European Antitrust and Trade Regulation Newsletter December 2010 Authors: Neil Baylis neil.baylis@klgates.com +44.(0)20.7360.8140 Vanessa Edwards vanessa.edwards@klgates.com +44.(0)20 7360.8293 Scott Megregian scott.megregian@klgates.com +44.(0)20.7360.8110 K&L Gates includes lawyers practicing out of 36 offices located in North America, Europe, Asia and the Middle East, and represents numerous GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market participants and public sector entities. For more information, visit www.klgates.com. Commission fines follow Air Freight Cartel Investigation On 9 November 2010, the European Commission ("the Commission") announced the results of its Air Freight Cartel Investigation. It has fined 11 carriers a total of EUR 799 million for coordinating surcharges for fuel and security from December 1999 until February 2006. Air France received the biggest fine at EUR 183 million. British Airways ("BA") was fined EUR 104 million. The Commission announced that anyone affected by the anti-competitive behaviour may seek damages at national level (see next article). The Commission has made seven cartel decisions so far this year. In total it has imposed fines of over EUR 3 billion in 2010. In this decision, the Commission took into account the turnovers of the companies involved, the very serious nature of the infringement, and its considerable duration and EEA-wide scope. All carriers received a 50% fine reduction on sales between the EEA and non-EEA countries, as part of the harm on those routes fell outside the EEA. Furthermore all carriers received a 15% reduction on account of the sector’s regulatory environment, which can be seen as encouraging price coordination. Four carriers received 10% reductions for limited participation. SAS’s fine was increased by 50% because of participation in an earlier cartel (with Maersk). Lufthansa and Swiss International Airlines received a 100% leniency reduction for whistleblowing and providing important information. UK Appeals Court rejects Class Action In November 2010, the UK Court of Appeal ("CA") dealt a further blow to efforts by claimants firms to initiate US-style class actions in UK antitrust litigation. In Emerald Supplies Ltd. and another v British Airways plc [2010], the CA upheld the lower court’s rejection of the representative element of the claim, finding that not all the potential claimants were in the same situation. Two flower importers sued BA in 2008. This case was a follow-on damages claim relating to the Commission’s decision to fine BA and other carriers for fixing the prices of air cargo services. The claimants purported to represent groups of affected users of such services. The claimants stated that there were 178 further potential claimants. The CA upheld the decision of the High Court, agreeing that the class of represented parties had not been defined in the particulars of claim with sufficient certainty. The claimants did not all have "the same interest" in the proceedings, and would not all benefit equally from them. The CA’s decision sets a very high bar to potential representative actions in antitrust litigation which is far more restrictive than the US class action requirements. A proposal for an EU directive specific to private antitrust damages actions is expected by the end of 2011 (read previous alert). European Antitrust and Trade Regulation EU’s highest court refuses to extend privilege to communications with inhouse lawyers In September 2010, the European Court of Justice ("ECJ") gave its judgment in Akzo Nobel Chemicals Ltd. and Akcros Chemicals Ltd. v European Commission (read previous alert). The final decision confirms 30-year-old case law which held that internal communications with inhouse lawyers do not attract legal professional privilege in the context of EU competition law investigations. The ECJ dismissed the appeal on the basis that in-house lawyers are not sufficiently independent from their employer to justify the extension of the privilege, despite any professional and ethical duties of independence imposed upon them by their national Bar or Law Society. The decision is important for any company with dealings in the EU. It is expected to apply to all EU investigations in a regulatory context, and it means that the Commission will continue to be able to seize and use advice and other documents transmitted between employer and in-house lawyer. In-house counsel should consider seeking external advice from EEA-qualified counsel on all regulatory matters, ensuring that all documents connected with such advice are marked as "privileged", stored separately and not summarised or amended internally. They should also consider giving any internal advice on regulatory matters orally. OFT announces investigation into Ryanair’s holding in Aer Lingus The UK Office of Fair Trading ("OFT") announced a merger investigation on 29 October 2010 into Ryanair Holdings plc’s minority 29.82% shareholding in Aer Lingus Group plc. As reported in the K&L Gates July 2010 Antitrust Newsletter, the General Court in July 2010 dismissed appeals against two 2007 Commission decisions in relation to this acquisition. The first was to block Ryanair’s attempted acquisition of Aer Lingus. The second was to refuse to order Ryanair to divest its minority shareholding, on the grounds that this did not give it effective control over Aer Lingus, and therefore could not constitute a merger under the EU merger regulation. The OFT is now examining whether it has jurisdiction to review this transaction. This will involve two main considerations. First the OFT must determine whether it is time barred from investigating and referring the transaction, as the four-month time limit since the acquisition is well passed. It may be able to take advantage of an exception which allows for situations where, because of EU proceedings, OFT action could not have been taken any earlier. The OFT has never previously relied on this exception. Secondly, it must consider whether Ryanair is able to exercise "material influence" over Aer Lingus’s business activities, as this comes under the definition of control in the Enterprise Act 2002. Interestingly, "material influence" is more easily satisfied than the "decisive influence" standard in the EU merger regulation. The OFT will mainly look at influence via shareholder voting, influence over the board, and influence by other commercial arrangements. If the OFT does have jurisdiction, it will need to assess whether the acquisition gave rise to a substantial lessening of competition in the UK market for budget air travel. The OFT has written to Ryanair for further information, and has also sought comments from third parties. Ryanair has unsurprisingly strongly criticised the opening of this investigation. A decision is expected by 24 December 2010. CA says CAT cannot extend follow-on deadline In BCL Old Co and others v BASF and others [2010], the CA confirmed that the Competition Appeal Tribunal ("CAT") does not have the power to extend the deadline for bringing a follow-on damages claim beyond the expiry of the prescribed two-year period. This is bad news for potential claimants in follow-on damages actions. Where there is an appeal against the competition authority’s decision, this time period is in principle suspended, but only if the appeal relates to the infringement decision itself, and not just to the amount of the penalty imposed. Furthermore, the time period to bring a claim against any addressee of the decision does not start until any appeals against the infringement decision are completed and any time limits in which to appeal have expired. Background Follow-on claims can be brought in the CAT under s.47A Competition Act 1998. There is a two-year deadline under the 2003 CAT Rules, which starts with the later of the date on which the cause of action accrued, the date on which a December 2010 2 European Antitrust and Trade Regulation right to bring an appeal expires, or the date of the final judgment on appeal. The Commission fined a number of companies on 21 November 2001 for participating in a cartel in the vitamin-sales market. Following an appeal from BASF as to the penalty imposed, the fines were reduced by the Court of First Instance ("CFI", now called the General Court) in a judgment handed down on 15 March 2006. That decision was not appealed to the ECJ within the two-month time limit for bringing such an appeal. The Initial CAT Claim This claim ("the BCL Claim") was originally brought on 12 March 2008, with another similar claim being brought on 14 May 2008 by Grampian Country Food Group and others ("the Grampian Claim"). The CAT decided that the BCL Claim was within time because the two-year time period did not start until the expiry of the deadline for appealing the CFI’s judgment. An earlier CAT decision meant that this reasoning could be applied to all claimants even if they were going against different cartel participants, and so the Grampian Claim was also allowed to proceed. The First CA Decision BASF appealed against this decision, and the CA in 2009 overturned the ruling, saying that the deadline is not extended by a pending appeal where that appeal relates only to the amount of the penalty imposed. The correct deadline was two years from the expiry of the period in which the Commission infringement decision could have been appealed to the CFI. This would have been January 2004, and so both claims had been brought well out of time. The Latest CA Decision Both parties applied to the CAT for a time extension under Rule 19 of the CAT Rules, which gives the CAT a discretion to give such directions as it thinks fit, including extending time limits, to secure the just, expeditious and economical conduct of the proceedings. The CAT refused, considering that the claimants did not have a good reason to extend the time limit. They had not demonstrated there had been a reasonable misinterpretation of the law relating to the relevant limitation period and they had delayed in pursuing claims once they were aware the time period had begun. The CAT refused the claimants permission to appeal this decision, but the CA subsequently granted it directly. The issues on appeal were whether the CAT had the power to extend time for a follow-on claim, and if not, whether such a power should be treated as existing by reason of EU principles. However on judgment the CA decided that the CAT Rules did not grant a specific discretion to extend the time limit in relation to follow-on actions. Furthermore the EU principle of effectiveness had not been offended and those of legal certainty and legitimate expectation were not relevant. The claimants’ claims had therefore been correctly refused and the appeal was dismissed. EU broadens Iran sanctions with new Regulation On 25 October 2010, the EU Council adopted Regulation 961/2010 ("the Regulation") which considerably broadened the scope of the previous EU economic sanctions against Iran. The Regulation applies directly in all EU Member States. The Regulation, which came into force on 27 October 2010, imposes restrictions on a number of sectors, including trade, investment, finance, and transport of goods. It applies within the EU, including its airspace, and on board any aircraft or vessel under the jurisdiction of an EU Member State. It applies to all EU nationals and EU corporate entities and to all non-EU corporate entities which do business in the EU "in whole or in part". The Regulation will likely create sanctions risks and compliance challenges for many US and other non-EU businesses and financial institutions. Trade The Regulation prohibits transactions (whether into or out of Iran and including the provision of technical or financial assistance or brokering services) relating to "Prohibited Goods". These are specified goods and technology which: • are dual-use; • might be used to further internal repression; or • could contribute to the development of weapons of mass destruction. Authorisation is required for transactions (whether into or out of Iran) in certain other December 2010 3 European Antitrust and Trade Regulation specified goods and technology which could contribute to the development of nuclear activities or weapons ("Goods Requiring Authorisation"). The Regulation prohibits Member States from granting authorisations if they have reasonable grounds to determine that a transaction would contribute to such development. The UK government has stated that it will no longer authorise the export of such goods and technology (although existing licences will not be revoked). The Regulation also prohibits the knowing or intentional participation in activities the object or effect of which is to circumvent the prohibition of these transactions. Importantly, the Regulation introduces a ban on the sale, supply, transfer and export of key oil and natural gas-related equipment and technology, as well as related technical and financial assistance. Obligations under contracts concluded before 26 July 2010 are exempt from the Regulation, although an EU party must notify Member State authorities at least 20 working days prior to the transaction in question. Investment The Regulation prohibits the financing of, participation in or joint venture involving any Iranian parties which manufacture Prohibited Goods or are engaged in the oil or gas sectors and also involvement in any such dealings by Iranian parties engaged in nuclear activities. Again, authorisation is required for such dealings involving Iranian parties which manufacture Goods Requiring Authorisation. The Regulation prohibits Member States from granting authorisations if they have reasonable grounds to determine that a transaction would contribute to the development of nuclear activities or weapons. Finance The Regulation imposes new restrictions on financial institutions and banks. All funds belonging to or controlled by listed Iranian persons and entities are to be frozen. All transfers of funds to and from an Iran party (excluding those relating to humanitarian purposes) which exceed €40,000 are subject to prior authorisation by Member State authorities. This is not to be granted if there are reasonable grounds to determine that the transfer would contribute to the development of nuclear activities or weapons or activities in the oil or gas sectors. All such transfers above €10,000 require prior notification to Member State authorities. EU branches and subsidiaries of Iranian banks are required to notify all transfers of funds. EU banks are subject to higher record-keeping and reporting standards for services rendered to such EU branches and subsidiaries of Iranian banks as well as to non-Iranian credit and financial entities owned or controlled by Iranian parties. Those subject to the Regulation may not provide insurance to the Iranian government or Iranian parties, or persons acting on their behalf. Transport All cargo entering or leaving the EU from or to Iran must now include pre-arrival and predeparture information about such goods. The provision of supplies or services to vessels or cargo aircraft owned or controlled by an Iranian person or entity is prohibited where the providers of the service have reasonable grounds to believe that the vessels carry Prohibited Goods. In addition, an earlier EU Council decision requires Member States to prevent their airports from being accessed by Iranian cargo flights. Finally, Member States are permitted to derogate from the above prohibitions and requirements for authorisation, essentially where they are satisfied with the proposed use to which the goods, investment or finance will be put. Enforcement of the sanctions is a matter for individual Member States. For a commentary on the recent US sanctions on Iran please see our alert. London trainee James A. Boyd and London assistant Hugh Carlson contributed to parts of this Newsletter. December 2010 4 European Antitrust and Trade Regulation Anchorage Austin Beijing Berlin Boston Charlotte Chicago Dallas Dubai Fort Worth Frankfurt Harrisburg Hong Kong London Los Angeles Miami Moscow Newark New York Orange County Palo Alto Paris Pittsburgh Portland Raleigh Research Triangle Park San Diego San Francisco Seattle Shanghai Singapore Spokane/Coeur d’Alene Taipei Tokyo Warsaw Washington, D.C. 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