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Community Week
A weekly summary of competition law and policy
Issue 443 • 16 October 2009

In this issue
EU developments
Competition Commissioner’s speech on international co-operation in the fight against cartels

UK developments
OFT launches market studies into advertising and pricing practices

German developments

Newly elected German government considers increased anti-trust powers

German Federal Cartel Office imposes fine for influencing resale price in an anti-competitive manner

French developments
Paris Court of Appeal reduces fines imposed by the French Competition Council on three companies facing financial difficulties

Italian developments
Italian Competition Authority publishes second report on publishing industry

Other developments
India to implement merger control laws

EU developments

Competition Commissioner's speech on international co-operation in the fight against cartels

Last week, European Competition Commissioner Neelie Kroes (the "Commissioner"), gave a speech in Brazil about recent
developments in prosecuting cartels both in Europe and internationally.  The Commissioner made it clear that since modern
cartels are increasingly global in nature, it is imperative that national and international authorities work in conjunction with one
another in their efforts to put an end to such anti-competitive practices.  Whilst this has been happening in recent years, and
much progress has already been made, going forward, the Commissioner believes that even closer collaboration is needed.

The Commissioner rejected the argument that the criminal / administrative divide between, for example, on the one hand, the
European and on the other, US and Brazilian systems, prevented fruitful enforcement co-operation between the different
authorities.  She cited the current investigation into the fridge compressor industry as an example of this.  In this ongoing case,
European, Brazilian and US competition authorities have all been working together (far more closely than in previous
investigations), and the Commissioner believes that the fact that a settlement is close in Brazil, reflects how dynamic these
internationally co-ordinated investigations have been. According to the Commissioner, identifying ways that different enforcement
systems can compliment each other is the key to cogent co-operation, and the differences between the systems should not be
regarded as obstacles thereto. Co-ordination of inspections, respect of confidentiality, forging an atmosphere of trust and close
day-to-day relationships between staff of the different authorities were examples of important factors cited to ensure that this kind
of team work functions well.

On a national level, the Commissioner praised the Brazilian competition authorities for the acceleration of their competition law
enforcement and particularly, the consolidation of their leniency programme.  The importance of leniency programmes in the
international attempt to wipe out cartels was underlined, as they provide global companies with "increased incentives to denounce
their cartel activities in multiple jurisdictions at the same time", thereby simplifying and speeding up enforcement action.  Indeed,
the renewed leniency notice of the European Commission was held as being one of the most important recent developments in
the Commission's cartel work, along with the creation of a dedicated cartel directorate in 2005, the new financing guidelines in
2006 and the new settlement procedure in 2008. 

Notwithstanding these positive advances, the Commissioner made it clear that the fight against cartels still has a long way to go. 
Whilst authorities are constantly trying to stay ahead of cartelists, for example, by using the most up to date technology available
to help in their investigations, "there is so much more to do".  Indeed, in spite of the current tough economic climate, the
Commissioner left no doubt that competition authorities around the world must continue to work intensely together to make every
effort to stamp out cartels. 

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UK developments

OFT launches market studies into advertising and pricing practices

Following public consultation earlier this year, the Office of Fair Trading (the "OFT") has announced the launching of two separate
market studies into advertising and pricing.  The OFT is aware that businesses constantly change the way in which they advertise
and price goods and services, so the aim of these studies is to ensure that the UK competition authority remains up to date with
the current market situation, especially in light of the online practices that have evolved in recent years.

The first OFT market study will focus on online targeting of advertising and prices.  It will cover behavioural advertising and
customised pricing, where prices are individually tailored using information collected about a consumer's internet use.

The second market study into advertising of prices will consider various pricing methods (with a focus on online practices) which
have the potential to mislead consumers.  More specifically, the OFT has said that it will examine:

drip pricing, where price increments drip through the buying process;
baiting sales, where only some products are available at the discount price and consumers ultimately purchase a full
priced product;
reference prices, where there is a relatively high reference price compared to the sale price;
time-limited offers, such as one day only offers;
complex pricing, where it is difficult for consumers to assess an individual price, such as three for two offers; and
price comparison websites that may employ some of the above practices.

If it identifies problems as a result of its market studies, the OFT has a broad range of powers with which to respond, including
publishing guidance or encouraging voluntary action by firms in the industry.  It can also take enforcement action under existing
consumer and competition laws.  If serious issues are identified, a market investigation reference can be made to the UK
Competition Commission. 

Although the timetable for these market studies remains flexible, the OFT has said that it expects to complete both studies by
summer 2010.

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German developments

Newly elected German government considers increased anti-trust powers

Germany's newly elected coalition government composed of the Christian Democratic Party (the "CDU") and the Free Democratic
Party (the "FDP"), is currently discussing an amendment to the German Act against Restraints on Competition (the "ARC") which
will empower the Federal Cartel Office (the "FCO") to apply structural remedies against companies accused of abusing their
dominant position. The coalition envisages that the FCO should only be allowed to use this power as a last resort, when other
available actions are considered insufficient. According to press reports, the coalition intends to target dominant companies in the
energy, telecommunications and media sectors.

The current version of the ARC is ambiguous regarding the power of the FCO to impose structural remedies in dominance cases.
Although the FCO has no explicit right to impose structural remedies, they are not expressly forbidden either. However, it is
argued that such remedies are not allowed in dominance cases as German law does not prohibit dominant companies as such.
Furthermore, in dominance cases structural remedies would in principle be disproportionate. Therefore the FCO has not yet
imposed structural remedies in such cases.

For the time being, the details of this planned amendment to the ARC remain unclear, as coalition negotiations between the CDU
and FDP discussing the planned amendment of the ARC only began last Monday.  In the event that these two parties agree on the
proposed powers of the FCO (their negotiations are expected to end by 23 October 2009), the amendment to the ARC will then
have to be approved by the German Parliament.  As the coalition holds the majority of seats in the German Parliament, the
amendment of the ARC is likely to be approved.

German Federal Cartel Office imposes fine for influencing resale price in an anti-competitive manner

The German Federal Cartel Office (the "FCO") has imposed a fine of €4.2 million on Phonak GmbH ("Phonak") for influencing resale
prices in an anticompetitive manner.

Phonak is a subsidiary of the Swiss company Sonova Holding AG ("Sonova") and distributes hearing devices produced by Sonova
in Germany.

In the present case, an internet hearing aid audiologist had published the prices of all hearing devices online. The price for
Phonak hearing devices was significantly below the lowest price limit.  Consequently, other German hearing aid audiologists
complained to Phonak about the "price cutter".  As a result Phonak imposed a delivery stop against the "price cutter" to force him
to increase resale prices.  This measure was successful and the internet hearing aid audiologist increased his prices.

The German Act against Restrictions on Competition (the "ARC") prohibits the enforcement of a non-binding retail price by
threatening a trader with disadvantages or by granting or promising advantages thereto. The FCO reiterated in the Phonak
decision that in the event a delivery stop is imposed, a trader is threatened with a disadvantage. 

The FCO came to the conclusion that the anti-competitive effect of the behaviour of Phonak has a wider impact than just the
individual case in hand. The delivery stop against the internet hearing aid audiologist was intended to maintain and restore price
stability on the German market for hearing devices, which is characterized by a lack of price competition. The FCO underlined
that in the event the price competition is already restricted on the retail level, every further restriction on competition has an even
more severe effect.

Phonak contests that the delivery stop has any impact beyond the individual case, but has decided not to appeal the decision of
the FCO. 

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French developments

Paris Court of Appeal reduces fines imposed by the French Competition Council to three companies facing financial

On 29 September 2009, the Paris Court of Appeal (the "Court") partly reversed a decision of the French Competition Council (the
"Council", now replaced by the Competition Authority) dated 21 May 2008 concerning a cartel in the sector of production of
plywood.  The six companies concerned had been fined more than €8 million for engaging in concerted price increases and
adopting a common price structure. 

This decision was one of the first to be decided under the new settlement procedure. Under this procedure, some of the
companies did not challenge the Council's objections and offered commitments regarding their future behaviour. In exchange,
they obtained a reduction of their fine.

In its judgment, the Court approved the findings of the Council regarding the existence of a cartel and the damage it caused to
the economy.  In doing so, the Court rejected the arguments of the companies that the economic crisis in the sector combined
with some dumping from China had prevented them from implementing the agreed price increases. The Court stated that the
economic crisis in a sector cannot be taken into account when assessing anticompetitive practices. However, individual financial
difficulties, insofar as they affect the contributive capacities of companies, can justify a reduction of fines imposed on them.

On this basis the Court reduced the fines imposed on three companies: the first because it was being wound up, the second
because it was in administration and was being sold to a Chinese company, and the third because it was already heavily in debt
to maintain its business.

It is worth noting that the companies that benefited from the settlement procedure did not try to obtain a further reduction of their
fine on account of financial difficulties. In its judgment, the Court confirmed that these companies' fines were proportionate.

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Italian developments

Italian Competition Authority publishes second report on publishing industry

On 10 October 2009 the Italian Competition Authority (the "ICA") published the second part of its report following its investigation
into the sector of distribution of daily newspapers, periodical magazines, free press and multimedia.

As a result of its investigation, the ICA has concluded that modernisation in the distribution of publishing products and
liberalisation of the regime currently applicable to the opening of shops selling newspapers, are necessary to ensure compliance
with the EC Directive 2006/123 on the provision of services within the common market, shortly to be implemented in Italy.

Italian legislation aims to safe-guard pluralism in the information offered to consumers, requires equal treatment of all publications
and obliges editors to apply identical economic conditions to distributors of the same publication.

However, according to the ICA, in practice, the legislation does not actually achieve this aim and, in addition, risks restricting
competition at a distribution level.   In the opinion of the ICA, the current distribution system does not promote efficiency and
places the risk of unsold products exclusively on distributors.  As a consequence, to try and deal with the contractual power of
editors and increased transportation costs, local distributors tend to merge.  This results in an even less competitive market at
local-distribution level, with few distributors supplying wide areas and sometimes refusing to supply those newspaper sellers
which are not profitable. 

Although the observations expressed by the ICA following its investigation are not binding on the legislative or regulatory
authorities, the ICA considers that granting more flexibility to distributors, by applying different economic conditions on the basis
of the quantity of products distributed and not on those sold,  as well as imposing a minimum turnover that, if reached by
newspapers' sellers, obliges local distributors to supply them, would address the issues brought to light by the investigation.  It is
hoped that the proposed reforms would place the risk of unsold products onto the editors and stimulate the entry of new
independent distributors into the market. 

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Other developments

India to implement merger control laws

It has been announced that the India Competition Commission (the "Commission") intends to implement the merger notification
provisions of the Indian Competition Act (the "Act") before the end of 2009.

Although the Act was passed by Parliament in 2003, to date, only the provisions relating to cartels and abuse of dominance have
been in effect (and these only since earlier this year).  There has been delay in bringing the merger control provisions of the Act
into force due to industry concerns that as drafted, the rules would have unduly hampered the implementation of mergers.  This
was because of the exceptionally low jurisdictional thresholds triggering compulsory notification of mergers, and the long time
periods for the assessment of mergers that were set out in the Act.

In response to these criticisms, in 2008, the Indian Parliament raised the merger thresholds for mandatory notification to 6 billion
rupees (€87 million), and also introduced a provision requiring a target company to have a turnover of at least 6 million rupees
(€85,000) within India before it would fall to be assessed under the mandatory notification procedure.

The bringing into effect of the amended merger notification provisions will end a long period of uncertainty in Indian merger
control, and has therefore been welcomed by the legal community and industry commentators, as has the proactive role the
Commission has taken in attempting to bring these provisions into force.

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