Category Archives: Policy

Collective (in)action? The CAT’s recent judgments on collective proceedings orders

At first glance, two recent judgments from the CAT may give the impression that the new UK class action regime is dead in the water. However, on closer inspection there is much in these judgments that prospective claimants will welcome.

The first decision was in the Pride mobility scooters case (see Tom Coates’ blog here). The CAT made clear that it might have been prepared to grant a collective proceedings order (“CPO”), but on a basis so narrow that the claimants chose not to proceed. In the second decision, Merricks v Mastercard Inc & Ors [2017] CAT 16, the CAT rejected the CPO application, bringing an end to what would have been an extraordinarily ambitious claim—on behalf of 46.2 million people, seeking aggregate damages of approximately £14 billion, for Mastercard’s unlawful setting of fallback multilateral interchange fees in breach of Article 101 TFEU.

Under the new provisions in s.47B of the Competition Act 1998, a CPO application must satisfy the CAT of two criteria. They are, in brief, that (i) the person bringing the proceedings is an appropriate representative of the class of claimants, and (ii) the claims are eligible for inclusion in collective proceedings.

In Merricks, as in Pride, the applicants succeeded on the first criterion but failed on the second. The CAT adopted a relatively liberal approach to certifying the class representative in both cases: a former ombudsman and consumer protection advocate in Merricks (§§93-94), and an advocate for pensioners’ rights in Pride (§§125-139).

The CAT was also satisfied with the litigation funding arrangements in both cases (Pride, §§140-145; Merricks, §§95-140); although it strongly criticised the “impenetrable” drafting of the American-style funding agreement in Merricks, and was only prepared to approve it in light of amendments proposed at the hearing: §§121-127. Prospective claimants will welcome the fact that, in neither Pride nor in Merricks was the CAT unduly concerned by the prospect of a shortfall between the applicants’ costs cover and respondents’ likely costs.

Where both claims failed, however, was on the eligibility criterion. This second criterion is further broken down in rule 80 of the CAT Rules 2015, which provides that claims will be eligible for inclusion in collective proceedings where they (a) are brought on behalf of an identifiable class of persons; (b) raise common issues; and (c) are suitable to be brought in collective proceedings.

In both cases, the CAT was prepared to accept that the claims were brought on behalf of an identifiable class of persons. In Pride that conclusion was uncontroversial, given that the class was defined as “any person who purchased a new Pride mobility scooter other than in the course of a business in the UK between 1 February 2010 and 29 February 2012” (§§5, 85). In Merricks, however, the CAT’s apparent acceptance of the class was no small matter. The class included all individuals who were over 16 years old at the time of the transaction, resident in the UK, and who purchased goods or services from UK businesses which accepted MasterCard cards, at any time over a 16 year period (§1). This included more than 46 million potential claimants; and yet, the CAT was untroubled by the “identifiable class” criterion.

As to the requirement that the claims raise common issues, in both cases the CAT emphasised that the appropriate approach was that followed in Canada, rather than the much stricter approach in the United States (Merricks, §58; Pride, §105). Although only three of the six issues in Merricks could properly be regarded as common, the CAT considered that to be sufficient.

In Pride, the applicant faced the difficulty of proving causation in circumstances where the regulator had focused on a small sample of infringing agreements (“the low-hanging evidential fruit”: §109), and the claimants were time-barred from pursuing anything other than a follow-on claim for the infringement (§110). The CAT’s decision on this issue may well create difficulties for other follow-on vertical infringement claims, but that category of claims is likely to be quite narrow.

In Merricks, the CAT was concerned about the methodology by which the applicant proposed to assess individual losses. The methodology needed to distinguish between three sets of issues: “individuals’ levels of expenditure; the merchants from whom they purchased; and the mix of products which they purchased” (§88). Regrettably, there had been “no attempt to approximate for any of those in the way damages would be paid out” (§88). The CAT observed that the experts’ oral evidence in response to questions from the Tribunal was “considerably more sophisticated and nuanced than that set out, rather briefly, in their Experts’ Report” (§76), but it still could not be satisfied that the damages sought would broadly reflect “the governing principle of damages for breach of competition law”, that is, “restoration of the claimants to the position they would have been in but for the breach” (§88). The judgment sounds a valuable warning to future claimants of the necessity for a detailed and precise methodology for calculating both individual and aggregate losses.

The CAT showed little sympathy for the applicant’s argument that refusing the CPO would result in a vast number of individuals who suffered loss going uncompensated, since there was no realistic prospect of claimants pursuing Mastercard individually. The CAT observed shortly that this was “effectively the position in most cases of widespread consumer loss resulting from competition law infringements” (§91).

The judgments in Pride and Merricks provide important guidance on the CAT’s likely approach to CPOs in future. In spite of the outcomes in both cases, the CAT’s ready acceptance of the proposed class representatives, its flexibility in regard to litigation funding, and its affirmation of the Canadian approach to collective action, are all likely to give heart to prospective claimants. Further, the judgment in Merricks leaves the door open to mass claims in the future, while signalling the heightened importance which expert evidence on calculating losses is likely to assume in such cases.

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Collective Proceedings in the CAT: mobility scooters roll on for now

Last Friday the CAT handed down a judgment on the first ever-application for a collective proceedings order under the new regime introduced by the Consumer Rights Act 2015. The judgment will generally be welcomed by potential claimants, but it has a sting in the tail which may cause serious difficulties for class actions in other vertical infringement cases.

The new collective proceedings regime, contained in section 47B CA98 and CAT Rules 75-98, was one of a suite of claimant-friendly measures aimed at improving the remedies for individual victims of competition infringements whose losses were low (other measures included, for example, the new fast-track procedure). Consistently with the regime’s objective, the CAT, although stopping short of reaching a final decision, said much about the scheme which will encourage claimants.

The proposed collective action is a follow-on claim against Pride, formerly the UK’s largest supplier of mobility scooters. The OFT (the national competition regulator) had found that Pride infringed the Chapter I prohibition by object by entering into 8 vertical agreements with retailers forbidding them from advertising mobility scooters online at prices below RRP. Those 8 agreements were in fact the result of a market-wide policy that Pride had been operating and which it had communicated to all of its retailers.

The key issues before the CAT were (broadly) the authorisation of Dorothy Gibson as the class representative (under section 47B(5) and CAT Rule 78), and certification of the claims for inclusion in collective proceedings on the basis that they raised common issues. On both issues, the CAT’s approach to the claimants was benevolent.

The CAT first dismissed the defendant’s preliminary objection. Pride pointed out that both the OFT decision and the underlying infringement pre-dated the introduction of the collective proceedings regime. On that basis, it fired a salvo of arguments based on Article 1 Protocol 1 of the ECHR, the EU Charter, and EU principles of legal certainty/legitimate expectations, the thrust of which was that the CAT should interpret the regime so as to disallow its “retrospective” application. The CAT shot down all these arguments in a comprehensive discussion that should see the end of any similar threshold points about collective proceedings applications.

The CAT also had little difficulty in authorising Ms Gibson as the class representative. Although not a mobility scooter consumer, her status as an advocate of pensioners’ rights (she is the chair of a representative body, the National Pensioner Convention), who had experienced lawyers, satisfied the CAT that she would act fairly and adequately in the interests of the class (§139; see CAT Rule 78(2)(a)). Moreover, the CAT was not concerned about her ability to pay Pride’s costs (see CAT Rule 78(2)(d)). Even though Ms Gibson’s ATE insurance cover level was less than Pride’s anticipated costs, the CAT stated shortly that those costs might not be reasonable or proportionate, so it would not be appropriate to disallow collective proceedings at that stage (§145).

The CAT’s approach to certification and commonality was also – in principle – liberal. Although it said that it could not “simply take at face value” (§102) the applicant’s expert evidence, it nonetheless rejected Pride’s submission that it should take a hyper-rigorous US-style attitude. Rather, the CAT endorsed the Canadian approach, approving at §105 the following comment of Rothstein J in Pro-Sys Consultants Ltd v Microsoft Corp [2013] SCC 57:

“In my view, the expert methodology must be sufficiently credible or plausible to establish some basis in fact for the commonality requirement. This means that the methodology must offer a realistic prospect of establishing loss on a class-wide basis so that, if the overcharge is eventually established at the trial of the common issues, there is a means by which to demonstrate that it is common to the class (i.e. that passing on has occurred). The methodology cannot be purely theoretical or hypothetical, but must be grounded in the facts of the particular case is question.”

The stumbling block for the claimants, however, was the CAT’s reasoning on the proper counterfactual. The claimants posited a world in which not only the 8 infringing vertical agreements were absent but also where Pride had operated no policy of prohibiting below-RRP advertising at all. The CAT, however, endorsed a narrower counterfactual from which only the specifically unlawful agreements (i.e. the 8 vertical agreements about which the OFT had made findings) were assumed to be absent (§112). With this narrower counterfactual, the CAT held that it was not clear whether there was sufficient commonality in the issues of loss, or whether the likely damages would justify the costs of collective proceedings. However, the CAT (again perhaps generously) did not dismiss the application altogether but rather adjourned it to enable the claimants’ expert to formulate a case on common loss on the basis of the revised counterfactual.

Notwithstanding the generally claimant-friendly approach, the CAT’s reasoning on the counterfactual could render other collective cases premised on vertical restraints very difficult in practice. In a large number of vertical restraint decisions, the infringer has adopted a market-wide policy but the regulator focuses, for practical reasons, on a small number of ‘implementations’ of the policy as the basis for its infringement findings. If one only excludes from the counterfactual the particular instances of unlawful implementation, rather than the more general policy which underlay them, the issues between class members may diverge: some will have been direct victims of the anti-competitive agreements, while others will have suffered only from what would have to be characterised as an “umbrella effect”. In addition, if claimants cannot proceed on the basis that the entire policy should be excluded from the counterfactual, the likely quantum may fall to a level where collective proceedings are not worth the candle. It remains to be seen whether the mobility scooter claimants will overcome these difficulties.

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When is an antitrust/competition claim caught by an arbitration clause? The Microsoft Mobile decision

The decision of the High Court in Microsoft Mobile Oy (Ltd) v Sony offers some helpful guidance as to when a competition law tort claim will be caught by an arbitration clause in a sale or supply agreement.

Competition law claims frequently complain about prices, on ground of collusion or abuse.  Those prices may already have been charged, or they may yet to be charged.  If the price in issue has already been charged then it will almost invariably be contained in a written sale or supply agreement.  It may be the product of a specific contractual mechanism to settle a price.  If the relevant agreement contains an arbitration clause, does it catch a competition law claim complaining about the price charged?

The starting point in this regard is that a detailed semantic analysis of the particular arbitration clause in question is unlikely to provide the answer.  As Lord Hoffmann observed in Fiona Trust v Privalov [2007] 4 All ER 951 at para 13:

“…the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to have entered to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction.”

This “one-stop shop” presumption has helped greatly in reducing disputes about the ambit of arbitration clauses.  But its application in the competition law context has been less straightforward, because of debates about precisely what the rational businessman would intend in respect of such claims.

The net effect of the law to date is that competition law claims will be regarded as coming within an arbitration clause only if they are closely related factually to a viable contractual claim which has already been, or could be, made.  Thus, for example, in ET Plus SA v Welter [2006] I.L.Pr. 18, the key consideration for Gross J in finding that competition law claims were within an arbitration clause was that they were “simply a variant on the familiar factual theme” which could be discerned from contractual claims already made (see para 51).

Conversely, in Ryanair Ltd v Esso Italiana Srl [2015] 1 All ER (Comm), the Court of Appeal held that the absence of any viable form of contractual complaint about an allegedly cartelised price rendered it impossible to claim that a competition law complaint about the same price was within an exclusive jurisdiction clause.  Having referred to the one-stop shop presumption in Fiona Trust, Rix LJ then held at para 53 that:

“Such reasoning, however, does not carry over into a situation where there is no contractual dispute (by which I intend to include disputes about contracts), but all that has happened is that a buyer has bought goods from a seller who has participated in a cartel. I think that rational businessmen would be surprised to be told that a non-exclusive jurisdiction clause bound or entitled the parties to that sale to litigate in a contractually agreed forum an entirely non-contractual claim for breach of statutory duty pursuant to article 101, the essence of which depended on proof of unlawful arrangements between the seller and third parties with whom the buyer had no relationship whatsoever, and the gravamen of which was a matter which probably affected many other potential claimants, with whom such a buyer might very well wish to link itself.”

The English Courts therefore treat competition law claims essentially as falling outside the one-stop shop presumption unless they are, factually, simply a variant on the theme of an arguable contractual claim.  This was, furthermore, the approach of the CJEU in Case C-352/13 CDC v Akzo [2015] QB 906, in which it was held that a clause “…which abstractly refers to all disputes arising from contractual relationships” would not cover tortious liability as a result of a cartel, because “…the undertaking which suffered the loss could not reasonably foresee such litigation at the time that it agreed to the jurisdiction clause” (paras 69-70).

The latest word on this topic is the Microsoft decision.  Microsoft brought a claim in the English Courts for damages for the allegedly anti-competitive tortious conduct of Sony, LG and Samsung in relation to the pricing of Li-Ion batteries.  All the allegedly cartelised supplies by Sony had been made pursuant to an agreement with an arbitration clause requiring “any disputes related to this Agreement or its enforcement” to be settled by ICC arbitration.  Sony applied to stay the proceedings under section 9 of the Arbitration Act 1996, arguing that the arbitration clause covered the tort claims made against it.

Mr Justice Marcus Smith held that, on an orthodox application of the principles identified in Ryanair, the question of whether the tortious claims were within the arbitration clause depended on whether the conduct giving rise to the tortious claims also gave rise to an arguable contractual claim.  As he observed, “…it is difficult to see how a tortious claim can arise out of a contractual relationship when the only claim in contract that can be said to be related is unarguable” (para 54).

The unusual incentives created by this (correct) understanding of Ryanair can be seen from the fact that Sony was accordingly required, in order to succeed in its application, to formulate a contractual claim against itself which Microsoft had not advanced.  Sony argued that because the relevant prices had been subject to an express obligation that they be negotiated in good faith, and because Sony was subject to a further obligation to disclose events that reasonably may affect its ability “to meet any of its obligations” under the agreement, the operation of a cartel would have been a clear breach of contract as well as tortious.

The Court accepted this submission, holding that it was “very difficult” to see how Sony could have engaged in the conduct complained of in the tort claims, without also breaching the contract.  On that basis, the competition law claims fell within the arbitration clause.  It did not matter in this regard that Microsoft had not advanced the contractual claim which Sony successfully contended it could have done, because otherwise “…it would be easy for a claimant to circumvent the scope of an arbitration or jurisdiction clause by selectively pleading or not pleading certain causes of action” (para 72(ii)).

The upshot for practitioners is that a decisive consideration when assessing whether a competition law claim falls within a jurisdiction clause is likely to be whether there are any viable contractual claims which “…would be sufficiently closely related to the tortious claims actually advanced by the Claimant so as to render rational businessmen likely to have intended such a dispute to be decided (like a contractual dispute) by arbitration” (Microsoft at para 72).  The existence and extent of any express or implied contractual obligations to observe competition law therefore looks set for detailed examination in competition law claims in the future.

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License fees, invalid patents and Article 101 TFEU: Genentech v Hoechst and Sanofi-Aventis

Consider an agreement under which a license fee is payable for use of a patented technology even if it transpires that the patent is invalid. Is such an agreement contrary to Article 101 TFEU? The answer is no, provided that the licensee is able freely to terminate the contract by giving reasonable notice. Some years ago the ECJ so held in relation to expired patents: C-320/87 Ottung [1989] ECR 1177 at §13. The recent decision in C-567/14 Genentech v Hoechst and Sanofi-Aventis clarifies that the same proposition applies to revoked patents (and indeed to patents which are valid but have not been infringed). The case also throws into sharp relief the tensions that may arise between European competition law and domestic procedural rules on the reviewability of arbitrations.


In 1992, Genentech (“G”) was granted a worldwide non-exclusive license for the use of technology which was subject of a European patent as well as two patents issued in the United States. G undertook to pay inter alia a ‘running royalty’ of 0.5% levied on the amount of sales of ‘finished products’ as defined in the license agreement (“the Agreement”).  G was entitled to terminate the Agreement on two months’ notice.

The European patent was revoked in 1999. G unsuccessfully sought revocation of the United States patents in 2008 but this action failed; these patents therefore remained validly in place. G was later held liable in an arbitration to pay the running royalty. Late in the day in the arbitration proceedings, G alleged that construing the Agreement to require payment even in the event of patent revocation would violate EU competition law. That argument was rejected by the arbitrator. G sought annulment of the relevant arbitration awards in an action before the Court of Appeal, Paris. From that court sprung the preliminary reference that is the subject of this blog.

Effective EU competition law vs domestic restrictions on review of arbitration awards

Hoechst and Sanofi Aventis (the parties to whom the running royalty was due and not paid) argued that the reference was inadmissible because of French rules of procedure preventing any review of international arbitral awards unless the infringement was ‘flagrant’ (AG Op §§48-67) and the arbitral tribunal had not considered the point (AG Op §§68-72). In essence, the CJEU rejected this argument on the narrow basis that it was required to abide by the national court’s decision requesting a preliminary ruling unless that decision had been overturned under the relevant national law (§§22-23). Interestingly, the Advocate General ranged much more broadly in reaching the same conclusion, stating that these limitations on the review of international arbitral awards were “contrary to the principle of effectiveness of EU law”, (n)o system can accept infringements of its most fundamental rules making up its public policy, irrespective of whether or not those infringements are flagrant or obvious” and “one or more parties to agreements which might be regarded as anticompetitive cannot put these agreements beyond the reach of review under Articles 101 TFEU and 102 TFEU by resorting to arbitration” (AG Op §§58, 67 and 72).

Ruling on Article 101 TFEU

As mentioned above, this aspect of the CJEU’s ruling builds on the earlier decision in C-320/87 Ottung [1989] ECR 1177.  A single, simple proposition emerges. An agreement to pay a license fee to use a patented technology does not contravene Article 101 just because the license fee remains payable in case of invalidity, revocation or non-infringement, provided that the licensee is free to terminate the agreement by giving reasonable notice (Ottung §13; Genentech §§40-43).

Digging deeper, two practical caveats must be added. First, it would be unsafe to assume that contractual restrictions on termination are the only restrictions on the licensee’s freedom that are relevant to the assessment. The Advocate General’s opinion in Genentech gives the further example of restrictions on the licensee’s ability to challenge the validity or infringement of the patents (AG Op §104). Indeed, any post-termination restriction which interferes with the licensee’s “freedom of action” might change the outcome if it places the licensee at a competitive disadvantage as against other users of the technology (AG Op §§91, 104; Ottung §13). Second, on the facts of Genentech, the commercial purpose of the Agreement was to enable the licensee to use the technology at issue while avoiding patent litigation (§32). Accordingly, it was clear that fees payable were connected to the subject matter of the agreement (AG Op §94). It is unlikely that a license agreement imposing supplementary obligations unconnected to its subject matter would be treated in the same fashion (AG Op §§95, 104; C-193//83 Windsurfing International v Commission [1986] E.C.R. 611).



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The passing-on “defence” after Sainsbury’s

The passing-on defence – ie. whether the damages suffered by a purchaser of a product which has been the subject of a cartel are reduced if he passes on the overcharge to his own customers – had, as Tristan Jones blogged a few years ago, been the subject of much policy discussion but relatively little legal analysis in the English case law.

That remained the position when the Competition Appeal Tribunal heard the claim in Sainsbury’s Supermarkets v Mastercard Incorporated and others [2016] CAT 11. The Judgment, handed down on 14 July, noted at §483 that there had been no case under English law substantively dealing with the pass-on defence. It represents the first English judgment which gives detailed consideration to the defence following full argument.

However, despite its length (running to some 300 pages), the Judgment leaves us with a number of big questions about the nature and scope of the defence.

The four key principles which emerge from the Judgment are as follows.

First, the Tribunal considered that the passing-on “defence” (their quotation marks) is no more than an aspect of the process of the assessment of damage. “The pass on “defence””, the Tribunal reasoned, “is in reality not a defence at all: it simply reflects the need to ensure that a claimant is sufficiently compensated and not overcompensated, by a defendant. The corollary is that the defendant is not forced to pay more than compensatory damages, when considering all of the potential claimants”(§484(3)). The “thrust of the defence” is to ensure that the claimant is not overcompensated and the defendant does not pay damages twice for the same wrong (§480(2)).

Second, the passing-on defence is only concerned with identifiable increases in prices by a firm to its customers and not with other responses by a purchaser such as cost savings or reduced expenditure. The Tribunal considered that although an economist might define pass-on more widely to include such responses (and there is a discussion of this in the Judgment at §§432-437), the legal definition of a passed-on cost differs because whilst “an economist is concerned with how an enterprise recovers its costs… a lawyer is concerned with whether or not a specific claim is well founded” (§484(4)).

Third, that the increase in price must be “causally connected with the overcharge, and demonstrably so” (§484(4)(ii)).

Fourth, that, given the danger in presuming pass-on of costs, “the pass-on “defence” ought only to succeed where, on the balance of probabilities, the defendant has shown that there exists another class of claimant, downstream of the claimant(s) in the action, to whom the overcharge has been passed on. Unless the defendant (and we stress that the burden is on the defendant) demonstrates the existence of such a class, we consider that a claimant’s recovery of the overcharge incurred by it should not be reduced or defeated on this ground” (emphasis original) (§484(5)).

But these principles leave a number of questions.

First, the Judgment firmly places the burden on defendant (and the importance of that is brought home when the Tribunal considered the issue of interest without this burden and, having found that Mastercard’s passing-on defence failed, nevertheless reduced the interest payable to Sainsbury’s by 50% because of passing-on). However, precisely what the Defendant has to demonstrate is less plain.

The Judgment refers to Mastercard’s passing-on defence failing because of a failure to show an increase in retail price (§485); language which reflects back to §484(4)(ii). But an increase in price is not the language used when the Tribunal states the test, and the Judgment leaves open whether demonstrating an increase in price would in itself be sufficient to satisfy the requirement to show the existence of “another class of claimant downstream of the claimant(s) in the action, to whom the overcharge has been passed on”.

Second, and similarly, there is no explanation of what the Tribunal means by the term “causally connected” (or, rather, “demonstrably” causally connected) when it refers to the need for the increase in price to be connected to the overcharge. It might be – as was suggested in our earlier blog – that, applying ordinary English principles of causation and mitigation, a party would need to show that the price increase or the benefit arises out of the breach. Given the Tribunal’s repeated statements that the defence is not really a defence at all but is simply an aspect of the process of the assessment of damages (§§480(2), 484(4)), such an approach would, at first blush, sit perfectly with the Judgment.

However, third, the Tribunal’s splitting of passing-on from other responses to an overcharge creates some confusion in this regard. Under the Tribunal’s approach cost savings are not to be considered under the passing-on defence (§484(4)) but must be considered under an analysis of mitigation (§§472-478). It is, however, difficult to separate out principles of mitigation and causation in this context.  Indeed, the Tribunal, when discussing mitigation, expressly recognised that the issue is “akin to one of causation” (§475). But the Tribunal took pains to emphasise that an assessment of passing-on and mitigation are separate exercises, without explaining whether and if so in what way the test in the context of mitigation – said to be that the benefit must “bear some relation to” the damage suffered as a result of the breach (§475) – differs from that of causation in the passing-on defence.

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The Freight-Forwarding Cartels in the General Court: Lessons on Leniency and Discretion

On 29 February 2016, the General Court handed down its judgments in Case T-265/12 Schenker Ltd v European Commission; Case T-267/12 Deutsche Bahn AG and ors v European Commission, upholding the Commission’s decision on the freight forwarding cartels. The judgments provide some useful guidance on the operation of the leniency scheme and highlight the Commission’s broad discretion in deciding to whom it should attribute liability.

The Cartels

The applicants were found by the Commission to be participants in cartels relating to four different surcharges levied in the freight-forwarding sector between 2002-07.

The operation of the cartels was no lesson in subtlety. In the new export system cartel, the participants had organised their contacts in a ‘Gardening Club’ and had re-named surcharges according to vegetables. One set of minutes of the cartel’s meeting distinguished ‘standard asparagus’ from ‘contractual asparagus’, while another email explained ‘new equipment is on its way to enable fresh marrows and baby courgettes to hit the shops this month. Up to my elbows in fertilizer’.

The Commission fined 14 groups of companies a total of €169 million. The applicants were fined approximately €35 million for infringements of Article 101 TFEU and Article 53 of the EEA Agreement.


The Commission began its investigation after an application for immunity was submitted by Deutsche Post AG (‘DP’). DP and its subsidiaries received full immunity from fines, while some other undertakings (including the applicants) received a reduction in fines ranging from 5 to 50 per cent.

In order to qualify as an immunity applicant under the Commission’s 2006 Leniency Notice, the evidence provided to the Commission must enable it (inter alia) to ‘carry out a targeted inspection in connection with the alleged cartel’ (paragraph 8(a)) and must include a ‘detailed description of the alleged cartel arrangement’ (paragraph 9(a)). The applicants contrasted the information initially provided by DP with the Commission’s final findings to argue that these criteria had not been met – in particular, no information was provided about one of the specific cartels, the CAF cartel.

The General Court rejected the applicants’ comparative approach. It explained that the Leniency Notice did ‘not require that the material submitted by an undertaking should constitute information and evidence pertaining specifically to the infringements which are identified by the Commission at the end of the administrative procedure’ (at [338], paragraph references in this post are to T-267/12). It was sufficient that the information provided by DP ‘justified an initial suspicion on the part of the Commission concerning alleged anticompetitive conduct covering, inter alia, the CAF cartel’ (at [340]).

The applicants also argued that the Commission had breached the principle of equal treatment by treating DP’s immunity application differently from the leniency applications of other undertakings. When assessing DP’s immunity application, the Commission granted conditional immunity on the basis of the information it had at the time, and then granted final immunity by considering whether those conditions had been satisfied. In contrast, when considering the applications for reductions of fines made by other undertakings, the Commission considered at the end of its procedure whether the information provided had added value.

The General Court upheld this approach. It explained that the Leniency Notice is structured such that an ex ante assessment is to be carried out in respect of applications for immunity only (at [358]). This distinction is justified by the objectives of (i) encouraging undertakings to cooperate as early as possible with the Commission, and (ii) ensuring that undertakings which are not the first to cooperate do not receive ‘advantages which exceed the level that is necessary to ensure that the leniency programme and the administrative procedure are fully effective’ (at [359]).

Attribution of Liability

A further ground of challenge concerned the Commission’s decision to hold Schenker China solely liable as the economic successor for the conduct of Bax Global, rather than including Bax Global’s former parent company.

The General Court noted that the Commission had a discretion concerning the choice of legal entities on which it can impose a penalty for an infringement of competition law (at [142]), but that such a discretion must be exercised with due regard to the principle of equal treatment (at [144]).

In the present case, the Commission had decided to hold liable parent companies of subsidiaries, but not former parent companies of subsidiaries. The General Court was content that such an approach was within the discretion available to the Commission. It was perfectly legitimate for the Commission to ‘take into consideration the fact that an approach designed to impose penalties on all the legal entities which might be held to be liable for an infringement might add considerably to the work involved in its investigations’ (at [148]). This purely administrative reason was sufficient to entitle the Commission to decline to attribute liability to a party who would be jointly and severally liable for the same infringement, even if the necessary consequence were to increase the fine levied against the existing addressee.

Given the sums involved, it would be no great surprise if the General Court’s judgments were appealed to the Court of Justice. In the meantime, there is greater certainty regarding the Commission’s approach to the Leniency Notice, and it is clear that the Commission has broad discretion in identifying the relevant addressees of its infringement decisions.

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FIFPro challenge the football transfer system


By Nick De Marco & Dr Alex Mills

As the curtains are drawn on the panic-buying of the January transfer window for another year, it is once again difficult not to reflect critically on the football transfer system. In the Premier League alone, more than £1bn has been spent on football transfers during the 2015-16 season – a staggering figure, and a new record. This is not just a European phenomenon – teams in the Chinese Super League have also spent unprecedented money in the current transfer window, reflecting the incredible rise in football business in the country, even outspending the Premier League during this period. Much of the increase in transfer spending can be attributed to the increasing popularity and commercial success of football around the world, particularly the new broadcasting rights deal in the case of the Premier League, but some have argued argued that the extraordinary inflation in transfer fees is a sign that the system is broken.

One organisation which is firmly in this camp is FIFPro, the union for professional footballers, which represents more than 65,000 players from around the world. In September 2015, FIFPro lodged a formal complaint with the Directorate General for Competition of the European Commission, against FIFA and its member associations, challenging the global transfer market system for football. Here we discuss the background to this challenge and the issues raised by it, before considering its likely outcomes and implications.

The story of the modern transfer system begins with the famous Bosman ruling (C-415/93) of the European Court of Justice in 1995. Bosman, a player registered with Liège in Belgium, wanted a transfer to Dunkerque in France. Although Bosman was out of contract, the rules at the time permitted Liege to refuse the transfer unless Dunkerque met their transfer fee demand. The ECJ held that this constituted a prohibited restriction on the free movement of workers in the European Union. One key consequence of this decision is that a player can now transfer for free at the end of their contract, often known as a ‘Bosman transfer’. This feature of the modern transfer rules is an important factor in the way values in the transfer market are calculated today. Players may also use the threat of running down their contract and thus reducing their transfer value as a means of leveraging their club for a new contract and salary increase.

Following the Bosman ruling, there was talk of abolition of the transfer system. The European Commission’s then Competition Commissioner, Mario Monti, said “International transfer systems based on arbitrarily calculated fees that bear no relation to training costs should be prohibited, regardless of the nationality of the player and whether the transfer takes place during or at the end of the contractual period.” But a political compromise was then fashioned following an informal agreement between the European Commission, FIFA and UEFA, and the modern football transfer system established in 2001. The rules are set out in the FIFA Regulations on the Status and Transfer of Players (RSTP). As presently established, the rules provide that contracts may only be a maximum of 5 years in length, or 3 years for players aged 18 or under (Art. 18(2)). They may only be terminated for just cause or by mutual agreement (Arts. 13 and 14) – hence, the transfer of a player under contract may not take place without the agreement of the player and both clubs. A player out of contract may transfer clubs without any transfer fee being payable, but an agreement to sign for another club may only be entered into in the last six months of a contract or after its expiry (Art. 18(3)). However, perhaps most critically, a player who terminates an existing contract without just cause is liable to pay compensation (Art. 17(1)), jointly with any new club for whom the player has signed (Art. 17(2)), and will also be subject to sporting sanctions (including a ban on playing for any team) if the wrongful termination occurs in the first two or three years of the contract, depending on the age of the player (Art. 17(3)). FIFA guidelines suggest that a failure to pay a player would only be just cause for that player to terminate the contract if payment was not made for a period of more than three months. If an ‘established professional’ plays in fewer than ten percent of the official matches for their club during the course of a season, there is also the possibility for that player to terminate their contract for ‘sporting just cause’ (Art.15).

The amount of compensation payable if a player terminates a contract without just cause has been a controversial question. The Court of Arbitration for Sport (CAS) in Webster (CAS 2007/A/1298/1299/1300) rejected the argument that the player should be liable for their full market value, holding that “giving clubs a regulatory right to the market value of players and allowing lost profits to be claimed in such manner would in effect bring the system partially back to the pre-Bosman days”. The damages were instead calculated based on the “outstanding remuneration due until expiry of the term of the contract”. This decision caused something of an outcry from many clubs, as it was felt that it would enable players effectively to buy themselves out of their contracts too easily. In Matuzalem (CAS 2008/A/159), however, the CAS held that a player who had terminated his contract unilaterally without cause was liable for an amount based on his replacement value on the transfer market (more than €11m). Matuzalem was unable to pay this amount and he was consequently subject to a worldwide playing ban. The decision to prohibit him from playing was later annulled by the Swiss courts for violation of public policy (essentially because he could never make payment if he could never work), but the case nevertheless established that the cost to a player of unilaterally terminating their contract without just cause would be strongly connected to the player’s value in the transfer fee market.

So what are the competition law issues raised by this system? The FIFPro complaint is directed to Articles 101 and 102 of the Treaty on the Functioning of the European Union, which prohibit agreements, decisions and practices limiting competition, as well as the abuse of a dominant market position. The argument is supported by a Study commissioned by FIFPro and carried out by Stefan Szymanski, a Professor of Sports Management who is otherwise perhaps best known as co-author of the book ‘Soccernomics’. FIFA is clearly in a dominant market position in relation to football, and there is no doubt that the RSTP limits competition because of the restrictions it places on freedom of contract. The FIFPro complaint highlights three features of the RSTP which operate as restrictions on the labour market – (i) the calculation of compensation if a player terminates their contract without cause (Art. 17(1)); (ii) the imposition of a playing ban for the wrongful termination of a contract by a player during the first two or three years of a contract (Art. 17(3)); (iii) the rule that a contract with a different club may only be entered into in the final six months of a contract or after it has expired (Art. 18(3)).

The relationship between sport and competition law has, however, always presented a particularly complex problem. Sporting teams have an important interest in contractual stability – knowing that players signed for a period of time will be unable to leave, even if a wealthier team offers to buy out their contract. There is also an argument that contractual stability benefits players, because the contract of an injured player cannot be terminated by their club. The objective of contractual stability is, however, at least apparently in tension with a free and competitive labour market, and thus it has long been understood that sport requires particular treatment. Article 17(1) of the RSTP indeed expressly requires that “the specificity of sport” be taken into account in calculating compensation for wrongful termination of contract – this was one of the factors leading the CAS in Matuzalem to award such substantial damages. FIFPro’s key argument is therefore that these aspects of the RSTP offer sport too much particular treatment, to the disadvantage of the professional footballers whose labour market mobility is reduced.

A second aspect of the FIFPro argument is the contention that the scale of transfer fees means that only the few wealthiest clubs are able to compete for the elite footballing talent. Although the figures involved may be large, in practice, the argument goes, these clubs are both buying and selling players at this scale, and are thereby (in conjunction with Financial Fair Play regulations) effectively pricing other clubs out of the market for the best players. The effect of this practice is both to reduce competition, leading to the dominance of the same handful of clubs each year (Leicester City’s performance this season being a notable exception) and thereby to reduce the size of the labour market for players to compete at the highest levels of the game. However, it is not only transfer fees that separate the rich clubs from the rest. The largest expenditure of most clubs is usually on players’ wages. Without some form of wage cap or collective agreement (which Prof. Szymanski appears to advocate but which could itself, no doubt, be subject to competition law challenge) it could be argued that rather than create a more level playing field the abolition of football transfer fees might cause more harm to the poorer selling clubs who are at least able to be compensated for losing players to the richer clubs that can afford higher wages and transfer fees.

It is extremely difficult to imagine that the European Commission will require the dismantling of the transfer system altogether, or the abolition of transfer fees. Indeed, the Commission may well simply refuse to entertain the complaint altogether, on the basis that it falls outside its area of interest and is better pursued within national courts. Much will depend on the distinction which the Commission recently announced defines its area of interest in sport; is the complaint simply a dispute “related to governance” or “the application of sporting rules to individuals” or is it, perhaps more likely considering the economic effect of the transfer system and the way it serves to bind a player to a club, a complaint about anticompetitive agreements and the abuse of dominant market positions which can act to prevent a player from taking part in sport?

However, should the Commission (or others as a result of FIFPro’s complaint and associated campaign) determine that the system is not functioning in a satisfactory way, there are a number of modifications which could be made to the rules which would have the effect of increasing the flexibility of the labour market and thus would be likely to reduce transfer fees, with the money most likely to go instead to player salaries. For example, the maximum length of contracts could be reduced from five years to four, giving players more opportunity to obtain or at least threaten a free transfer, or the damages payable for the termination of the contract by a player without just cause could be reduced, overriding the Matuzalem decision. One key concern which is likely to be raised is the risk that reductions in transfer fees would reduce the incentives for clubs to develop young players, although the RSTP rules do provide for training compensation (Art. 20) and a solidarity mechanism (Art. 21), each of which secures financial support for clubs which have contributed to a player’s training. If changes were to be made to the rules regarding contracts and transfers, these may need to be counterbalanced with adjustments to these provisions – such adjustments may in any case be considered as a means of addressing competitiveness. The consequences of all such changes would, of course, be difficult to predict with complete confidence, and any modifications of the FIFA RSTP would require long and complex negotiations with a range of stakeholders.

When one reads about the salaries of the highest paid footballers, some might find it difficult to be entirely sympathetic to the argument that the transfer system is harmful to the position of professional footballers. But the FIFPro challenge is less about the position of the elite and more about the average professional footballer around the world, most of whom are on salaries much closer to those of ordinary workers, and some of whom are badly treated, regularly not paid by their clubs, and yet unable to move on. If changes to the rules governing the transfer market were to reduce the amount of money spent on transfer fees, increase freedom and job security for more players, and promote greater competition between clubs, such a development would be likely to be welcomed not only by lawyers, but also by most football players and fans around the world.

Nick De Marco is a barrister at Blackstone Chambers specialising in sports law and disputes in football. He was a recent guest speaker at the FIFPro Legal Legends international conference and regularly represents the English Professional Footballers Association.  Dr Alex Mills is a member of Blackstone Chambers’ Academic Research Panel and the UCL Faculty of Laws.

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