April 29, 2011

Europeans Engage In A Little Spring Cleaning As They Open The Window On Fines

The European Commission is engaging in a little spring cleaning as it opens the window on how the European Union calculates fines, and cleans up a price-fixing cartel of laundry detergent producers.

The EU’s drive for greater transparency in how it sets fines was announced by Competition Commissioner Joaquin Almunia, who revealed that the Commission will be adding a section on fines in its Statement of Objections, which is sent to companies under investigation.  This new section will “indicate … the elements for the calculation of the fine such as the value of the cartelized sales – which is a critical factor – but also, for example, an indication of the gravity” and whether they have breached rules previously, he said.

The announcement comes in the wake of criticism from businesses that the fines are too high, especially in difficult economic times.  Almunia said the change should “open a channel for dialogue with the parties and will give them a better idea, at an early stage, of the size of the fines” they are facing. 

“In the last few years, we have been refining our fining guidelines to achieve optimal deterrence – which is our ultimate goal – and we will continue do to so,” he said.  Almunia defended the high fines by saying, “Our fines must remain large, because companies need to understand that cartels do not pay.”

The announcement came a day after the Commission fined two household products companies – US-based Procter & Gamble Co. and British-Dutch company Unilever NV – a total of $456 million as part of a settlement for fixing prices of laundry detergent powder in eight European Union countries.

Germany’s Henkel AG, one of the leading producers of laundry detergent in Europe, blew the whistle on the cartel in 2008 when it detected the conduct during an internal audit.  Henkel got immunity and was not fined because it informed regulators of the price fixing. 

In a press conference, Almunia said the cartel began when the companies, through a trade association, began an environmental initiative which focused on methods to reduce the weight of detergent powders and reduce packaging waste.  “They agreed to protect their respective market shares, they agreed also not to decrease prices when decreasing the size of the packages, and afterwards they even agreed on a price increase,” Almunia said.

The cartel operated from January 2002 until March 2005, and affected the price of laundry detergents in supermarkets in Belgium, France, Germany, Greece, Italy, the Netherlands, Portugal and Spain. 

As part of the Settlement, both Unilever and Procter & Gamble admitted that they participated in the cartel in exchange for a 10 percent reduction in fines.  The fines were also reduced as part of the Commission’s leniency program because both companies cooperated with the investigation.

The European Commission, which can fine companies as much as 10 percent of global yearly sales, imposed 12 billion Euros in fines from 2005 to 2010.  In 2010 alone, the Commission imposed fines of 3 billion Euros in the seven cartel decisions it made.  The Commission is currently investigating more than 25 cartel cases.

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Categories: Antitrust and Price Fixing, International Competition Issues

    April 25, 2011

    Europeans May Enlist Antitrust In Struggle For Net Neutrality

    The European Commission may use antitrust law to enforce new “net neutrality” rules, according to an administrator who has directed both antitrust and telecommunications regulation for the 27-country European Union.

    New EU rules on non-discrimination by Internet service providers go into effect on May 25, 2011 and, like the rules enacted last year by the U.S. Federal Communications Commission, they represent a compromise that appears to satisfy neither ISPs nor “open Internet” advocates – the two vocal sides of the net neutrality debate.

    In a speech on April 19, Neelie Kroes, the European Commissioner for Digital Agenda, suggested that the European Commission may also use antitrust law to enforce net neutrality.  Kroes was, until 2010, the Commissioner for Competition, tasked with enforcing EU antitrust law.

    Although there is no generally accepted definition of net neutrality, specific ISP policies and actions are often included.  In Europe, many mobile Internet providers and some wired providers block their customers from making voice-over-Internet-Protocol phone calls using services like Skype which compete with wired and wireless phone companies.  Also, as in the U.S., some European ISPs have proposed charging popular websites for “priority” access to their networks.  

    The upcoming May 25 telecom rules, which are based on a 2009 EU directive, require that ISPs allow all Internet users to “access and distribute information or run applications and services of their choice” in a way “that ensures open and neutral Internet principles are respected in practice.”  The rules are vague, though, and leave tricky questions of definition and implementation to the member countries.

    In what many commentators described as a wait-and-see attitude, Kroes proposes to pay close attention to ISPs’ compliance with the new rules for six months before considering further measures.  She did suggest that antitrust enforcement could work alongside telecom regulation where blocking or “traffic-shaping” policies distorted competition.  Such behavior by ISPs could theoretically favor content and services that are allied with, or vertically integrated with, the ISP, at the expense of independent competitors.

    While telecom regulation and antitrust law address the same goal – promoting competition – enforcement mechanisms may be very different in speed, expense, and political difficulty.  In the U.S., the Supreme Court’s 2006 Trinko decision largely precludes antitrust suits against problematic conduct that is also a violation of FCC rules.   In the EU, where “competition” and telecom regulation both flow from the European Commission’s broad regulatory mandate, Kroes’s announcement suggests that regulators will bring both to bear.

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    Categories: International Competition Issues

      April 22, 2011

      French Banks Offer To Cut Payment Card Fees to Resolve Price-Fixing Allegations

      A consortium of 130 financial institutions operating the leading interbank network in France is offering to lower most interbank fees for card transactions in order to resolve a price-fixing investigation by the French Competition Authority.

      Groupement des Cartes Bancaires (“CB Group”), whose network accounts for more than two thirds of all card transactions in France, are offering to lower the fees to settle the Authority’s investigation into allegations that the fees were the result of anticompetitive price-fixing between member banks.  The investigation was triggered by complaints lodged with the French competition agency in 2009 and 2010 by two leading trade associations representing France’s retail industry.

      The Authority stated in a press release that it was not necessarily illegal for the CB Group to collectively set interbank fees for card transactions within its network.  However, the level of these fees must be based on objective justifications, such as security or interoperability requirements.  The competition watchdog noted that the Group had not provided sufficient data to justify the fees’ current levels, and that some of the fees had remained unchanged for over two decades, in spite of changes to the competitive landscape and a vast increase in the use of payment cards over that period of time.

      Details of the Group’s proposed commitments have been posted on the Competition Authority’s website to allow interested parties to submit comments, pursuant the so-called “market testing” procedure, which will close on May 5, 2011.  Under the plan, interbank fees for card payments would be cut by 25%, while the fees for withholding cards would be reduced by 50%.  ATM withdrawal interbank fees, however, would remain at their current level.  If accepted by the Authority, the commitments will remain in force for a 5-year period.

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      Categories: Antitrust and Price Fixing, Antitrust Enforcement, International Competition Issues

        April 21, 2011

        American Airlines Seeks To Ground High-Flying Orbitz

        American Airlines has filed a lawsuit in the U. S. District Court for the Northern District of Texas against the second-largest online travel website – Orbitz Worldwide – and its largest stakeholder, Travelport, for allegedly engaging in monopolistic acts.

        The complaint alleges that Orbitz, based in Chicago, colluded with Travelport, based in the United Kingdom, to block an independent avenue for ticketing created by American Airlines, based in Texas.  Travelport owns 48 percent of Orbitz.

        American Airlines contends in its complaint that Travelport and Orbitz violated Sections 1 and 2 of the Sherman Act by using their control over the distribution of air fare information to maintain their monopoly power and to hinder the development of alternative technologies that could help consumers find cheaper fares.

        Airlines pay fees to web sites such as Orbitz to include their fares in an on-line forum in which consumers can compare rates with those of other airlines.  American Airlines alleges that Travelport controls 30 percent of all airline ticket sales made by U.S. travel agencies, and used that market power to undermine American Airlines’ “AA Direct Connect” ticketing service through various anticompetitive acts, including:  restrictive terms in agreements with participating airlines; long-term agreements with travel agents that incentivize exclusive use of Travelport; and unreasonable refusals to deal with technology companies whose products threaten to erode Travelport’s market position.  American Airlines contends that such practices have allowed Travelport to double book fees for reservations made outside the United States, and to misrepresent American Airlines’ fares, damaging its relationship with consumers.

        Travelport and Orbitz counter that American Airlines filed the lawsuit after contract negotiations between American Airlines and Orbitz broke down and American Airlines is merely using the suit to force better terms with Orbitz and with other similar websites with which American Airlines is negotiating.  American Airlines renewed its alliance with Expedia earlier this month.

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        Categories: Antitrust Litigation

          April 19, 2011

          Court Refuses To Put Lid On Diaper Pail Advertising

          The United States District Court for the Central District of California has denied Playtex’s motion for a preliminary injunction to enjoin rival diaper-pail producer, Munchkin, from advertising claims of a superior diaper pail.  

          Munchkin is seeking a declaratory judgment in Munchkin, Inc. v. Playtex Products that Munchkin (1) is being truthful in claiming that its Diaper Pail is “The NEW #1 in Odor Control.  Proven Better at Odor Control than Diaper Genie II & Diaper Genie II Elite[, Playtex products,] in a laboratory test”; (2) has not engaged in unfair competition; and (3) has not engaged in deceptive trade practices.  Munchkin also alleges claims of false advertising and unfair competition against Playtex.  Playtex is asserting similar counterclaims.

          In its motion for a preliminary injunction, Playtex argued that Munchkin’s superiority claim – and the associated fine print – is literally false as its tests (1) do not support the claim of superiority; and (2) are not reliable.  The court disagreed, finding that Playtex failed to carry the necessary burden of demonstrating literal falsity, thereby failing to establish the likelihood of success on the merits required for a preliminary injunction.

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          Categories: Uncategorized

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