Paris competition newsletter

December 2011

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In this issue

In this issue:

  • We comment the merger decision of the European Commission which cleared the acquisition of control of Skype by Microsoft despite the significant market shares of the new entity.
  • We analyse the decision of the Paris Commercial Court ruling that the production of documents, in an action for anticompetitive damages, from the French Competition Authority’s file did not constitute a disclosure in violation of the secrecy of the investigation process.
  • We focus on the guide recently published by the European Commission setting out a number of measures enabling companies to ensure their actions comply with competition law.

Microsoft/Skype Merger: back to the future

Summary

By authorising the acquisition of Skype by Microsoft, the European Commission (the Commission) has demonstrated that when it comes to merger control, size isn’t everything, particularly in nascent and dynamic sectors. Although the case provides a good example of prospective analysis, it might be that it has gone too far this time.

In a decision of 7 October 2011, the Commission authorised Microsoft to acquire control of Skype, despite the significant market shares the new entity will have after the transaction.
The merger resulted in horizontal overlaps on the Internet consumer and enterprise communications markets. Microsoft (with Windows Live Messenger - WLM - for consumers, and Lync for enterprises) and Skype both offer communications software (instant messaging, voice and video calls) that can be used via Internet over various platforms (personal computers, smartphones, tablets).
While the Commission’s analysis is not surprising with respect to the market for businesses, since Microsoft’s share will remain relatively low post-transaction, when compared with the market leader, Cisco, some doubts may arise with respect to the market for consumers, in which WLM and Skype had a total market share of 30 to 40 per cent for instant messaging, 40 to 50 per cent for voice calls, and most importantly, 80 to 90 per cent for video calls made by the Internet.

Even though it acknowledged that Microsoft would acquire a dominant position in the consumer market, the Commission surprisingly considered that the merger did not raise any competition concerns, because:

  • this market is characterised by the availability of free software and the importance of innovation which should dissuade Microsoft from charging users for its services or rendering them less efficient except to favour competition,
  • Microsoft will still face intense competition, particularly from Google and Facebook, whose position should, according to the Commission, increase whereas WLM’s position would decline; as video calls are used in limited circles, consumers could also easily change to a competitor’s software.

Furthermore, even though the Commission noted Microsoft’s dominant position on related markets held by its operating system (Windows), Internet browser (Internet Explorer) and personal productivity application software (Office), the Commission also considered that risks of conglomerate effects should be excluded. It stated that Microsoft would have no incentive to implement strategies that would force competitors out of the market (such as degradation of interoperability with competitors’ platforms, tying and commercial bundling).

While the Commission’s decision to go beyond a simple look at market shares and a static analysis is welcome, it can be questioned whether the prospective view taken in this particular decision was not an audacious bet on the evolution of the market. Unless this decision is appealed before the General Court of the European Union within a reasonable time limit, the maintenance of a balance of competition will depend upon the prohibition of anticompetitive practices being sufficiently dissuasive in the event that the Commission’s forecasts are not materialised and Microsoft tries to misuse its new tool.

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Outremer Telecom Case: in private actions for damages, the secrecy of the investigation process is just a call away

Summary

In a decision dated 8 November 2011, the Paris Commercial Court (the Court) ruled on the ability to use documents resulting from the French Competition Authority’s (FCA) investigation file, in a follow-on damages action. This decision appears to provide some solutions to the main difficulty faced by the parties to an action for damages: the substantiation of their claims.

In a decision dated 9 December 2009, the FCA had imposed a fine of 63 million euros on Orange Caraïbe and France Telecom (OC-FT) for having abusively hindered the development of competition on the market for electronic communication services.

Thereafter, Outremer Telecom sought compensation from OC-FT before the civil courts for the damages it allegedly suffered as a result of OC-FT’s anticompetitive behaviour. In support of their defence, OC-FT submitted certain documents from the FCA’s investigation file. Surprisingly, the Court held that the production of such documents did not constitute a disclosure in violation of the secrecy of the investigation process, within the meaning of Article L. 463-6 of the French Commercial Code, thereby dismissing Outremer Telecom’s action which relied on this provision.

This decision was issued only a few months after the “Ma liste de courses” case commented on the Competition Newsletter of October 2011, n° 18, in which the Court required the FCA to produce several documents to which the claimant had access during the investigation. In the present decision, the Court extended such reasoning for the benefit of the defendant, allowing the production of documents from the investigation file without requiring the FCA to produce them.

Up to the present, the applicable case law resulted principally from the Semavem decision of the French Supreme Court dated 19 January 2010, which had confirmed the prohibition of disclosure set out in Article L. 463-6 of the Commercial Code, while allowing an exception to the prohibition: a disclosure is possible provided that it is established that the documents at stake are necessary for the party to exercise its rights of defence.

The commercial court decision is difficult to understand in light of the above mentioned principle. Indeed, without prima facie contradicting the Semavem principle, which the Court expressly refers to, the Court seems not to have ruled on the basis of the exception laid down in that decision. Instead, it tackles the problem at its roots holding that there cannot be a disclosure within the meaning of Article L. 463-6 since the parties were aware of the documents.

If this solution was consistently followed by the Courts, the scope of the matters protected by the secrecy of the investigation process would shrink almost to nothing, since the parties typically have access to many of the documents produced during the investigation process. The issue may arise with respect to documents protected as trade secrets (particularly electronic messaging systems, which are fully confidential); even so, since such documents are known only to the party from which they emanate, it can only be wondered how other parties might use them in the framework of civil proceedings.

Accordingly, the decision raises numerous questions. It will be necessary to wait for the positions of the Court of appeal, of the French Supreme Court and, probably also of the FCA, in order to determine how far the burden of proof as to an anticompetitive damage would be simplified.

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Compliance Programmes in competition law: a new indispensable tool for companies

Summary

At the end of November 2011, the European Commission (the Commission) published a guide on compliance matters setting out a number of measures enabling undertakings to ensure their actions comply with competition law. While the Commission, in so doing, clearly intended to increase the responsibility of undertakings for their own compliance, it is to be regretted that the implementation of such programmes does not in itself, in the event of potential proceedings, generate a financial benefit, particularly given the costs which it represents for undertakings.

The Commission continued its pedagogic efforts by publishing a guide on issues (the Guide) entitled «Compliance matters: what companies can do better to respect EU competition rules».

On the whole, this guide mirrors the Commission’s desire to impose on undertakings the responsibility for their compliance with competition rules. It both reminds the reader of the principal competition rules applicable and the risks incurred in case of non-compliance with such rules, and encourages undertakings to ensure their compliance with competition law.

It is to be regretted, in this respect, that the Commission’s position, confirmed in this guide, is that the implementation of a compliance programme will not be taken into consideration as a mitigating factor and, as a consequence, will not enable undertakings to benefit from a reduction of fines in the event of proceedings, even if such compliance programme fully follows the general provisions set out in the Guide.

This is probably the reason why, in the end, the Guide only gives few guidelines to undertakings: since no programme really enables the undertaking to benefit from a reduction of fine, it would not have been really consistent to propose a model programme or precise guidelines. In reality, according to the Commission, it is up to each undertaking to adopt a compliance programme fitting its own needs, given its size, activity or competitive environment. Moreover, the Commission emphasises that it is not its role to advise an undertaking on its compliance programme or to approve the content of such a programme.

In spite of this minimalist approach, there is a genuine interest for undertakings to implement a compliance programme, especially since infringements of competition law are more and more complex (concerted practices, information exchange …) which makes it difficult for operating staff to know exactly what limitations they must comply with. Thus, in addition to training sessions for employees on competition risks, the implementation of high-performance compliance programmes will facilitate the prevention and the detection of infringements to competition law, thereby making it possible to avoid, in advance of any actual proceedings, damage to the reputation of the enterprise and the risk of fines, particularly through the leniency programme. The increased visibility of practices implemented by the undertaking will also make it easier to make strategic decisions concerning alternative procedures (commitments, settlements).

Moreover, even though the Commission refuses to reward compliance programs, this is not the case of certain national competition authorities. The French competition authority indicated in its recent draft guidelines on compliance programmes published in October 2011 that the commitment to implement or improve a compliance programme, in the course of a settlement procedure, might allow for a reduction of fine up to 10 per cent of the fine incurred, although subject to particularly strict conditions. In the same way, the Office of Fair Trading admits that a compliance programme may, in certain cases, be taken into account as a mitigating factor and, as the case may be, lead to a reduction of up to 10 per cent of the fine imposed.

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