the key to slicing the pie fairly.
11 Transcript of hearing on 23 May 2022 in the Merchant Interchange Fee Umbrella Proceedings, ll.14-15, page 126.
12 [2022] CAT 31.
13 [2023] CAT 60.
14 McLaren v MOL (Europe Africa) Ltd [2022] CAT 10, McLaren v MOL (Europe Africa) Ltd [2022] EWCA Civ 1701 (the “McLaren Court of Appeal Decision”).
15 McLaren Court of Appeal Decision, paragraph 52.
OPT-OUT COLLECTIVE PROCEEDINGS HAS THE RED CARPET BEEN ROLLED UP?
In the wave of decisions that immediately followed the Supreme Court’s judgment in Merricks v Mastercard Inc1 the bar for the certification of opt-out collective proceedings appeared to be becoming lower and lower. More recently though, the CAT has demonstrated an increasing willingness to deploy its gatekeeper role and, as a result, we have seen more cases being refused certification or sent away for reconsideration.
Where did certification start, and where are we now?
Early certification decisions – anything goes?
The Merricks2 opt-out collective proceedings were issued in September 2016 on behalf of every UK consumer over 18. The CAT initially refused to certify the proceedings. It found that there was insufficient data available to reach even a “very rough-and-ready approximation” of the loss suffered by each of the approximately 46 million class members. The CAT’s decision was, however, overturned on appeal and the Supreme Court remitted the case back to the CAT, where it was certified. The
Supreme Court emphasised the novelty of the collective actions regime and the fact that it is possible to move away from the strictly compensatory approach to individual damages provided there is an adequate methodology to determine aggregate damages. The Supreme Court also confirmed that there is no merits test beyond a strike out threshold at certification.
What followed was a series of certifications of opt-out proceedings in the face of differing levels of objection from respondents, and shrinking times between issue and certification. The Boundary Fares3 claims were certified as opt-out despite arguments that the allegations were too vague and lacking in particularisation. The Court of Appeal emphasised the importance of the CAT’s “vigilant gatekeeper role” but upheld the certification. Justin Le Patourel v BT4 was certified as opt-out in the face of arguments from BT that as almost every member of the class was contactable it should only be certified as opt-in. In Kent v Apple5 the CAT certified the claims on the day of the CPO hearing. Coll v Alphabet was certified less than a year after it was issued.
to reformulate the claims on an opt-in basis, despite the practical impact of that being that neither of the claims would be able to proceed (one of the reasons previously given by the Court of Appeal in favour of certifying the BT claim as opt-out).
In Gormsen v Meta7 the CAT refused to certify the claim. It found that the PCR’s proposed expert methodology was insufficient, with no clear counterfactual for each of the alleged abuses. Accordingly, there was no effective “blueprint” through to trial. The claim was also better articulated as a consumer claim and not appropriate to certify as proceedings for a breach of competition law. The PCR was given six months to amend her claim and set out a new, and better, blueprint through to trial.
Shortly after that judgment, the CAT declined to certify Mr Gutmann’s claim against Apple 8. Instead, it adjourned the question of certification and invited the PCR to make an application for disclosure to enable him to plead his case with more particularity.
Increasing use of gatekeeper role
Since that initial run of certifications, the CAT’s approach has demonstrated an increasing willingness to exercise its gatekeeper role. The first sign came in the two FX CPO applications6 brought on behalf of all entities who entered into relevant FX trades over the claim period. The claims each sought billions in aggregate damages for losses said to arise out of the FX cartels. The CAT looked in some detail at the methodology and the blueprint to trial and, without a strike out application having been made, considered whether the claim met the strike out threshold. The CAT concluded that it had “no doubt” that both claims could be struck out. However, it did not do so, and instead gave permission for the PCRs
In a similar approach to Gormsen, the CAT also refused to certify four applications for collective proceedings (two opt-in and two opt-out) against Visa and Mastercard and ordered a stay for the PCRs to seek to address the issues with their applications.
The CAT found that the methodology requirements were not met – which it considered a “material and serious defect”.
In addition, the way the opt-out claims had been formulated meant that many potential class members would not be able to determine whether or not they were within the class. The judgment was also one of the first to cast doubt on the appropriateness of the PCRs.
Where is certification now?
After the initial flurry of certifications, the more recent decisions of the CAT could lead to the view that it is now taking a firm approach to its gatekeeper role. However, that the Court of Appeal has now overturned the CAT’s decision in the Evans9 FX claim, ruling that the claim should proceed as opt-out and, following the disclosure and reformulation of his claim, Mr Gutmann’s claim against Apple has also now been certified10
A novel regime like the collective proceedings was always going to be the subject to testing and to be shaped by the CAT and the appeal courts. This apparent back and forth in approaches to certification shows the collective proceedings regime, and the CAT’s role as gatekeeper within it, developing as the number of cases grow and parties increasingly seek to test the bounds of the regime. One noteworthy development is the way in which certification has developed into an iterative process, where claims that are not certified are given the opportunity to be revisited and improved in order to meet the certification bar. No doubt, that trend will continue.
3 Justin Gutmann v First MTR South Western Trains Limited and Another, Justin Gutmann v London & South Eastern Railway Limited
4 1381/7/7/21 Justin Le Patourel v BT Group PLC and British Telecommunications PLC
5 Dr. Racheal Kent v Apple Inc. and Apple Distribution International Ltd
6 1336/7/7/19 Mr Phillip Evans v Barclays Bank PLC and Others and 1329/7/7/19 Michael O’Higgins FX Class Representative Limited v Barclays Bank PLC and Others
7 Dr Liza Lovdahl Gormsen v Meta Platforms, Inc. and Others [2023] CAT 10
8 1468/7/7/22 Mr Justin
DISCLOSURE REVIEW DOCUMENT
BEST FRIEND OR WORST ENEMY?
The simple answer is that the Disclosure Review Document (DRD) can be either. Whether your DRD is a friend or foe largely depends on its contents, specifically, what is (or is not) included in the final document.
This article explores our practical experience one year after the formal adoption of DRDs in the Business and Property Courts of England and Wales. We will discuss some of the areas that have significant impact on cases and how eDisclosure experts can ensure the impact is positive.
The DRD is submitted jointly between all parties engaging in Extended Disclosure, which requires practitioners to cooperate with their counterparts to agree on the disclosure process -addressing themes such as the material issues in the case, potential sources of electronic data, and review methodologies. The aim is to ensure a disclosure process which is proportionate to the matter’s value and complexity.
While the questions posed in the DRD are fundamentally legal, the answers can be informed by the views of eDisclosure experts. Unfortunately, and regularly, this does not happen. The first time eDisclosure experts may see a DRD is long after it has been agreed and submitted to the court. Failure to obtain their assistance earlier in the negotiations can result in missed strategic advantages or, at worst, increased time and costs for lawyers and their clients.
A bit of background
Under Practice Direction 57AD, the DRD sets out the scope of document disclosure in civil litigation. The DRD replaces the disclosure report and Electronic Documents Questionnaire (EDQ) in the Business and Property and Technology and Construction Courts. The EDQ is still encountered in cases brought under the King’s Bench Division (CPR PD 31B) and some other exceptions.
Several other emerging and growing factors will see the importance of a structured and considered approach to DRD formulation grow over time. The most pressing involves the exponential increase in the volume and complexity of data sources within organisations.
Influence of the DRD over your case
The DRD impacts your client’s disclosure and the disclosure from all other parties to the litigation. A DRD completed at the last minute or not properly thought through can result in overlooked vital data sources, potentially resulting in incomplete disclosure. At the other end of the spectrum, it could include too many data sources, resulting in ballooning document volumes that increase the cost of review and hosting.
The DRD can also be used as part of a broader legal strategy. For example, a DRD may be drafted in such a way as to pave the way for a data dump: a tactic commonly used by counsel when their client is a large corporation with significant resources to force a prolonged review process, which may be challenging to fund by a smaller organisation. On the other hand, the DRD can be used to exert pressure on all parties to adopt technology and design more innovative and efficient review methodologies to meet court deadlines.
Engaging an eDisclosure expert early in the negotiation will offer insights to ensure you take advantage of a strategy or a more efficient course of action. It is much easier to implement change during the DRD negotiation than after the DRD has been submitted to the Court as agreed. DRDs can significantly affect the disclosure process’s time, cost, and effort.
Data sources
The DRD requires parties to list the potential data sources relevant to the dispute. The challenge is to ensure the sources listed are proportionate. This involves striking a balance between locating all the relevant documents against the cost of collecting and reviewing those documents.
Backup systems are an excellent example of finding this balance. Often, they are not included as a source due to the high retrieval cost and the potential low value of the documents.
However, that position may change if the dispute is historic or covers a broad timeline. The backup system may be the only source of relevant documents, and the cost of examining the backups must be weighed against the claim’s value. An argument for or against the proportionality of data source inclusion will always be made concerning the case’s specific circumstances. An eDisclosure expert will assist with mapping an organisation’s data systems to understand where relevant data may be stored, asking the right questions of individuals or IT teams to truly understand the data landscape, data storage practices and the cost and time of extracting said data.
The collection of data also needs due attention. Whilst collection may be deemed an “IT exercise”, not all IT professionals have the skills or time to execute data collection to the required standard. Data collection needs to be performed so that, if necessary, the individuals responsible can testify in court about the process they went through. It is also essential to verify with other parties that their approach to data collection will be adequately documented.
For example, critical metadata such as document dates and authors must be preserved during collection. The DRD should confirm these requirements, including any requirements specific to the data types subject to collection.
consider what technology options might be available to parties who need to review large volumes of data but also provide an outline of how the results of those technology-assisted reviews can be appropriately verified.
Keyword searching
There is a strong focus on the use of keywords in most DRDs. When keywords are proposed or search results shared, they should not be unquestioningly accepted but instead analysed to determine their impact and effectiveness. Keywords may be crafted to be overly broad, to emphasise the volume of data to review and invoke the proportionality of reviewing that volume of data, or to influence a trial date. Alternately, keywords may be crafted narrowly to reduce the cost of a review exercise, even when it’s clear those keywords are insufficient to capture all potentially relevant documents.
When revisions are made to keywords due to DRD negotiations, the impact of those revisions should be tested on the data. Several techniques can be used to determine how effective a particular keyword is at identifying relevant material. The outputs from these techniques can be used by parties to support their relevant position and inform negotiations with parties resistant to reformulating keywords.
Review methodologies
The DRD process was adopted to enhance disclosure by encouraging the use of technology to address document review issues. Reviewing large volumes of documents is a time-consuming and expensive exercise. Still, legal teams often need to be made aware of the benefits of using technology to accelerate their review or are unwilling to engage with the technology in favour of a more traditional approach. The DRD requires parties to explain why technology is not used to review documents, significantly when volumes exceed 50,000. Newer technologies are not without risk of error.
Technology such as Continuous Active Learning can help meet challenging disclosure deadlines and trial dates. A well-drafted DRD should not only
It can be the case that a review carried out with Continuous Active Learning may rely on a poorly built and tested computer model, which yields a poor result. The only way for a party to be satisfied that the review was carried out following best practice (at least, before receiving disclosure) is to request statistical information verifying the accuracy of the workflow. The interpretation of the statistical measurements and the parameters of how those measurements should be taken is something an eDisclosure expert can assist with. Importantly, they can also help develop a DRD that places the appropriate validation requirements.
Conclusion
The formulation of a DRD should not be treated as a formality. It can be a strategically important document that can impact the cost and quality of the disclosure process. Practitioners should be using all tools at their disposal to ensure that the impact of the DRD on the matter is positive. One such tool is the insight and assistance that can be provided by an experienced eDisclosure professional. They will be able to assist with an array of DRD considerations, providing the technical insights necessary to develop an accurate, efficient and proportionate process. The corresponding benefit is that the risk of time delays and cost blowouts is minimised drastically.
ARE THE COURTS PASSING ON CATEGORY (III) MITIGATION DEFENCES?
The Supreme Court’s decision in Sainsbury’s ‘Supermarkets Ltd v Mastercard Incorporated’ [2020] UK SC 24 (“Sainsbury’s”) recognised that faced with the imposition of an increased cost, such as that occasioned by an overcharge, a merchant may respond in several different ways. One such response is for the merchant to negotiate with its other suppliers, with a view to reducing its costs, and thereby reducing or negating the impact of the overcharge on its profit margin. We shall refer to this as a “Category (iii) Response”, adopting the enumeration in Sainsbury’s. The Supreme Court in Sainsbury’s recognised that to the extent such a cost reduction was successful, it may reduce the loss the merchant has suffered, as a result of the overcharge. However, subsequent authorities, including the recent decision of the CAT in the Umbrella Interchange Fee Litigation [2023] CAT [60] (“Interchange Fees”), have elucidated the difficulties that confront any
defendant seeking to prove this form of pass-on, particularly in relation to a claim arising from a cartel infringement.
The first difficulty arises at the pleading stage. A defendant must have a proper factual basis for pleading that a claimant offset the increased cost occasioned by an overcharge through negotiating cost reductions with its suppliers. This is inherently difficult, given that a defendant will not have detailed knowledge of a claimant’s cost recovery processes absent disclosure, which in turn will only be ordered on the pleaded issues.
The Court of Appeal stated in ‘NTN Corporation & Ors v Stellantis NV’ [2022] EWCA Civ 16 (“Stellantis”) that the mere fact that the claimants operated a cost control system involving targets was not a sufficient basis for such a plea, because it did not lead to the inferred conclusion that the claimants negotiated better prices from suppliers of other products than they would have done in the competitive counterfactual.
The court suggested that pleading a Category (iii) Response may be difficult in a case arising from a cartel infringement, because a claimant would not know that the price it was paying for the cartelised product was inflated.
Authored by: Joseph Moore (Partner) and Tim Knight (Senior Associate) - Travers Smith
There is also judicial scepticism as to whether a Category (iii) Response would ever be the rational response to an overcharge by a profit maximising firm to an increased input cost - see ‘Royal Mail Group Limited & Anor v DAF Trucks Limited & Ors’ [2023] CAT 6 (“Royal Mail”). The pass-on which the defendants in Royal Mail contended for at trial fell into category (iv) in Sainsbury’s, i.e., an increase in the prices that the claimants charged their downstream customers. However, Derek Ridyard, a prominent economist and member of the Tribunal, addressed in his judgment each of the Sainsbury’s categories. In relation to category (iii), he concluded that the “main thrust of economic thinking on pass-on” did not envisage that a profit maximising firm would react to an increase in input costs by reducing the amount it pays suppliers for unrelated products.
“There is normally no causal link between these elements because a wellrun firm will already have taken steps to ensure it does not incur higher costs than are necessary to make other products. That is not to say that an [Category (iii) Response] can never be the predicted outcome, but it does indicate that a claim of mitigation that relies on such a mechanism is likely to find itself battling against established economic theory on pass-on.”
Mr Ridyard’s conceptualisation of passon, outlined in paragraphs 696 – 701 of his dissenting judgment, was quoted with approval by the CAT in Interchange Fees. Notably, however, the CAT observed that Mr Ridyard’s analysis of category (iii) applied to the operations of a “well run firm”, where there would be no scope for cost savings, irrespective of the price of the cartelised product,
because the firm would already have reduced the amount it paid suppliers to the lowest possible level in order to maximise profits. The CAT noted that firms do not exist in a state of perfect competition, and suggested that it may be “possible for a firm or industry to operate in such a state where cost cuts or effective cost cuts are possible or even causally likely”.
So, where does this leave a defendant to a cartel claim, looking to prove that the claimant passed on any overcharge through negotiating cost reductions with its suppliers? The Court of Appeal in Stellantis recognised that raising a viable defence of this nature might be difficult, but did not accept that its judgment had put defendants in an “impossible” ‘catch 22’, where the requisite evidential underpinning necessary to plead the defence, and thereby obtain disclosure, could never be established. It is, however, difficult to see how a defendant to a cartel claim could muster sufficient factual evidence to establish a prima facie link between an increased cost occasioned by a (hypothetical) overcharge, and a reduction in a claimant’s supplier costs, without receiving disclosure. In Interchange Fees, the CAT tied Mr Ridyard’s scepticism to the operations of a well-run firm and, in so doing, seemed to posit a scenario where a Category (iii) Response might be tenable. But how is a defendant to know, prior to receiving disclosure, whether a particular business is “well run”; for example, how efficient its procurement processes were?
It may be that a Category (iii) Response is easier to argue in defending a claim brought by a public body. Mr Ridyard’s analysis in Royal Mail was predicated on the reaction of a profit maximising firm to an increase in input costs. Many public bodies are not profitmaximising entities; rather, they are
often assessed against more qualitative KPIs. Further, public bodies tend to be scrutinised closely, and documentation on their procurement processes is often publicly available. That may assist in establishing the evidential “hook” necessary to plead a Category (iii)Response. In any event, it seems clear that the pathways for successfully establishing a Category (iii) Response are narrow and difficult to traverse successfully.
REVERSION IN THE CAT
A SETTLEMENT CARROT?
Authored by:
If there is a settlement or an award of damages in a collective proceeding in the Competition Appeal Tribunal (“CAT”) the sum derived from this event must be distributed to the class. But there may be situations where there are undistributed sums after distribution. What should happen to these undistributed sums? Should they “revert”1 back to the defendants, should they be given to another organisation such as a charity, or should something else happen such as class members being “overcompensated”? How the CAT deals with the issue of reversion of undistributed sums to defendants is one of the last great unknowns in the CAT regime. The path set by the CAT on this issue will play a crucial role in directing the litigation and settlement strategies of parties to collective actions.
What are the rules regarding reversion?
Reversion is dealt with in the Competition Act 1998 (“1998 Act”), CAT Rules 2015 (“CAT Rules”) and CAT Guide to Proceedings (“CAT Guide”).
Rules 94(9)(g) and 97(7)(g) of the CAT Rules provide that in the context of the CAT determining whether the terms of a collective settlement are just
1 In this article, we refer to this as “reversion”, but some parties refer to it as “reverter”.
and reasonable, the CAT will take into account “the provisions regarding the disposition of any unclaimed balance of the settlement, but a provision that any unclaimed balance of the settlement amount reverts to the defendants/ parties paying or contributing to the settlement amount shall not of itself be considered unreasonable”. The CAT Guide provides an explanation of these rules at paragraph 6.125: “Reversion to the defendant will not of itself be considered unreasonable, but where a settlement includes provision for reversion, the Tribunal may be concerned to see whether this is conditional upon a threshold of take-up of the settlement fund. For example, a settlement that could result in substantial fees being paid to the lawyers of the class (or settlement) representative and a significant part of
Hugh Tait (Senior Investment Officer) and Jordan Howells (Senior Investment Officer) - Woodsford
the settlement sums being paid back to the defendants, while future claims by class members are barred, is unlikely to be viewed as just and reasonable”.
Law Association. Most organisations that provided responses to the consultation were broadly supportive of reversion in some form.
If there is an award of damages after trial, it is a different story. The 1998 Act and CAT Rules provide that undistributed damages must be paid to charity subject to any order that the class representative’s outstanding costs, fees and disbursements are paid from undistributed damages (i.e. they prohibit the reversion of undistributed damages to defendants after an award of damages).2
Following this consultation, the Government decided that “[a]lthough a number of respondents argued in favour of unclaimed sums reverting to the defendants, the Government remains unconvinced that the party who has been found to be in breach of competition law should be the one to benefit from an unjustified windfall. The Government also acknowledges that many respondents expressed strong opinions against escheat to the Treasury and that this option was supported by only one respondent. The Government does recognise, however, that a defendant who settles should be allowed to do so on a reversion to the defendant basis, as otherwise this could distort the incentives to settle…”3
The provisions dealing with reversion in the 1998 Act, CAT Rules and CAT Guide broadly reflect this decision by the Government – whereby reversion is not available after trial but may be available after settlement.
How has reversion been utilised to date?
Why have the rules been drafted in this way?
The differences in position with reversion after settlement and trial appear to have been drafted with a calculated intention: reversion incentivises settlement in collective actions. But it can also be seen as defendants obtaining a windfall from their unlawful actions that have caused harm to others.
The drafting of the provisions dealing with reversion reflects the consultation in the lead up to them being passed. This included the Government’s consultation on “Private actions in Competition law: A consultation on options for reform” which concluded in 2013. In this consultation, submissions from a wide range of interested parties were received, including the City of London Law Society Competition Law Committee, the Law Society of England and Wales, and the UK Competition
There has, to date, been only one application for a collective settlement approval order (“CSAO”).4 The context of this application is particularly interesting as the claim involves five defendant undertakings, with the class representative alleging the defendants are jointly and severally liable for loss caused by the unlawful cartel which they admitted to being involved in. The class representative and a single settling defendant are jointly making the application. With this context in mind, the joint application is seeking an order that there is a reversion of the undistributed sum from the settling defendant back to the settling defendant on a “first in, last out” basis. This means that the settlement sum paid by the first defendant to settle into the pot of monies available for distribution is the last sum to be paid out to class members as part of the distribution process. This increases the chances that the first settling defendant will benefit under the reversion scheme by receiving some or all of the settlement sum it paid back. This is intended to incentivise defendants to settle and to settle before other defendants do so.
As further applications for CSAOs are made, it will be fascinating to see how creative parties use reversion as an aid to settlement.
Conclusion
How the CAT deals with reversion will have important implications for how cases in the CAT are litigated. There are clear benefits to allowing reversion as it incentivises settlement. However, it may also be seen as allowing defendants to benefit from their unlawful actions. The 1998 Act and CAT Rules have been drafted with an express “stick” by not allowing reversion of undistributed damages after trial, but the CAT does not suffer from the same constraints with how it deals with reversion of undistributed sums after settlement. How it determines to apply this “carrot” will have significant implications for the regime.
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A BLUEPRINT FOR CROSS REGIONAL SETTLEMENT IN CLASS ACTION
Although there have been some recent setbacks in certified Class Action cases across Europe and the UK moving through to the final settlement stages, without doubt the legal profession continues to gather learnings, develop precedence, and create momentum. The same, unfortunately, cannot be said for consumers and their understanding and engagement in Class Actions.
If we agree the goal is to hold big businesses accountable to consumers when damage is caused, and that this accountability manifests itself through making a relevant payment to a selection of validated, harmed individuals: then we should all be thinking carefully about consumers and their understanding and involvement in proceedings.
We are all familiar with the need for book building for Opt-in cases and to build outbound engagement for Opt-out cases,
however, do potential class members (consumers) understand what they are getting into at the outset?
In Sept of 2019 Reuters published the findings from a Federal Trade Commission (US Class Actions) report that stated the median claims rate on Class Actions in the US was 9%.
The weighted mean claims rate, which considers the number of class members who received settlement notifications, was only 4%. These numbers suggested that up to 2019, consumers don’t engage with cases and more importantly, don’t stay in the process long enough to receive their rightful payment.
There are many reasons for low claim rates of course and since 2019, the introduction of sophisticated marketing and advertising initiatives have undoubtedly increased engagement numbers, leading to more settlement payments, but no one should underestimate the challenges of consumer engagement, especially when the duration between involvement and final settlement can be years.
Authored by: Chris Ford (Senior Director, B2B) - Blackhawk Network
Unfortunately, many consumers have been impacted by online fraud and as a result are often reticent to provide any personal details that could create further issues. We are all familiar with notices that are presented in a style that lacks clarity, brand relevance and are open to being mis-interpreted and therefore not engaged with by consumers, especially when they ask for personal details too early in the process. The output becomes less people receiving what is rightfully theirs.
In the context of settlement administration, streamlined communications, using contemporary digital technologies is quickly becoming the norm. Noticing has transitioned from mail and newspapers to social media algorithms targeting the feeds of affected consumers, direct messaging, and interactive websites. Payments to consumers have now morphed into the digital landscape, using consumerfriendly options such as virtual prepaid cards, e-codes, popular ecommerce hubs, and c2c payment platforms.
Creating a Blueprint for Class Action processing across the UK & Europe:
• Competition Appeals Tribunal (CAT) in the UK and it’s EU equivalent (Representative Actions Directive) are aligned on applicability across jurisdictions, using the very best precedence in active cases, in an open fashion to speed legal process along.
Of course, as the cost-ofliving crisis continues, consumers are now highly likely to be looking for an opportunity to increase their household budget.
Engaging with wellpresented Class Actions is a great opportunity to do just that.
However, due to the length of time these cases can take to conclude, and with no updated information on the case process during the proceedings, don’t be surprised if consumers drop out: especially if they are asked for personal banking details to receive a settlement payment.
Consumers that have been damaged by the behavior of large businesses should not be presented with barriers to retrieve their benefit. In today’s technologically advanced world of digitised alternative payments, there is no need to enter personal banking information. Consumers can simply provide their name, email address and a mobile phone number at a relevant point in the claim process and they will receive their settlement. Even more important, as we focus time and attention on financial inclusion, enabling the unbanked or underbanked to receive the same benefit should continue to be front of mind. Location, currency, or a consumers position in society is now significantly less relevant and challenging.
Imagine a world where consumers were aware and completely engaged with their rights to receive a portion of the settlement proceeds when business and organisations do wrong. A world where they were clearly communicated to, have line of sight on a simple process and can actively engage through the lifecycle of their case. Where the legal systems (across jurisdictions) were aligned and actively connecting consumers to settlements, through court proceedings and into value disbursement at pace.
• Consumers are completely aware and engaged across regions in their rights to participate as a class member and actively look for settlement opportunities.
• The entire communication sequence end to end is brilliantly managed including regular updates on legal process and timings to class members to maintain engagement and involvement.
• Data curation and validation is simplified without the need for detailed personal information, thus reducing the risks of fraud and security concerns. Consumers never need to provide personal banking data to receive what is rightfully theirs.
• Funds are disbursed instantly, digitally across regions and in multiple currencies where relevant. Alternative payment options, such as virtual prepaid cards, become the regular option for consumers to receive their settlement.
A raft of benefits would ensue:
1. More consumers would actively engage with class action cases and stay for the duration, receiving their settlement payments without concern over their personal data.
2. Reduction in overall processing costs, meaning more value goes to class members.
3. Significant speed and efficiency improvements with moving funds to harmed consumers.
4. Payments of any size become viable as many of the traditional banking charges are not present when issuing a virtual prepaid card across the UK & Europe.
5. Full transparency, from class member data collection through to processing payments.
6. A dramatic reduction in fraud issues by utilising automated Know Your Customer and Anti-Money Laundering checks for each recipient.
Through collaboration, across all the stages of Class Action – legal preparation, class certification, notice to class members including opt-out or opt-in options, judgement and verdict, settlement reached/approved and payment distribution - the industry already has the foundations to create a blueprint that turns consumer rights into cross regional settlement that ultimately gets more money into the hands of real people who have been harmed.
BOOKING / eTRAVELI UNPACKING ECOSYSTEM THEORIES OF HARM
Authored by: Dr. Tim Reuter (Director) - BRG
On 25 September 2023, the European Commission blocked the acquisition of eTraveli by Booking, citing concerns that “the transaction would have it made it more difficult for competitors to contest Booking’s position in the hotel OTA [online travel agency] market”. Specifically, by acquiring a flight OTA, Booking would have “expand[ed] its travel services ecosystem”, which would have led to “the cross-selling of accommodation”. Ultimately, the transaction would have strengthened “Booking’s dominant position” and resulted “in higher cost for hotels and, possibly, consumers”.1
The scrutiny surrounding mergers in the digital economy has grown significantly in recent times. However, the prohibition of Booking/eTraveli is particularly noteworthy due to its entirely novel theory of harm. Importantly, the theory of harm diverges from the concerns outlined in the Non-Horizontal Merger Guidelines and poses the risk of
constituting an efficiency offense, if it not carefully applied.
Ecosystem theories of harm not covered by Non-Horizontal
Merger Guidelines
It should first be recognised that the proposed transaction was conglomerate in nature: Booking primarily acts as an intermediary between accommodation providers and customers seeking
accommodation, while eTraveli operates as an intermediary between airlines and travelers booking flights. The parties are hence not active on the same market (under any reasonable market definition), and the service of either one of the parties does not serve as a necessary input for the service provided by the other.
Under the Non-Horizontal Merger Guidelines, the candidate theory of harm in such a transaction would be foreclosure through bundling or tying.
As the Guidelines state:
“The combination of products in related markets may confer […] the ability and incentive to leverage a strong position from one market to another by means of tying and bundling.”
In the case of Booking/eTraveli, pursuing such a theory of harm would imply arguing that Booking would, post-merger, bundle (or tie) its activities as both a hotel and flight OTA, in a way that would make it difficult for competitors, who operate solely in one of these markets, to compete. This could allow Booking to leverage its strong position as a hotel OTA, and thereby to gain market power in the flight OTA market.
However, the theory of harm pursued by the European Commission is very different. Instead of asserting that Booking would leverage its strong position as hotel OTA to gain market power in the flight OTA market, the concern goes the other way: By adding eTraveli’s flight OTA business to its ecosystem, Booking would become an even stronger hotel OTA, which would, without any reliance on bundling, reduce the ability of rival hotel OTAs to compete.
Demonstrating that adding a module can genuinely strengthen an ecosystem in a wholly different area is, however, not straightforward. For instance, the CMA, even though exploring an ecosystem theory of harm as well, rejected the notion that there would be significant cross-selling potential, and hence cleared the transaction.2 Future enforcement activity will likely work out various channels, how the strengthening of ecosystems on specific markets can be substantiated.
Second, showing that an ecosystem is strengthened is not, from an economic standpoint, sufficient to establish a compelling theory of harm. Stopping at this point would essentially amount to an efficiency offense. At this stage, it has been shown that Booking might strengthen its position as a hotel OTA through the acquisition, which may well be detrimental to Booking’s hotel OTA competitors. However, this does not necessarily imply harm to competition and consumers. On the contrary, the standard economic expectation is that consumers benefit from a market participant strengthening its position, because this may lead to lower prices or because consumers find it convenient to book both flights and accommodation on the same platform (as the European Commission implicitly acknowledges, when referring to consumer inertia travel booking).
Making sense of ecosystem theories of harms
The emergence of a completely new theory of harm, unrelated to the mechanisms detailed in the Guidelines, raises the question when and how such theories of harm make sense. From an economic perspective, two conditions must be met:
First, the transaction needs to strengthen the ecosystem of the merged entity, e.g. by adding a new “module” to the ecosystem. The central question here is how adding a further module (e.g. flight booking) would confer a competitive advantage on the merged entity, in a specific market that is not directly related to the new module (e.g. hotel booking).
In Booking/eTraveli, the European Commission argued that Booking would have benefitted from consumer inertia when customers book travel services, that is, operating a flight OTA would lead to the cross-selling of accommodation.
2 CMA decision in Booking/eTraveli, para.125.
For ecosystem mergers to be detrimental to competition and consumers, a second condition must be met. This condition involves demonstrating that the transaction not only makes rivals less competitive relative to the merged entity but also in an absolute sense. Only if this is the case, and if the impact of less efficient rivals (in absolute terms) outweighs the impact of the merged entity being more efficient, would the transaction result in consumer harm.
This presents another challenge in ecosystem theories of harm, as it is economically unclear how one market participant becoming a stronger player weakens rivals in an absolute sense. The European Commission seems to touch upon this condition by arguing that “the transaction would have reinforced network effects
and increased barriers to entry and expansion, making it harder for competing OTAs to develop a customer base capable of supporting a hotel OTA business. OTAs currently on a path to become fully-fledged competitors may not be able to do so if the transaction goes ahead.”3
In essence, the European Commission suggests that, possibly due to network effects, a minimum scale is necessary for hotel OTAs to be a credible competitor to Booking. By converting customers who book flights into customers who book accommodations within Booking’s own ecosystem, such customers would no longer be available for competing hotel OTAs. Given the asserted minimum scale necessary to operate as a hotel OTA, Booking’s rivals would be less able to compete with Booking, also in absolute terms.
To be fair to the European Commission, it seems to have investigated both conditions in the Booking/eTraveli case. However, judging on the basis of the press release only, for both conditions it remains unclear whether the available evidence is sufficient: First, as mentioned, the CMA came to a different conclusion than the European Commission whether Booking’s hotel OTA business would be strengthened by adding eTraveli’s flight OTA. Second, and perhaps even more problematic, the argument of the European Commission, that rival hotel OTAs cannot achieve minimum scale when Booking converts eTraveli’s flight OTA customers to its own hotel OTA seems not very convincing. Rival hotel OTAs may be available to still gain customers from other flight OTAs, some of which are bigger than eTraveli, or from completely different sources.
Conclusion
Ecosystem theories of harm are, from an economic point of view, not per se wrong. However, establishing the necessary facts in practical cases will prove challenging. We have, at this point, at best a vague understanding how adding a further module to an existing ecosystem can strengthen the ecosystem provider on a specific market. Similar, it is usually not obvious how strengthening the merged entity on a specific market would make rivals less competitive, in an absolute sense.
Despite the difficulty of demonstrating that the conditions for a compelling ecosystem theory of harm are met, it would not be advisable to introduce presumptions that the conditions are generally met in such mergers. This would amount to a per se prohibition of mergers involving ecosystems, or at least to a reversal of the burden of proof, and would risk that procompetitive gains of conglomerate mergers are not realised. Consumers may hence not be able to benefit from lower prices or better services.
It seems likely, however, that ecosystem theories of harm will continue gaining traction in enforcement practice. Even before the Booking/eTraveli decision, the German Bundeskartellamt mentioned a similar theory in Meta/ Kustomer, even if ultimately not delving deep into the theory. Several policy documents reference ecosystem theories of harm, starting from the Crémer et al report4 on the digital economy in 2019, to the US draft merger guidelines of 2023.5 It is hence likely that we will witness a wave of further ecosystem theory of harm cases, at least until the European courts rule on Booking’s appeal against the prohibition decision.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC or its other employees and affiliates.
3 European Commission press release, available at https://ec.europa.eu/commission/presscorner/detail/en/ip_23_4573.
4 Cremer, Jacques; de Montjoye, Aves-Alexandra; Schweitzer, Heike: „Competition policy for the digital era”, page 112 available at https://ec.europa.eu/competition/publications/ reports/kd0419345enn.pdf.
5 US Draft Merger Guidelines 2023 page 19, available at https://www.justice.gov/d9/2023-07/2023-draft-merger-guidelines_0.pdf.
FORMALISM ON THE CHOPPING BOCK
THE ECJ’S JUDGMENT IN SUPER BOCK
In 2019, Portugal’s competition authority (the Autoridade da Concorrência) fined Super Bock Bebidas, a leading brewer in Portugal that manufactures and markets (primarily) beer and bottled water, €24 million for including RPM clauses within its agreements with its downstream distributors. These agreements acted to fix the prices at which Super Bock’s distributors sold Super Bock’s products, to customers such as hotels, bars and restaurants. According to the Portuguese authority, these agreements constituted ‘by object’ infringements of Article 101.
businesses “which may affect trade between member states and which have as their object or effect the prevention restriction or distortion of competition” are prohibited. Case law has established that when assessing whether an agreement is compliant with Article 101, it is necessary to first consider the object of the agreement. Should the agreement be restrictive by object, there is no need to assess the agreement’s effects, as restrictions by object are those agreements which reveal a sufficient harm to competition in themselves without reference to their effects. Should the agreement not be restrictive by object, then an effects analysis is necessary for a finding of infringement under Article 101.
Following a serious of appeals at the national level, a request to the ECJ for a preliminary ruling was made. The questions (broadly) put to the ECJ were:
1. Whether the concept of ‘restriction of competition by object’ is capable of covering a vertical RPM agreement.
2. The meaning of the concept of ‘agreement’ where RPM is imposed by a supplier on its distributors.
3. Whether the concept of ‘effect on trade between Member States’ in Article 101 TFEU may include the consequences of a distribution agreement which affects, solely, almost the entirety of the territory of one Member State.
A restriction of competition ‘by object’ is a key classification of anti-competitive behaviour contrary to Article 101 TFEU, which outlines that agreements between
Object infringements therefore, such as the RPM infringement found against Super Bock, usually pertain to the most serious infringements of competition law.
In this article we outline the ECJ’s conclusions in respect of questions (2)and (3), before then analysing in more detail the ECJ’s response to question (1).
Authored by: George Christodoulides (Associate) and Ben Bolderson (Associate) - Bryan Cave Leighton Paisner
Judgment
A Matter of Definition: The Meaning of ‘Agreement’ and ‘Effect on Trade Between Member States’
In relation to question (2), the ECJ reiterated the established case law regarding the meaning of an ‘agreement’ under Article 101 (such as C 306/20 (Visma Enterprise)). It requires a “concurrence of wills”, rather than a purely unilateral policy. This concurrence is potentially evidenced by the terms of the agreement at issue, including, in relation to RPM whether: the distribution contract contains an express invitation to comply with minimum prices or a right for the supplier to impose the same, the parties’ conduct, and any explicit or tacit ‘acquiescence’ of the downstream party to comply with a minimum resale price.
In relation to question (3), the ECJ restated the recognised position that national restrictions can be capable of effecting trade between member states, for example in instances where national restrictions can reinforce the partitioning of markets on a national basis, and even in some instances where national restrictions cover only part of the national territory. The ECJ reiterated that the answer as to whether an agreement is capable of affecting trade between member states is for the referring court to determine by reference to the agreement’s economic and legal context.
The ECJ’s response to both of these questions is nothing out of the ordinary. In relation to question (2) however it is unfortunate that the ECJ did not elaborate on the concept of ‘acquiescence’, as there is little guidance on how extensive this concept is. The significance of this is that it bears on whether RPM can be categorised as an ‘agreement’ under Article 101 TFEU (as in Super Bock) or as an abuse of a dominant position under Article 102 TFEU. Both concepts have very different frameworks for businesses; a company can breach
Article 101 with an agreement with its downstream distributors, but lack the dominance in its markets to breach Article 102.
Further clarification for businesses on the circumstances where a downstream distributor ‘acquiesces’ to RPM (as per Article 101) or has RPM unilaterally imposed on them (Article 102) would be welcome in order for businesses to adequately manage their compliance risk.
Vertical RPM and ‘By Object’ Infringements
The ECJ’s judgment makes clear that the essential legal criterion for assessing whether an agreement is restrictive of competition by object, whether horizontal or vertical, involves an analysis as to whether the agreement in itself presents a “sufficient degree of harm” to competition. To determine this, the ECJ reiterated that regard must be had to the content of the agreement’s provisions, objectives, and its legal and economic context. When determining that context, the ECJ reiterated that it is necessary to take into account the nature of goods and services affected, as well as the actual conditions of the functioning and structure of the market(s) in question. In relation to RPM, the assessment of the legal context must account for RPM constituting a hardcore restriction under the Vertical Block Exemption Regulation (VBER). However, this is only part of the context and does not exempt a competition authority from conducting an analysis of whether the agreement is sufficiently harmful to constitute an object restriction.
In relation to the assessment of pro-competitive effects, the ECJ reiterated that these effects must be analysed in relation to the context of the agreement, and provided the effects are demonstrated, relevant, and intrinsic to the agreement concerned and sufficiently significant, may provide reasonable doubt as to whether the agreement is sufficiently harmful to competition to constitute an object restriction.
Implications
Implications for Authorities
In many ways the judgment is as expected. The framework for assessing whether an agreement is restrictive by object by reference to the agreement’s legal and economic context is well established in EU case law (e.g. Case C-67/13 P Cartes Bancaires, C 307/18 Paroxetine). It is important to remember though that notwithstanding this general framework, the ‘official’ approach to assessing RPM as an object restriction was formalistic – insofar as the mere presence of RPM within an agreement was sufficient for the agreement to be restrictive by object without reference to any other factors. Super Bock is a reminder that a regulator cannot rely on an agreement being restrictive by object without an assessment of the agreement’s legal and economic context; formalism by reference to Article 101 has been laid to rest.
It is important to be clear, however, that the judgment does not open the door for an effects analysis in assessing whether an agreement is restrictive by object. The work involved in assessing the legal and economic context of an agreement is not equivalent to the work needed to assess the effects of an agreement. Furthermore, insofar as pro-competitive effects are outlined, these assess whether the agreement is sufficiently harmful in itself to be an object restriction such that its effects do not need to be analysed. Should the agreement not be sufficiently harmful in itself to constitute an object restriction, it will then be assessed by reference to its effects.
In relation to hardcore restrictions, Super Bock is an apt reminder that, although the European Commission (“Commission”) has previously outlined that hardcore restrictions are ‘generally’ restrictive by object, this is not conclusive, and regulators may only view a restriction being hardcore as an element of the legal context of the restriction.
Super Bock has therefore equalised the Commission’s burden with regards to the assessment of RPM as an object restriction and the assessment of other object restrictions under Article 101 TFEU. Whether Super Bock changes the prioritisation principles of the Commission and other national authorities in deciding whether to pursue an RPM case remains to be seen. In addition, it is unclear whether the UK Competition and Markets Authority and UK courts will follow suit with the approach of the ECJ (although a significant divergence is unlikely).
To expand on (ii), the ECJ’s approach may provide more comfort to businesses in their risk assessment of RPM; in that businesses now have the opportunity to advance pro-competitive efficiencies to resist an object classification of their RPM agreements. For example, certain RPM practices can have pro-competitive efficiencies and legitimate objectives, such as agreeing fixed pricing with downstream distributors to establish a short-term low-price campaign (which may aid entry into a market). The previous approach under Binon would have arguably classified this as restrictive by object, but the approach in Super Bock may allow businesses the scope to advance pro-competitive efficiencies to rebut an object classification.
However, it is important to reiterate that agreements that include ‘naked restraints’ will find it difficult to resist a classification of being restrictive by object. Restrictions within agreements are ‘naked’ where they have no plausible objective other than a restriction of competition. Businesses that fix minimum prices, for example, with the objective solely to prevent downstream price competition will find it hard to resist that this conduct represents a naked restraint.
Implications for Businesses
What can businesses take away from this? On the one hand, that agreements are not restrictive by object by reference to their form alone is an acknowledgement of the ECJ’s (and EC’s) approach towards a non-rigid understanding of competition law based on the substance of agreements.
Although this approach provides less certainty for businesses in its lack of rigidity, it will:
1. Lessen harmful false-positives (object classifications where an agreement is not restrictive by object);
2. Allow more room for businesses to rebut an object classification and therefore push regulators into undertaking an onerous effects analysis (which in turn allows more scope for a company to dispute a finding of anti-competitive effect).
These naked restraints are not inconsistent with Super Bock – the judgement that these types of restriction consist of no other plausible objective other than a restriction of competition is reached by reference to their legal and economic context. This is the central ratio of Case C 373/14 P (Toshiba); in which the ECJ ruled that in the context of these naked restraints, which have previously been established as object restrictions, analysis of the economic and legal context may be limited to “what is strictly necessary in order to establish the existence of a restriction by object”.
It is vital therefore that businesses continue to exercise caution in the negotiation and drafting of their commercial agreements, and seek advice should any competition law issues arise.
Should you want to know more about this decision; including how it may impact your agreements directly or indirectly, please speak to Andrew Hockley, Ben Bolderson, Dave Anderson, George Christodoulides, Victoria Newbold, or your usual BCLP contact.
Initially published with JD Supra, July 2023.
THE DIGITAL MARKETS ACT
PAST, PRESENT AND FUTURE
Authored by: Pierre Bichet (Case Handler Officer) - European Commission
The Digital Markets Act (“DMA”) is an EU regulatory tool aimed at tackling the most pressing challenges to contestability and fairness raised by large digital platforms.
The DMA was published in the European Official Journal on 12 October 2022 and entered into force on 1 November 2022.
Additional staff has also been recruited to enforce the DMA, and in particular staff with complementary skills to the already established staff. For instance, data scientists and computer scientists have joined the ranks of the DMA team.
The pre-notification period was also the opportunity, as in merger control, to send questions to the potential gatekeepers and exchange draft notification forms.
Giving life to the DMA within the European Commission
The European Commission (the “Commission”) is the sole enforcer of the DMA. The Regulation is being implemented by a joint team of colleagues from DG COMPETITION and DG CONNECT, which required structural changes in both departments. For instance, a brand-new directorate, composed of three units, was created within DG COMPETITION to implement the DMA.
Looking back: the prenotification period
The Commission had constructive discussions with all potential gatekeepers very early on in the process. Pre-notification discussions revolved around topics such as the best way to identify and calculate business and end users or the boundaries of the different core platform services (for example, the boundaries between a search engine and an online intermediation service (e.g., a hotel booking service) when results of the online intermediation service are shown and embedded within the search results page).
First D-day: designations and opening of market investigations
The Commission received on 3 July 2023 seven notifications from potential gatekeepers: Alphabet, Amazon, Apple, ByteDance, Meta, Microsoft and Samsung. On 6 September 2023, the Commission designated, for the first time, six gatekeepers: Alphabet, Amazon, Apple, ByteDance, Meta, Microsoft. In total, 22 core platform services were designated.
The Commission also concluded that, although Alphabet’s email service Gmail, Microsoft email service Outlook. com and Samsung’s internet browser meet the thresholds under the DMA
to qualify as a gatekeeper, Alphabet, Microsoft and Samsung provided sufficiently justified arguments showing that these services do not qualify as gateways for their respective core platform services. Therefore, the Commission decided not to designate Gmail, Outlook.com and Samsung Internet Browser as core platform services. Samsung was therefore not designated as gatekeeper with respect to any core platform service.
The designation decisions followed a 45 working days review process conducted by the Commission.
In parallel, the Commission has opened four market investigations to further assess Microsoft’s and Apple’s submissions arguing that, despite meeting the thresholds, some of their core platform services do not qualify as important gateways for businesses to reach end users. Microsoft has argued that its online search engine Bing, its web browser Edge and its advertising service Microsoft Advertising should not be gatekeeping services. Similarly, Apple has argued that it should not be a gatekeeper for its instant messaging service iMessage.
In addition, the Commission has opened a market investigation to further assess whether Apple’s operating system for iPad devices (“iPadOS”) should be designated as gatekeeper, despite not meeting the thresholds.
(for example, the obligation to set up a DMA compliance function or the obligation to inform the Commission about digital concentrations), the bulk of the DMA obligations will apply to the six gatekeepers as of March 2024.
The Commission is adopting an approach which is similar to the one that has been leading the Commission thus far: close cooperation with the gatekeepers and an open dialogue with stakeholders, potential beneficiaries of the DMA and any third party who can bring added value to the compliance discussion with the ultimate goal of finding the approach that best serves the objectives of the DMA.
When it comes to compliance, the DMA is very clear: the burden of proof is on gatekeepers. Gatekeepers are also the ones who know best about their business and the true technical possibilities and limitations of their services. The Commission has published a compliance template form that shall guide the gatekeepers in relation to their reporting obligations under the DMA.
At the same time, the Commission attaches high importance to the views and input from third parties because they operate in the same markets. Third parties will play a key role in particular when gatekeepers market test their compliance solutions. This will also give stakeholders the opportunity to comment on the effectiveness of such measures and this opinion will be very important for the Commission.
A number of thematic workshops have already been organised by the Commission (for instance on app stores or self-preferencing). They proved very beneficial. Feedback from the market will therefore continue to play a key role to ensure the DMA achieves its purported objectives.
Next steps: compliance, enforcement and market investigations
The designation decisions have kickstarted a new phase: compliance and enforcement of the DMA.
The six gatekeepers have six months to ensure full compliance with the DMA obligations for each of their designated core platform services. Although certain DMA obligations started applying as from designation
Notwithstanding, the Commission will not shy away from using the tools at its disposal to ensure compliance. Non-compliance with the DMA may lead to sanctions: fines up to 10% of the gatekeeper’s global annual turnover (up to 20% in case of repeated infringements), periodic penalty payments or even structural remedies in case of systematic non-compliance.
In parallel to the work on compliance, the Commission must also address potential additional designations. Four market investigations on rebuttals are ongoing. The Commission is checking whether the rebuttal arguments put forward by gatekeepers that these
services should not be designated are valid. In this regard, the Commission has already sent out various questionnaires to the gatekeepers and relevant stakeholders in order to test the gatekeepers’ arguments. The investigation should be completed within a maximum of 5 months (i.e., by February 2024).
The qualitative market investigation into iPadOS is also ongoing and various questionnaires have been sent too. Under the DMA, this investigation should be completed within a maximum of 12 months (i.e., by September 2024).
Depending on the outcome of these five market investigations, additional core platform services could be added to the designation decisions.
The views and opinions expressed in this article are those of the author and do not necessarily represent the official policy or position of the European Commission.
BRG has opened offices in Brussels and Paris headed by European experts in mergers, antitrust, state aid and litigation in the latest addition to the firm’s rapidly expanding global Antitrust & Competition Policy group.
The group, backed by BRG’s significant presence in London and composed of economists, consultants, academics and former regulators, has represented defendants and claimants in prominent competition matters across Europe—including proceedings under new regulatory instruments in the technology industry, such as the Digital Markets Act. In addition to extensive experience with the European Commission, the group has routinely handled cross-border matters, with particular expertise across Belgium, France, Germany, Italy and Spain, and possesses deep knowledge of the market nuances unique to each country.
Konstantin Ebinger is a competition economist and concentrates on advising clients and providing expert testimony on merger, antitrust and collusion cases. He has particular experience in cartels and collusive conduct, covering sectors such as transportation, telecoms and pharmaceuticals.
Dr. Kai-Uwe Kühn
MANAGING DIRECTOR, BRUSSELS | kkuhn@thinkbrg.com
Professor Kai-Uwe Kühn is an economist who has almost thirty years of experience advising private firms and competition authorities on merger, antitrust, state aid and regulatory and damages cases, as well as competition policy in general. A professor of economics and deputy director of the Centre for Competition Policy at the University of East Anglia, he served as chief economist of Directorate-General for Competition at the European Commission from May 2011 to August 2013.
Dr. Adina Claici’s experience spans competition consulting work, academia and nearly a decade at the European Commission’s Directorate-General for Competition, where she was a senior member of the Chief Economist’s team. Her practice is focused on merger, antitrust and state aid cases. She is also a visiting professor of competition economics at the College of Europe in Bruges and at Barcelona Graduate School of Economics.
Laurent Eymard
MANAGING DIRECTOR, BRUSSELS & PARIS | leymard@thinkbrg.com
Laurent Eymard’s practice focuses on competition work and commercial litigation, working with clients across merger, antitrust, collusion and state aid cases. He specialises in regulated industries including telecommunications, electricity and transportation.
COMPETITION IN MEXICO AND THE RISE OF DIGITAL MARKETS AND NEW TECHNOLOGIES
Following several reforms to the Mexican Constitution, the Federal Economic Competition Commission (Cofece) and the Federal Telecommunications Institute (IFT) were created. Both agencies are responsible for, among other things, detecting and dismantling cartels, vertical restraints and illegal mergers. The IFT is limited to cases related to telecommunications and broadcasting, while Cofece is limited to cases that do not fall within the IFT’s jurisdiction.
more than 90% in 2020, and 2 out of 10 companies with online sales channels have experienced growth of more than 300%.
In view of its imminent growth, Cofece has taken a number of measures to ensure that it is properly equipped to face the digital market arena. In particular, in 2022 it published its strategic plan for 2022-2025. This plan includes a section on priority sectors, on which it will focus its efforts and resources. The plan prioritises food and drink, transport and logistics, financial, construction and real estate services, energy, health, public procurement and digital markets. Digital markets stand out in Cofece’s plan, as this is the first period in which this sector is included as a priority.
It has also been observed that in recent years there has been an above-average number of investigations in digital markets, including:
1. A market investigation on services related to credit card transactions in the form of deferred payments in interest-free monthly installments;
Cofece, as an autonomous constitutional body, which refers to the fact that it does not depend on any of the three branches of government, including the executive, the legislative and the judiciary, Cofece is now, more than ever, facing a new chapter in its history, due to the rapid and imminent growth of economic agents in digital markets caused by various factors. According to Cofece, due to the Covid-19 pandemic, the use of online shopping applications has increased by
The Digital Markets Unit and the Market Intelligence Directorate have also been created in recent years, both with the same purpose. In addition, since the appointment of Andrea Marván as Cofece’s Chairwoman, several cooperation and coordination agreements have been signed between Cofece and the state governments of several states (e.g. Jalisco, Yucatán and Quintana Roo), with the aim of promoting competition and enabling Cofece, with the help of local governments, to detect, investigate and sanction infringements more effectively.
2. An inquiry into the market for the development, distribution and payment processing of mobile applications and digital content;
3. An investigation to identify and deter possible barriers to competition in the retail e-commerce service;
4. An ex officio investigation of the market for public procurement procedures, including the purchase, leasing, maintenance and management of information and communication technologies; and
5. An inquiry into the market for digital advertising and related services.
Several of the above-mentioned investigations were initiated by other competition authorities, mainly in North America and Europe. It is well known that Cofece and other authorities in Latin America are replicating the actions of benchmark authorities around the world. However, Cofece lacks the initiative to initiate investigations that are not considered replicas or that follow the path of other authorities.
Cofece should initiate ex officio investigations and take the risk of becoming a reference authority in Latin America, an authority that properly uses the tools it already has to investigate, detect and eradicate anti-competitive practices in these markets for the benefit of consumers. However, without a strong and law-abiding authority, digital markets could become an unrestricted and unsanctioned sector, and even a market that undermines competition and does more harm than good for consumers.
Similarly, through the agreements it has signed with various states in the country, Cofece should strengthen its area of competition promotion in order to inform consumers about the benefits of healthy and efficient competition.
In particular, Cofece should consider consumers and competing economic agents in the sector as its most important source of information, and therefore more efforts should be made to encourage them to use means such as filing complaints to initiate investigations before Cofece. In addition, the use of the immunity programme is an important source of knowledge to obtain the information necessary to break up a cartel in such a complex market.
Finally, during the Covid-19 pandemic, the number of occasions on which Cofece used one of its most aggressive and effective investigative powers to uncover illegal agreements decreased significantly. Verification visits are a mean used by Cofece to obtain information such as:
• Access to any office, premises, means of transport, computer, electronic device, storage device, or archive;
• To examine books, documents, papers, files or information of the economic agent;
• Obtain copies of books, documents, papers, archives or information stored or generated by electronic means;
• Secure all books, records and other means of the economic agent visited for the time and to the extent necessary for the conduct of the verification visit; and
• Request any official, representative or employee of the economic agent visited to explain any facts, information or documents relating to the subject matter.
1. Promoting more regular and effective measures to deal with complaints and compliance with the immunity programme.
2. Encouraging new agreements with foreign and national governments to facilitate the identification of anticompetitive behaviour.
3. Initiate more ex officio investigations in complex markets and take the initiative to lead by thinking creatively, particularly in emerging markets where sophisticated and complex technology exists.
4. More frequent use of investigative tools to obtain information, such as verification visits, as it is more difficult to detect anticompetitive practices if they are not used.
In order to have sufficient components to combat anti-competitive practices in this new and challenging market, Cofece must focus its attention on four areas of action, including:
ESG
RULES AND CONSTRAINTS UNDER EU COMPETITION LAW TO CONCLUDE SUSTAINABILITY AGREEMENTS BETWEEN COMPETITORS
ESG and sustainability objectives are high on the agenda of many businesses and competition regulators are adapting to this new paradigm.
Cooperation between competitors can be welcomed or can appear as necessary to achieve the EU Green Deal and the EU’s objective of climate neutrality by 2050.
Still, it raises concerns with respect to competition law compliance and regulators are publishing guidance papers to help companies better understand and assess what they can and cannot do. In this context, the European Commission (“Commission”) adopted on 1 June 2023 revised Horizontal Guidelines allowing companies to self-assess
the compatibility of their horizontal cooperation agreements with EU competition rules. In particular, a new chapter to the Horizontal Guidelines now covers sustainability agreements to guide competitors pursuing a sustainability objective.
A sustainability agreement: what is it?
According to the new Horizontal Guidelines (para.521), sustainability
agreements are “any type of horizontal cooperation agreement between companies that pursues a sustainability objective, irrespective of the form of the cooperation.”
Such agreements are typically meant to pursue goals aimed at economic, environmental and social development, such as combatting climate change, reducing pollution, limiting the exploitation of natural resources, upholding human rights, ensuring a living income, protecting animal welfare and reducing food waste.
For this reason, the new Horizontal Guidelines contain a broad definition of these sustainability objectives, based on the UN Sustainable Development Goals, and list various examples of sustainability agreements that would generally be considered as acceptable under EU competition rules.
Authored by: Mélanie Bruneau (Partner) and Antoine de Rohan Chabot (Counsel) - K&L Gates
Self-assessment: how to assess the compatibility of sustainability agreements with EU competition rules?
An agreement cannot escape the prohibition under Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) by simply referring to a sustainability objective.
With that said, the Horizontal Guidelines provides a framework for companies to self-assess the compatibility of their joint sustainability initiatives with EU competition rules, and provide examples of sustainability agreements between competitors that are unlikely to raise competition concerns under Article 101(1) TFEU because they do not affect competition parameters:
• Agreements that aim solely to ensure compliance with sufficiently precise requirements or prohibitions in legally binding international treaties, agreements or conventions;
• Agreements that do not concern the economic activity of the parties, but their internal corporate conduct, such as measures to eliminate single-use plastics from their business premises, decisions not to exceed a certain ambient temperature in their buildings, or to limit the volume of internal documents that they print;
• Agreements to set up a database containing general information about the sustainability record of certain suppliers (e.g. regarding their value chains or production processes), or information about distributors that market products in an unsustainable manner, but which do not forbid or oblige the parties to purchase from such suppliers or to sell to such distributors; or
• Agreements between competitors relating to the organisation of industry-wide awareness campaigns, or campaigns raising customers’ awareness of the environmental impact or other negative externalities of their consumption, provided that they do not amount to joint advertising of specific products.
Exemption: can a sustainability agreement that restricts competition be exempted?
Should a sustainability agreement restrict competition within the meaning of Article 101(1) TFEU, it may still be pursued if it can benefit from an exemption under Article 101(3) TFEU.
The Horizontal Guidelines provide specific guidance on agreements which, although restrictive of competition, provide sustainability benefits that can outweigh such competition restrictions, provided that four cumulative conditions are satisfied:
they will suffer from the agreement and that, as a result, they overestimate the magnitude of the immediate negative effects.
• Pass-on to consumers: will consumers receive a fair share of the claimed benefits? Consumers must receive a fair share of the claimed benefits of the sustainability agreement, either in the form of individual use value benefits (which relate directly to the products), individual non-use value benefits (indirect benefits that result from the consumers’ appreciation of the impact of their sustainable consumption on others), or collective benefits (benefits to a wider section of society than just the consumers in the relevant market).
• No elimination of competition: will there remain a degree of residual competition on the market? The agreement must not allow the parties the possibility to eliminate competition in respect of a substantial part of the products in question.
Soft safe harbour for sustainability standardisation agreements
The Horizontal Guidelines create a “soft safe harbour” for agreements setting sustainability standards, which are considered unlikely to produce appreciable negative effects on competition if they satisfy the following six cumulative criteria:
• Efficiency: does the agreement contribute to objective, concrete and verifiable efficiency gains? Efficiencies that can be generated by sustainability agreements may include e.g. the use of less polluting production or distribution technologies, improved conditions of production and distribution, more resilient infrastructure, better quality products, or reduction of supply chain disruptions.
• Indispensability: is the restriction necessary to the attainment of benefits? A sustainability agreement may be indispensable in cases where the parties can show that the consumers in the relevant market find it difficult, for example due to lack of sufficient knowledge or information about the product or the consequences of its use, to objectively assess whether the benefits that they will obtain from the sustainability agreement outweigh the harm that
• Transparency & participation: The process for developing the sustainability standard must be transparent, and all interested competitors must be able to participate in the process leading to the selection of the standard.
• Voluntary participation (no obligations on non-members): The sustainability standard must not impose any direct or indirect obligation to comply with the standard on undertakings that do not wish to participate in the standard.
• Members free to adopt higher standards: To ensure compliance with the standard, binding requirements may be imposed on participants, but participants must remain free to apply higher sustainability standards.
• No exchange of competitively sensitive information: Parties to the sustainability standard must not
exchange commercially sensitive information that is not objectively necessary and proportionate for the development, implementation, adoption or modification of the standard.
• Non-discrimination & Fair access: Effective and non-discriminatory access to the results of the standard-setting process must be ensured, including effective and non-discriminatory access to the requirements and conditions for the use of the agreed label, logo or brand name, and allowing undertakings that did not participate in the development of the standard to adopt the standard at a later stage.
• Monitoring mechanism to ensure compliance and limited negative effects or limited market coverage: The standard must not result in a significant increase in the price or a significant reduction in the quality of the products concerned, or the combined market share of the participants must not exceed 20 % in any relevant market affected by the standard.
While sustainability collaboration, cooperation or agreements create opportunities and might be envisaged between competitors, these must be carefully self-assessed to avoid breaching competition law. Companies wishing to enter into a sustainability agreement may also request informal guidance from the European Commission in order to ensure compliance with EU competition rules. Regulators in some EU Member States have also expressed their willingness to examine sustainability projects or initiatives under competition law.
PARENTAL LIABILITY
HOLDING OFF THE DECISIVE INFLUENCE PRESUMPTION
by: Andrew Morrison (Senior Associate) - Macfarlanes
It is well established that a parent company can be held liable for the conduct of its subsidiary where it exercises decisive influence over that subsidiary. Decisive influence is presumed where a parent owns 100% of the shares and/or voting rights in that subsidiary.
This issue has been cast back into the spotlight by the CMA’s Decision to fine Allergan plc (“Allergan”) for the conduct of its subsidiary Actavis UK in relation to the pricing of hydrocortisone tablets. The situation in this case is somewhat unique:
i. The CMA found Allergan liable for unfair prices charged by its wholly owned subsidiary Actavis UK Limited over the period from June 2015 until August 2016.
ii. Allergan sold its international generics business (including Actavis UK) to Teva Pharmaceuticals Inc (“Teva”). In this context, Allergan gave legally binding commitments to the European Commission in March 2016 to hold Actavis UK separate from the remainder of the Allergan business.
iii. As part of its acquisition of Allergan’s international generics business, Teva agreed to divest Actavis UK and following completion of Teva’s acquisition in August 2016, Actavis UK continued to be run by the hold separate manager and was held separate from Teva (Teva was not held liable during this period).
The CMA’s findings were as follows:
i. From June 2015 until March 2016, Allergan asserted decisive influence over Actavis UK.
ii. Notwithstanding that Allergan gave Commitments, it retained decisive influence over Actavis UK between March and August 2016 for the following reasons:
a. Allergan was required to fund Actavis UK, in accordance with the business plan;
b. The Commitments required Actavis UK to continue to operate in the ordinary course of business, therefore “fixing” in place the infringing commercial strategy; and
The CMA’s findings
In its Hydrocortisone Decision, the CMA found that, for the entire period from June 2015 until August 2016, Allergan exercised decisive influence over Actavis UK notwithstanding that the Commitments held Actavis UK separate from Allergan.
c. Allergan was responsible for the appointment of the hold separate manager who was responsible for managing the business.
Authored
Allergan’s Appeal
Allergan argued that the CMA had misinterpreted the Commitments and that decisive influence could no longer persist. Allergan argued:
i. Whilst Allergan was required to provide Actavis UK with the funding it required in order to operate the business, this was not the same as Actavis UK committing to follow the business plan per se. Actavis UK was under no such obligation.
ii. The hold separate manager reported to the monitoring trustee and was required to operate Actavis UK independently and in its best interests. The CMA’s suggestion contrary slavishly following the business plan was tantamount to arguing that Actavis UK would be unable to, for example, withdraw a product in response to urgent patient safety concerns – this was not the intention or purpose of the Commitments.
iii. The Commitments contained provisions that prevented the exchange of commercially sensitive information. This included sales and pricing information such that it was in practice impossible for Allergan to know whether Actavis UK was in fact continuing the alleged infringements.
For these reasons, Allergan argued that the commitments legally precluded it from determining the future strategy of the Actavis UK business and instead, merely required Allergan to support Actavis UK with sufficient resources such that it could continue to operate under its business plan should it choose to do so. Contrary to the CMA’s findings, the hold separate manager was not obliged to follow the business plans and pricing strategy that had been put in place during Allergan’s period of ownership if that strategy was not, in their view, in the best interests of Actavis UK.
Tribunal judgment
The Tribunal agreed with the arguments raised by Allergan and rejected the suggestion from the CMA that it could continue to rely on the presumption that Allergan continued to exercise decisive influence whilst the commitments were in force.
The Tribunal went on to consider whether the CMA had provided sufficient evidence to demonstrate that Allergan had in fact exercised decisive influence over Actavis UK during this period and concluded that this was not made out on the facts. In particular, the Tribunal considered two important factors:
i. First, the Tribunal considered the purpose of the Commitments, namely to maintain the independence and competitiveness of Actavis UK during the relevant period. The Tribunal held that the Commitments afforded substantial discretion to Actavis UK and the Hold Separate Manager to operate the business in its best interests during the period – indeed, the Tribunal went so far as to say that the purpose of the Commitments could not be met without such significant discretion; and
ii. Second, that discretion allowed Actavis UK to investigate any commercial strategy or conduct that they considered legally questionable and to bring that conduct to an end. The Tribunal noted that one must presume that the Commitments were set down on the assumption that the commercial strategy being pursued was a lawful one, and that a competition authority would not impose commitments that would require a company to continue to pursue an illegal course of conduct.
Comment
Allergan is not the first parent company to seek to rebut the presumption of decisive influence but there are very few, if any, substantive successes in these endeavours. Allergan’s success is important as it sees a meaningful reduction in Allergan’s fines.
There are two important points to consider arising from the judgment.
First, the situation here is highly fact specific and is likely to have limited broader application. In particular, this principle is likely to only apply where a seller gives commitments to a competition authority to hold its business separate. Notably the CMA did not seek to hold Teva liable when it acquired Allergan’s international generics business on the basis that at all times during which Teva owned Actavis UK, it was subject to hold separate obligations and as such never obtained decisive influence over Actavis UK. It is therefore unlikely that this judgment will pave the way for future successful challenges by parent companies, save in very specific circumstances.
Second, even where the CMA cannot rely on the presumption of decisive influence, the Tribunal remained open to the possibility that decisive influence could be exercised by a parent during a hold separate period notwithstanding legally binding obligations to the contrary. This is likely to turn on the facts in each case.
COMPETITION LAW WITH CLAWS AND TEETH OR MUCH ADO ABOUT NOTHING?
ELEVENTH AMENDMENT TO THE GERMAN ACT AGAINST RESTRAINTS OF COMPETITION
The 11th amendment to the German Act against Restraints of Competition (“ARC”), which has been the subject of controversial discussions during the legislative process, came into force on 7 November 2023.
It has been described as the biggest reform of competition law since chancellor Ludwig Erhard’s reforms in the 1960s.1
Others have called it a “paradigm shift in German antitrust law” 2 or “an alien invasion” 3. It has also been labelled as “neither legally compliant nor constitutional” 4
In any event, the German government wanted to provide the Federal Cartel Office (“FCO”) with all tools – dubbed by the Federal Minister for Economic Affairs Robert Habeck as “claws and teeth” – it needs to improve the competitive situation in “entrenched and rigid sectors with structural problems”.
What does the 11th amendment to the ARC achieve? It introduces three main changes: A “new competition tool” allowing the breakup of dominant companies as a last resort, new provisions promoting the effective enforcement of the Digital Markets Acts (“DMA”) and facilitating the disgorgement of benefits that undertakings potentially gain from breaching competition law.
New competition tool
Following the completion of a sector inquiry, the FCO can now impose remedies, including (as a last resort) divestitures, to address “significant and continuous disruptions of competition”, even if the addressee does not breach competition law. This new
1 Meilenstein für fairen Wettbewerb: Bundeskabinett beschließt größte Reform des Wettbewerbsrechts seit Ludwig Erhard - Sven Giegold (sven-giegold.de), 2 German Federal Bar (Bundesrechtsanwaltskammer), Statement 39/2022.
Authored by: Dr. Fabian Badtke (Partner) and Dr. Henner Schläfke (Partner) - Noerr
fourth pillar of German competition law (alongside conventional rules on anticompetitive agreements, abuse of market dominance and merger control) seeks to fill a perceived enforcement gap in situations where harm to competition is not attributable to anticompetitive conduct but to imperfect market structures (in particular narrow oligopolies).
Sector inquiries have long been an integral part of German competition law, allowing the FCO to investigate industry segments with suspected restrictions or distortions of competition. However, the previous regime had two significant shortcomings: sector inquiries sometimes took too much time; and while the FCO could publish its findings in a report issued at the end of the inquiry (at its discretion), it had no or few powers to intervene in the market to address potential competition issues.
The amended ARC will expedite the procedure. It has become shorter and more transparent. The FCO is required to publish the initiation of an investigation on its website, and it “should” conclude the investigation within 18 months. It will be possible to exceed the time limit of 18 months; however, the FCO will need to justify a longer duration. Similarly, if the investigation is closed without any results, the FCO needs to publish its reasons for doing so.
The amended ARC also aims to strengthen merger control in markets where a sector inquiry reveals competition issues. Now, following a sector inquiry, the FCO may order undertakings to report all mergers and acquisitions in one or more sectors of the economy. The reporting obligation will apply to transactions where the acquirer has a German turnover of more than €50 million and the target has a German turnover of more than €1 million. It will apply for a period of three years (commencing upon service of the order), renewable at three-year intervals up to three times.
The FCO may also, by means of an order to individual undertakings: (i) declare that there is a significant and continuous “disruption of competition” in the market(s) concerned; and (ii) impose any behavioural or structural remedies that are necessary to effectively and permanently eliminate the “disruption of competition” –irrespective of the undertaking’s compliance with competition law.
There are limitations on the use of orders, however, as they (i) may only be addressed to undertakings which, by virtue of their market behaviour and their importance to the market structure, contribute significantly to the “disruption of competition”; and (ii) are only permissible if it appears likely that the FCO’s conventional antitrust and merger control powers are insufficient to effectively and permanently eliminate the disruption of competition.
If this is the case, the amended ARC provides the FCO with its new superpower as a last resort: dominant companies and companies with outstanding cross-market significance for competition can be obliged by order to sell company shares or assets if it is to be expected that (only) this measure will eliminate or significantly reduce the significant and persistent distortion of competition.
The amendment has made two significant changes to facilitate this disgorgement (section 34(4) ARC). It stipulates the assumption that a cartel infringement has caused an economic benefit. And regarding the amount, it is presumed that the benefit amounts to at least one per cent of domestic turnover generated by the products or services in relation to the infringement.
As before, this is an estimate. Calculating the amount of the benefit according to section 287 of the German Code of Civil Procedure is facilitated in that a “predominant probability” of a certain economic benefit is sufficient. The presumption can only be rebutted under certain conditions.
Disgorgement of economic benefits generated by anticompetitive practices
The amended ARC also aims to boost a power of the competition authorities that has been largely dormant and never attracted much attention (section 34 ARC). Under the previous regime, the FCO could order the “disgorgement of the economic benefit” that an undertaking gained by breaching competition law, and the undertaking could be ordered to make a payment to the federal budget. This is meant purely as an instrument of administrative law, not as a penalty or criminal fine. Its purpose is to ensure that no economic advantages obtained through a cartel or any other breach of the law remain with the perpetrator. However, this tool has never been applied in practice because of various obstacles, in particular the complexities involved in determining the amount of economic benefits to be disgorged.
Investigative powers to enforce the DMA
The third and final part of the amendment is the adaptation of the provisions in the ARC regarding the DMA to enable effective enforcement of the new provisions both at the level of the authorities and at the level of civil law. For example, the FCO now can initiate investigations and conduct inquiries into breaches of DMA obligations by central platform operators who have been classified as “gatekeepers” within the meaning of the DMA. Likewise, private enforcement is to be strengthened by making the rules for cartel damages applicable to breaches of the DMA too. For example, the binding effect of official decisions on breaches of the DMA and the suspension of the statute of limitations for the duration of investigations and
the subsequent 12 months would also apply. The amended ARC effectively makes the German transposition of the EU Damages Directive applicable to violations of the DMA with one noteworthy exception: there is no presumption of damage for breaches of the DMA. In addition, the local courts already responsible for competition law will have special jurisdiction for actions concerning the DMA.5
As a sidenote, at the same time as enacting the 11th amendment to the ARC, the German legislator transposed the EU Representative Actions Directive. This creates a new collective action for redress that covers infringements of the DMA and any civil claims including cartel damages claims by consumers and small businesses.6
Conclusion
The 11th amendment to the ARC has made German competition law significantly tougher, at least on paper. It remains to be seen, however, whether the FCO can effectively make use of its new powers, as intended by the legislator, or whether it is just a toothless paper tiger. The hurdles for intervention are still high, combined with still largely undefined terms such as the concept of competition disruption, which must first be interpreted and then applied in a manner suitable for the court. A state-regulated market design for entire industries – as some commentators fear – is unlikely to happen. However, companies would be well advised to keep a close eye on how the FCO makes use of its new options in practice. But even if public enforcement does not change dramatically, Germany has sent a clear signal on the private enforcement of the DMA by effectively applying the Damages Directive to breaches of the DMA and introducing a new class action for bringing such claims.
5 On private enforcement of the DMA in France, Germany, Italy, Ireland, the Netherlands, Portugal, and Spain, see also Schläfke et. al., The DMA as subject matter of private enforcement, in: Schmidt/Hübener (eds.), New Digital Markets Act – A Practitioner’s guide, Beck/Hart/Nomos 2023
6 Cf. New class action – Act on representative actions now in force (noerr.com)
60-SECONDS WITH: HELEN GRIFFITHS
HEAD OF MARKETING & BUSINESS DEVELOPMENT FOUNTAIN COURT CHAMBERS
Q Imagine you no longer have to work. How would you spend your weekdays?
A I would love to travel the world – I didn’t do the whole ‘backpacking’ thing so there’s lots of places I’ve yet to see. I’d also love to take some specialist cookery courses on my travels, learning how to make signature dishes in specific regions.
Q What do you see as the most important thing about your job?
A To keep things moving forward, in every sense.
Q What’s the strangest, most exciting thing you have done in your career?
A I was invited to take part in a corporate sailing race around the Isle of Wight during Cowes Week, years ago. It doesn’t sound that exciting, but I hadn’t sailed before and we were in strong gale force winds. We were one of only two boats in the whole competition who didn’t capsize!
Q What has been the best piece of advice you have been given in your career?
A You can’t do everything yourself. The skill lies in deciding what genuinely needs your attention and what doesn’t.
Q What is one important skill that you think everyone should have?
A To have a sense of humour about things, even if not immediately.
Q What book do you think everyone should read, and why?
A ‘Lord of the Flies’ by William Golding. It is a fascinating (and depressingly accurate) insight into human nature.
Q Dead or alive, which famous person would you most like to have dinner with, and why?
A Probably someone like Frank Sinatra. He’d have a lot of great stories I think, and he’d be excellent company. Plus, he could give us a song between courses!
Q What is the best film of all time?
A There’s a running joke about me that I’ve never seen a film, because I’ve somehow managed to avoid all the classics (and I’m known to fall asleep before the opening credits have finished). I was addicted to ‘The Little Mermaid’ as a kid but my favourite as an adult is probably ‘Ocean’s Eleven’ (the remake with George Clooney and Brad Pitt).
Q What advice would you give to your younger self?
A Don’t take things personally. People have a lot of reasons for behaving they way they do and, chances are, they’re nothing to do with you.
Q What is the most significant trend in your practice today?
A Sets of Chambers are increasingly embracing the experience and skills that business professionals can bring to complement clerking teams, whether that’s business development, HR, L&D, or across operations generally. That’s a very positive thing in my view.
Q Do you have any hidden talents?
A I’m pretty impressive at fighting games like Street Fighter or Tekken. It’s a product of having an older brother who forced me and my sister to play them for hours on end!
Q What is one work related goal you would like to achieve in the next five years?
A Lots but I’m keeping them under my hat for now!
TROUBLE IN CLOUD NINE
NAVIGATING CLOUD COMPUTING CHALLENGES IN DAWN RAIDS
Authored by: Stefan Nigam (Director, Consulting and Information Governance) - TransPerfect
Introduction
The dawn raid, a cornerstone of the European Commission’s enforcement mechanisms, has undergone significant evolution in the digital age.
As Maria Jaspers, the head of the European Commission’s cartel unit, recently shared in a speech1, cloud storage technologies have introduced new challenges to the raid process.
Now, more than ever, cooperation between regulators and companies is paramount, especially given the vast repositories of data stored on the cloud and on remote devices at employee’s homes.
If a company obstructs an investigation, even unwittingly, it risks financial penalties and damage to the relationship with regulators. It is therefore critical that that companies’ legal and IT teams are well-versed with the challenges caused by the cloud and modern IT systems and appropriately prepared to facilitate the regulator’s investigation.
The Resurgence of Dawn Raids
Dawn raids have historically been an effective tool for regulators but the number of on-site raids decreased significantly during the pandemic when the world went into lockdown. However, when economies reopened in 2021, regulators started signalling their intent to aggressively return to dawn raids. For example, Margrethe Vestager, the Commission’s Executive Vice President, warned of this shift by proclaiming a “new era of cartel enforcement”.2 With the European Commission having conducted at least 6 dawn raids since the start of the year and other European regulators running an additional 40+, including in the medical devices, energy
drinks, and fashion sectors, it is clear that this was not an empty threat.3
As outlined in the European Commission’s ‘Explanatory Note on Commission Inspections’ 4, the Commission’s dawn raid search protocol is equipped for the digital age.
Whilst once upon a time, dawn raids were focussed on the review of physical documents identified on-premises, the Commission now considers it has the right to effectively “search the IT-environment (e.g. servers, desktop computers, laptops, tablets and other mobile devices) and all storage media (e.g. CD-ROMs, DVDs, USB-keys, external hard disks, backup tapes, cloud services)” of the undertaking. Investigators are also prepared to search employee’s private devices found on site, where these are used for professional reasons (although the notice is not clear how the Commission will determine this).
Crucially, it’s not just about granting access to a company’s recordsregulators expect full-scale cooperation. This means companies will be expected to “provide appropriate representatives or members of staff to assist the Inspectors” who can explain the organisation’s “IT-environment” and assist the Commission with, amongst other things, blocking email accounts, disconnecting computers and “providing ‘administrator access rights’”.
Failure to cooperate or any perceived obstruction can lead to significant consequences, with the Commission having the ability to impose fines of up to 1% of a company’s turnover from the previous year. The Commission has used this power in the past, for example when it fined the Czech energy company Energetický a Průmyslový and its subsidiary EUR 2.5m for obstructing a dawn raid by diverting incoming e-mails and blocking an e-mail account.
companies inadvertently forget to inform inspectors of a relevant data source. Additionally, the mix of data types and the sheer volume of data collected makes the subsequent review of collected data costly, for both regulators and companies under investigation.
• Insufficient IT Access: As more and more IT functions are hosted on cloud platforms, there’s a risk that on-site IT personnel might lack the necessary access rights or knowledge to assist regulators in gathering data from external cloud providers or promptly suspend pertinent user accounts. A case in point is certain platforms demanding varied subscription tiers to facilitate the download of communications in an easily readable manner; for instance, Slack mandates a Business+ or Enterprise Grid membership to enable data extraction from all discussions and channels.
team uses and ensuring that IT teams have the requisite rights and access to give regulators access. It can also be helpful to understand which custodians might have access to sensitive information, such as privileged communications or personal data.
• Invest in IT and Legal Training: Due to the explosion of electronic data used by companies, adequate dawn raid responses now necessitate a harmonious collaboration between IT and legal departments. Ensuring both teams are equipped with up-to-date knowledge of the company’s IT systems and data and trained in response procedures can prove invaluable.
Complications Presented by Cloud Systems
Companies worldwide have been rapidly adopting cloud platforms over the last five years. In the global 2023 Thales Cloud Security Study,5 79% of organisations reported having more than one cloud storage provider whilst 22% of respondents reported their companies using between 51100 different SaaS applications. Although such systems bring many cost and efficiency advantages, they pose distinct issues in the context of regulatory raids and compliance.
• Diverse Data Sources: There has been an explosion of cloud platforms and applications including widespread productivity and storage tools like Microsoft 365 and Collaborate and industry-specific software such as Bloomberg in finance and Aconex in construction. This development means data is scattered across various remote locations and involves more file types than ever before, from video conference recordings to chat messages. The variety of data sources brings the risk that 5
• Modern Attachments: The emergence of modern attachments in tools like Microsoft Outlook and SharePoint, which rely on sharing links to live documents rather than actual files within an organisation, represents a marked change from the past when collected emails would have distinct files attached. Investigators who relied on the status quo to identify relevant attachments might require companies to provide workarounds for such technical issues. For example the tool Microsoft Purview - eDiscovery Premium can help solve such issues but at an additional cost to the company.
• Revise Data and Device Policies: With no data source now out of bounds for a regulatory investigation, companies must review their internal data policies including BYOD (Bring Your Own Device) and data retention. Employees should be informed about their obligations to disclose data during a raid, including their personal devices, to minimise any delays or compliance issues caused by employees’ data privacy concerns. It would also be worth providing key employees with separate work phones to pre-empt the risk. Such preparation can help avoid scenarios where employees tamper with data on their devices – which caused the Dutch competition authority to fine a company for EUR 1.8 million in recent history.
Best Practices for Preparing for a Raid
To weather the storm of a dawn raid in the age of cloud computing, companies should consider the following precautions:
• Robust Data Mapping: To ensure the ability to cooperate with regulators during a raid, companies need to have a clear understanding of where their data is housed. This can be done with a data map documenting employees’ devices such as phones and laptops, understanding what platforms each
Conclusion
Whilst the majority of companies and GCs will hopefully never have to deal with a dawn raid, investing time and energy to ensure your digital house is in order has the potential to save a great deal of stress and reduce the risk of significant fines in the event the worst happens. Legal counsel and compliance teams should develop a good working relationship with their IT counterparts to ensure dawn raid response plans are ready to be implemented at a moment’s notice.
BROADENING THE SCOPE
NEW APPROACHES TO ASSESSING CONGLOMERATE MERGERS IN THE DIGITAL AGE
On 25 September, the European Commission took us by surprise with its announcement to prohibit the acquisition by Booking Holdings Inc of eTraveli. While the text of the decision is not yet available, its unexpected nature has sparked debate in antitrust circles.
1. Summary of the case
Originally founded in the United States, Booking has developed a global presence through its flagship brand, Booking.com, which is an online travel agency (“OTA”) offering hotel reservation services.
According to the Commission, Booking has become dominant in the accommodation OTA services market in the EEA, with a market share exceeding 60%.
Booking also operates the meta-search service (“MSS”) Kayak.com, which compares prices across hundreds of sites to find the best deals for accommodation, flights, and car rentals.
For its part, eTraveli focusses on the supply of flight OTAs services through a number of websites including GoToGate.com or MyTrip.com. It also offers accommodation OTA services through a commercial affiliate arrangement with Booking (i.e., using Booking’s proprietary capabilities).
Under the Commission’s Non-Horizontal Merger Guidelines, the proposed acquisition, which was notified on 10 October 2022, would fall under the concept of a conglomerate merger. In other words, it constitutes a merger between companies that do not compete in the same markets, but that operate in closely related markets (i.e., the markets for accommodation and flight OTA services).
1 See https://ec.europa.eu/competition/publications/reports/kd0419345enn.pdf
The main competition concerns that such type of mergers usually pose relate to foreclosure effects. In particular, whether the merged entity may be able to leverage a strong market position from one market to another. In this case, whether Booking’s dominant position in the market for accommodation OTA services could be leveraged in the market for flight OTA services, for example, by means of tying and bundling practices which, in the last instance, could lead to a reduction of competition.
However, in a departure from such guidelines, the decision takes into account Booking’s “travel services ecosystem”, referring to firms holding assets in not directly related markets benefiting of the network effects from such capabilities, a concept already put forward in the 2019 Competition for the Digital Era1 Report. According to the Commission the merger would have allowed Booking “to benefit from the inertia of existing customers, as a significant part of these additional consumers would have stayed on Booking’s platforms” or, in other words, to strengthen Booking’s dominance in accommodation OTA services by leveraging eTraveli’s position as a flight OTA and its role as a customer acquisition channel.
Authored by: Diana Martínez (Senior Associate) and Mario Sáenz (Junior Associate) - Linklaters
Interestingly, this decision comes after the CMA’s decision to clear the transaction without commitments, who did not raise any objections to the concentration2. Even though the CMA also acknowledged Booking’s dominant position and highlighted the potential impact that Booking’s increased share in the provision of accommodation OTA services could have, it concluded that the potential loss, for other competing suppliers, of eTraveli as a customer acquisition and/or retention channel would not have a significant impact due to eTraveli’s modest market share in the market for flight OTA services and the fact that there exist other alternative means to attract customers.
Booking proposed to address the Commission’s concerns by offering customers of its flight OTA services with a choice screen powered by Kayak, which would display four hotel offers from rival accommodation OTAs, indicating which OTA is providing the best deal for each hotel.
The Commission, however, rejected such a behavioural remedy on the basis, inter alia, that it would have been difficult to monitor compliance and that the selection and ranking of offers would not have been transparent.
to the specific markets affected by the merger, ecosystem theories depart from the premise that digital mergers may also have implications for the entire ecosystem and, therefore, provide a broader perspective on the effects of mergers that extends beyond traditional market boundaries.
Hence, ecosystem theories of harm provide a new lens through which instead of looking at individual foreclosure theories in isolation (which could lead to the conclusion that the merger does not affect competition), a more comprehensive evaluation of the strategies at play and their potential to strengthen the digital ecosystem is done.
3. Exploring ecosystem theories of harm through notable competition cases
The Booking / eTraveli decision hasn’t been the sole case in which the European Commission applied these novel arguments. In July 2023, the Commission initiated an in-depth investigation to assess Amazon’s proposed acquisition of iRobot due to a number of concerns, including the possibility that Amazon would gain a substantial competitive advantage in the online marketplace services and data-related markets if it were to obtain access to iRobot’s valuable data.
2. The new so-called “ecosystem” theories of harm
As already anticipated, the Commission’s decision seems to be mainly based on the assessment of Booking’s travel services ecosystem. This illustrates that fact that competition authorities are beginning to base their decisions on novel ecosystem theories of harm rather than the more established conglomerate theory of harm in non-horizontal digital mergers.
It seems that, as per the authorities’ approach, the evaluation of digital mergers using traditional theories of harm may often fail to capture the broader implications of these transactions. Whereas traditional approaches typically limit their analysis
Other competition authorities have also evaluated digital mergers under these new ecosystem theories of harm: for example, in 2021, the Bundeskartellamt assessed Meta’s acquisition of Kustomer and considered both the transaction’s immediate effect on rival cloudbased CRM services, and its broader implications within Meta’s ecosystem (Facebook, WhatsApp and Instagram). The data collection from Kustomer’s corporate clients and their end users attracted particular attention from the German competition authority because it could be utilised at different stages in Meta’s ecosystem, particularly for online advertising.
Finally, the CMA’s evaluation of Microsoft’s Activision acquisition introduced also a component of the ecosystem theory of harm. The CMA explored the notion that Microsoft would be “uniquely advantaged” in the evolving field of cloud gaming technology due to its ownership over a variety of assets, including first- and third-party games, the Windows operating system, cloud services, and significant content.
2 See https://assets.publishing.service.gov.uk/media/6363e1dce90e0705a2e5b21c/Booking_Etraveli_-_Full_text_decision.pdf
4. Concluding remarks and thoughts
In today’s competitive market, digital ecosystems are crucial and, therefore, understanding their broader implications is paramount. Competition authorities have made it obvious that they are interested in looking beyond the immediately relevant product markets and considering, among other things, the effects on the acquirer’s ecosystem, including through the collection of data.
It is expected that new theories, including ecosystem theories of harm, will continue to be used, especially when one of the parties has a significant market share in one or more digital markets, despite it not having presence in a neighbouring market.
This fact has been referred to by some antitrust experts as an “efficiency offence”, since the expansion of a dominant firm may not always result in a foreclosure of competition but instead may imply an improvement in the goods and services provided. Thus, a proper and rigorous assessment of competitive effects is more than ever required.
EVOLUTION OF THE LEGAL TEST
ON EXCESSIVE PRICING IN THE UK
Authored by: Dr Miroslava
Excessive or unfair pricing by a1 company holding a dominant position is prohibited under UK competition law as an abuse of dominant position. Excessive pricing cases have been examined only in a limited number of cases over the last four decades. However, recent enforcement activities by the UK Competition and Market Authority (CMA) against excessive pricing in the pharmaceutical sector led to an intense discussion about the appropriate legal standard to tackle unfair pricing.
In particular, the CMA’s approach and the following appeals in the landmark
Pfizer/Flynn case led to significant development of the legal standard and its application in the recent CMA’s excessive pricing decisions in the Liothyronine and Hydrocortisone cases.2
This brief paper traces the development of the legal test on what constitutes excessive pricing under UK competition law. It provides an overview of the standard adopted and discusses some implications for the enforcement policy in the UK.
I. Background on the prohibition of excessive/unfair pricing
The seminal Court of Justice of the European Union (CJEU) judgment in United Brands v Commission established the foremost legal
1 Lecturer in Commercial Law at the University of East London, email: M.Marinova@uel.ac.uk. Some parts of this contribution are based on my previous research, see Rethinking the legal test for excessive pricing: Insights from the Landmark UK CMA v Pfizer/Flynn Case and Its Legal Implications
2 CMA Decision: Case 50395, Excessive and unfair pricing with respect to the supply of liothyronine tablets in the UK (29 July 2021) (hereinafter: Liothyronine decision) and Case 1411/1/12/21, Advanz Pharma Corp. v. CMA, Competition Appeals Tribunal (CAT) (UK).); CMA Decision: Case 50277, Hydrocortisone tablets, Excessive and unfair pricing, and Anti-competitive agreements (15 July 2021) (hereinafter: Hydrocortisone decision).
Marinova (Lecturer in Commercial Law) - University of East London1
framework for assessing allegedly excessive pricing as an abuse of dominance under EU competition law.3 The Court also considered that this can be established if (1) the difference between the costs incurred and the price charged is excessive (excessiveness limb) and (2) the price is unfair either (a) in itself or (b) when compared to the price of competing products (unfairness limb).4 While allowing flexibility in criteria based on the circumstances of the case, this test became the leading standard for excessive pricing, known as the ‘United Brands test’. The established interpretation of this test suggests that the two elements are cumulative, i.e. the assessment of excessiveness and unfairness. Subsequent CJEU judgments have further developed the legal doctrine, adopting alternative tests for assessing excessiveness.5
and as such, misapplied the legal test for finding that prices were unfair and, as such, did not prove the finding of abuse.
However, the Court of Appeal held that the CMA cannot ignore the evidence and arguments put forward by the defendants providing valid comparators as evidence as to why the prices they charge are in fact fair and sent the case back to the CMA to consider the comparators raised by the defendants.
The findings of the Court of Appeal renewed the debate on the appropriate legal standard to tackle excessive pricing and raised the question as to whether the Competition Authority has to consider both alternatives under the unfairness test, i.e., whether the ‘in itself’ test and the ‘competing products’ test are cumulative conditions or true alternatives.
II. Key principles from recent CMA cases
The CMA investigated several excessive pricing cases in the pharmaceutical industry in the recent years. In 2016, CMA found that Pfizer and Flynn Pharma abused their dominant position by imposing excessive prices for phenytoin sodium capsules in the UK.6 The CMA based its assessment on the leading EU excessive pricing case, United Brands, and concluded that the prices were excessive and unfair in themselves without considering whether those prices were also unfair when compared to competing products.7 On appeal, the Competition Appeals Tribunal (CAT) set aside the CMA decision on the ground that the CMA did not take sufficient account of the situation of comparing to the price of other comparable products
III. Implications for future policy and enforcement
It seems that the Court of Appeal’s judgment has had an immediate effect on the CMA’s approach in its recent Hydrocortisone and Liothyronine decisions.8 In the Hydrocortisone decision, the CMA applied both alternatives from the unfairness limb of the United Brands test and concluded
3 Case 27/76 United Brands v Commission [1978] ECR I -207, para 250.
4 Ibid, para 252.
that they were unfair, both in themselves and when compared to competing products. It nevertheless made it clear that these tests are alternatives rather than cumulative tests and either of the tests would be sufficient for a finding of unfairness in law. The CMA utilised a similar approach in its Liothyronine decision, which was in line with the Court of Appeal decision in Pfizer/Flynn, according to which, regardless of the fact that the two limbs are alternatives, the authority should evaluate evidence related to the second limb (comparison with competing product) put forward by the dominant party, which ultimately makes them cumulative. This would ultimately impose an unnecessarily high burden on the CMA.9
IV. Conclusion
The recent excessive pricing investigations in the pharmaceutical industry in the UK reveal that regardless of the fact that the two limbs of the unfairness test are alternatives, the CMA has found itself under an obligation to conduct both alternatives as a matter of good administration and procedural fairness, which has the effect of making the test cumulative in practice.10 Having in mind that dominant companies will always put forward some evidence that the price under consideration is not unfair it will require an evaluation of both alternatives in all cases. This would ultimately impose an unnecessarily high burden on the CMA, which is likely to impose additional burdens on future investigators.
5 On that point see e.g. M Motta and A De Streel, ‘Excessive Pricing in Competition Law – Never say never (2007) The Pros and Cons of High Prices, p 40.
6 CMA Decision: Case CE/9742-13, Unfair pricing in respect of the supply of phenytoin sodium capsules in the UK (7 December 2016) (hereinafter: Pfizer/Flynn).
7 Case 27/76 United Brands v Commission [1978] ECR I -207, para 252.
8 The parties have appealed the CMA’s decision before the CAT. On 8 August 2023, the CAT delivered its judgment upholding the decision CMA.
9 In these decisions, as rightly observed by Abbott, ‘The CMA undertakes multiple lines of duplicative and/or unnecessary analysis as it attempts to properly guess at the legal standards that will be applied on appeal. Preparing these decisions occupies the resources of the competition authority and slows the processes down.’ Abbott ‘The UK Competition Appeal Tribunal’s Misguided Reprieve for Pfizer’s Excessive Pricing Abuse’ (n 9).
10 The same position was expressed by the Commission in its supportive statement in which the Commission argued that this would essentially oblige competition authorities to fulfil the examination criteria under both alternatives.
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