UK Competition slaughter and may

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1 23 April 6 May 2007 UK Competition slaughter and may Competition and regulatory developments in the UK Contents: Mergers Anti-Competitive Practices Regulatory Consultations EU Committee of House of Lords publishes report on possible creation of a European Competition Court Background Last year the Confederation of British Industry (the CBI ) put forward a proposal that the establishment of a new European Competition Court to operate as a judicial panel of the Court of First Instance (the CFI ) would reduce the length of time taken by the CFI to deal with appeals against adverse merger decisions by the European Commission (the Commission ). The European Union Committee of the House of Lords (the Committee ) used the CBI proposal as a basis for conducting an inquiry into the benefits of establishing a Competition Court. Evidence was collated from a number of parties including the CFI, the Commission s Directorate General for Competition, the Competition Appeal Tribunal, the Department of Trade and Industry, the Competition Commission and the Office of Fair Trading. The CBI proposal The time taken by the CFI in merger cases has come under criticism. The shortest time taken to date is seven months and, even where a fast-track procedure is used, proceedings may take months. The time taken is acknowledged to create uncertainty for merging parties. The CBI has suggested that the target should be to have appeals in merger cases resolved within 6 months and believes that this would best be achieved by a new Competition Court, with specialist judges and tailor-made procedures. A new Competition Court would however not only deal with merger cases, and would take on all competition cases referred to it by private parties and/or Member States with the exception of State aid cases. Causes of delay The CBI identified the following factors as causes for delay: > The need for translation. The CBI identify this as a major cause of delay as the working language of the CFI is French and therefore documents have to be translated from and to French. > The CFI is overloaded. This is said to be as a result of an increase in the number of trade mark cases. > Case management deficiencies. > Complexity of the case and volume of evidence.

2 Committee conclusions on the CBI proposal The Committee reached the conclusion that a new Competition Court would not be appropriate at the present time for the following reasons: > The Committee doubted whether a new Competition Court would resolve the problems associated with language because of political and practical considerations. A change to the language of the CFI would be politically sensitive. In any case, the Committee was not convinced that language issues were responsible for as many delays as the CBI thought. > A new Competition Court would not solve delays associated with the complexity of cases as the number and complexity of issues before the new Competition Court would be just as great as those faced by the CFI. In addition, the CFI already has the capability to adopt flexible procedures in order to hear cases quickly and in that sense has an advantage over a new Competition Court. > A new Competition Court would create another level of appeal as the decisions of the Competition Court could be appealed to the CFI, which in turn could be appealed to the European Court of Justice (the ECJ ). This would lead to further delays. > The Committee noted that there would be a risk that referring mergers and other competition cases to a lower court could give rise to a perception of a devaluation of aspects of competition policy. Alternative suggestions for dealing with delay The Committee went on to consider alternative solutions to the problem of delays: > The creation of a specialist competition chamber within the CFI. The Committee concluded that this suggestion was not attractive as this would lead to inflexibility as regards the allocation of cases between different chambers and could lead to increased delay. Without more judges it would also have no advantage over current arrangements and would also raise political issues, since it would result in a situation where the majority of Member States would not have a judge sitting on competition cases. > Reform of the CFI s Rules and procedures. The Committee noted that there should be a procedure by which the CFI and the ECJ could amend certain aspects of their own rules without having to seek political approval. However, any changes to the selection of language would be politically sensitive and so the Committee did not propose any changes to the language selection. Instead, the Committee considered the adoption of firmer case management by judges to be a change which could result in significant time savings. In particular the Committee referred to the case of EDP v Commission 1 as illustrating that opportunities are available in the current Rules to decrease delays. > Appointing more judges. The Committee noted that, although this solution seems simple and straightforward, past experience has shown that such an approach raises sensitive political issues since there would have to be agreement on who the additional judges would be and which privileged States would have a second judge. > Time for appeals. This would involve allowing a party to appeal on the basis of a short document supplementing the application, with detailed pleadings and evidence following shortly thereafter. The Committee stated that this proposal merited further consideration, provided that safeguards were put in place to avoid speculative or unmeritorious appeals. > Six month target. The Committee queried whether six months would be adequate to save a merger, although this could only be answered on a case by case basis. The Committee went on to say that if a case lasted longer than six months, this would almost certainly prevent a merger from happening. The Committee considered six months to be an achievable target, especially if stricter case management were adopted such that prolongation of proceedings would not be permitted. Also, the ability of the parties to request an accelerated procedure was something that the Committee thought required further consideration. 1 Case T-87/05 EDP v Commission [2005] ECR II slaughter and may

3 > Judgments. Shortening the length of judgments, meaning there would be less to translate, was an option the Committee hoped the Court of Justice would consider. > Taking decision-making away from the Commission. This would involve a body independent of the Commission taking any decision to block a merger. This was stated by the Committee to be of only academic interest. The Committee further noted that the opinions expressed by the respondents were not directed at any change in the basic system. > Enlarging the jurisdiction of the CFI. The Committee suggested that the CFI should be given the power, when it annuls a Commission merger decision, to adopt a decision itself instead of referring the decision back to the Commission. > Reducing the burden of cartel cases. The Commission has indicated that it is considering the introduction of plea bargaining in cartel cases. This would shorten the procedure within the Commission and reduce appeals against the fines. The Committee considered this to be a constructive proposal. > Transfer of trade mark cases to a judicial panel. Community trade mark work is a fast growing area of the CFI s workload and so the transfer of such cases could lead to a significant decrease in the CFI s workload. The Committee perceives this as one of the keys to reducing delays and is encouraging the Commission to give urgent consideration to this particular suggestion. Conclusion Any decision to establish a Competition Court could only be taken under Article 225a of the EC Treaty by the European Council on a proposal from the Commission or a request from the Court of Justice. On the basis of the evidence provided to the Committee, the Commission and the CFI appear to be against the idea and therefore such a proposal or request is unlikely to be forthcoming absent strong encouragement from Member States or the European Parliament. Therefore, the focus will now be on the alternative suggestions put forward for reducing delays. It will be interesting to see the extent to which the Committee s recommendations are implemented and how far they will go in reducing delays. Source: slaughter and may

4 A. Competition: Mergers Office of Fair Trading (OFT) Published Decisions 1. OFT publishes clearance decision in acquisition by Johnston Press of eight newspapers from Archant The OFT has published its clearance decision in the anticipated acquisition by Johnston Press of eight Scottish local newspaper titles and various associated assets from Archant Limited ( ). 2. OFT publishes clearance decision in acquisition by Lancashire United of business of Blackburn Borough Transport The OFT has published its clearance decision in the completed acquisition by Lancashire United Limited of the business and assets of Blackburn Borough Transport Limited ( ). 3. OFT publishes clearance decision in acquisition by FedEx Corporation of ANC Holdings Limited The OFT has published its clearance decision in the completed acquisition by FedEx Corporation of ANC Holdings Limited ( ). 4. OFT publishes clearance decision in acquisition by Barratt Developments of Wilson Bowden The OFT has published its clearance decision in the anticipated acquisition by Barratt Developments plc of Wilson Bowden plc ( ). Competition Commission (CC) References 5. OFT refers football pools merger to the CC The OFT has referred the anticipated acquisition by Sportech plc of the Vernons football pools business from Ladbrokes plc to the CC. Sportech trades under the Littlewoods and Zetters football pools brands, and the acquisition would mean that Sportech would own the three football pools operators in the UK ( ). CC Reports 6. CC publishes final report in Mid Kent Water/South East Water merger and orders price reduction The CC has published its final report into the merger between South East Water Limited (South East Water) and Mid Kent Water Limited (Mid Kent Water). The report concludes that the merger may be expected to prejudice Ofwat s ability to make comparisons between water enterprises, but that the extent of the prejudice is limited. The CC s remedies include a requirement for South East Water and Mid Kent Water to make a one-off price reduction to their customers totalling 4 million coming into effect in 2008/09 ( org.uk, ). Undertakings after a CC Reference 7. CC publishes notice of acceptance of final undertakings in SvitzerWijsmuller/Adsteam Marine Limited inquiry The CC has announced its acceptance of final undertakings from SvitzerWijsmuller A/S and Svitzer Marine Limited (Svitzer) in relation to the anticipated acquisition of Adsteam Marine Limited. The final undertakings prohibit Svitzer from obtaining any control or interest over the divested business ( org.uk, ). Other Developments of Interest 8. OFT reports to Secretary of State on BSkyB s acquisition of stake in ITV The OFT has reported to the Secretary of State on the completed acquisition by British Sky Broadcasting Group plc (BSkyB) of a 17.9 per cent stake in ITV plc. The OFT has found that: a relevant merger situation has been created; the situation has resulted in, or may be expected to result in, a substantial lessening of competition; and there was no offer of clear cut remedies sufficient to resolve the OFT s competition concerns ( ). 9. OFT accepts hold separate undertakings in Macquarie UK Broadcast Ventures/National Grid Wireless The OFT has announced that it has decided to accept hold separate undertakings given by Macquarie UK Broadcast Ventures Limited in relation to its completed merger of National Grid Wireless Group. The undertakings are without prejudice to the OFT s ongoing investigation ( ). 4 slaughter and may

5 10. OFT publishes document on consumer savings from merger control The OFT has published a research and discussion document entitled Consumer savings from merger control: Merger simulation for impact assessment which details the merger simulation methodology the OFT uses to estimate the impact of its role in the UK merger control regime ( ). 11. CAT publishes summary of application of appeal by Co-operative Group against OFT The CAT has published a summary of application by Co-operative Group (CWS) Limited (CGL) challenging a decision of the OFT refusing CGL s request for approval of Southern Co-operatives Limited as a proposed purchaser for businesses which CGL had agreed to divest pursuant to undertakings which the OFT had accepted in lieu of a reference to the CC of the completed acquisition by CGL of Fairways Group UK Limited ( ). 12. CC publishes notice and summary of provisional findings report in Kemira/Terra Industries joint venture The CC has published a notice of provisional findings in the anticipated joint venture between Kemira GrowHow Oyj and Terra Industries Inc. The CC has concluded that the joint venture may be expected to result in substantial lessening of competition in the market for the supply of carbon dioxide as well as those for related chemical products. The CC has also published a notice of possible remedies for consultation which include partial divestments and price control ( org.uk, ). 13. OFT requests European Commission to consider Apax Partners/Telenor Satellite merger The OFT has announced that, in accordance with Article 22 of the EC Merger Regulation, it has decided to request that the European Commission examine the anticipated acquisition by Apax Partners SA of Telenor Satellite AS (www. londonstockexchange.com, ). B. Competition: Monopolies and Anti-competitive Practices OFT Decisions 14. OFT closes investigation into alleged predation by BA on London City to Edinburgh route The OFT has closed its investigation into the allegation that British Airways (BA) was engaged in predatory pricing following its entry onto the London City to Edinburgh route. The OFT looked at BA s conduct over two different time periods. The OFT concluded that BA s conduct during the first period did not infringe the Chapter II prohibition of the Competition Act As to the second period, the OFT applied its casework prioritisation criteria to determine whether to continue its investigation and concluded that, as a matter of administrative priority, it would be appropriate to close the investigation ( ). 15. OFT publishes case closure summary in the investigation of ABI General Terms of Agreement The OFT has published its case closure summary in its investigation into the Association of British Insurers General Terms of Agreement between insurers and credit hire organisations. The OFT decided that the case no longer constituted an administrative priority, and in particular the OFT considered there to be a lack of consumer benefit in taking the case forward ( ). Other 16. OFT launches market study into personal current accounts The OFT has launched a market study into personal bank current account pricing. This is alongside the formal investigation into the fairness of charges for unauthorised overdrafts and returned items. The wider study will examine, amongst other things, the implications for competition and consumers if there were a shift away from free-if-in-credit current accounts to other pricing models, and the steps that can be taken to improve consumers ability to secure better value for money and drive competition ( ). 17. ORR refers the leasing of rolling stock for franchised passenger services to the CC The ORR has confirmed the results of its market study and concluded there are certain market features that are preventing, restricting or distorting competition. It considers that train operating companies may be paying higher prices and/or 5 slaughter and may

6 receiving a poorer quality of service than if competition was more effective. It has therefore decided that further investigation by the CC is required. The CC has invited evidence from all interested parties ( uk, ). 18. Ofgem issues supplementary statement of objections to National Grid following Competition Act 1998 investigation The statement of objections sets out Ofgem s proposed findings that National Grid has entered into long-term exclusive contracts for the provision of domestic gas meters with energy suppliers. Ofgem believes that National Grid s conduct amounts to an abuse of dominance ( ). 19. OFT launches criminal investigation into alleged international bid rigging, price fixing and market allocation cartel The OFT has launched a criminal investigation into suspected cartel conduct in relation to the market for marine hoses used to transfer oil. On-site searches are being carried out at two addresses in the UK, one of which is a home address. This is the first time that the OFT has carried out a search at a home address as part of a cartel investigation ( ). 20. OFT publishes speech by Chairman on benefits of dialogue for evolution of competition law and practice The OFT has published a speech by Philip Collins, Chairman of the OFT, at the seventh Annual Trans-atlantic Antitrust Dialogue conference. Mr Collins discussed the dialogue the OFT has with the European Commission and national regulators, and with the business and legal community. Mr Collins explained that dialogue has a real and substantial effect on competition law and practice ( ). C. Regulatory Energy 21. Ofgem announces results of switching rates and price gaps Ofgem has published its latest research which it states shows an increased level of switching amongst customers ( ). 22. Ofgem approves proposal to modify methodology for determination of NTS entry and exit capacity prices Ofgem has published a decision to approve proposals by National Grid Gas to change the methodology used for deriving prices for National Transmission System exit and entry capacity prices ( ). 23. Ofgem makes licence and network code modifications to facilitate introduction of the igt Network Code of Governance Ofgem published a statutory notice under section 7 of the Gas Act 1986 modifying Standard Condition 9 (SC9) of the gas transporters licence. It has also published a decision of the Gas and Electricity Markets Authority approving modifications to the Network Codes of the independent gas transporters (igts). Modifications to SC9 and the Network Codes are intended to facilitate the creation of a new Uniform Network Code ( ). 24. Ofgem modifies the gas transporter licence under section 23 of the Gas Act 1989 Ofgem has published a statutory notice under section 23 of the Gas Act 1986 to modify, with effect from 1 May 2007, special condition C3 of the gas transporter licence in relation to the regulated prices at which National Grid Gas (NGG) procures gas reserve from LNG storage facilities. These modifications stem from the gas transmission price control review and the review of system operator incentives ( ). Telecommunications/Media/Technology 25. Cable & Wireless withdraws dispute regarding BT s charges for connecting new customers Ofcom has announced that Cable and Wireless Access Limited (C&WA) has withdrawn its request for Ofcom to resolve a dispute between it and BT plc (BT) in relation to BT s charges for connecting customers to fully unbundled local loops. C&WA are now exploring commercial negotiations with BT ( ). 26. BT complaint regarding alleged breach of General Condition 18 by Spacetel Ofcom has published a notification issued to Spacetel requiring Spacetel to implement a compliant technical solution capable of meeting its General Condition 18 obligations by providing number portability to BT by 19 December 2007 ( org.uk, and ). 6 slaughter and may

7 27. Ofcom issues draft determination in dispute between BT Wholesale and various communications providers about NTS POLO charges Ofcom has provisionally decided that BT shall amend its NTS outpayments methodology and the terms on which BT shall provide the NTS Call Origination (including the provision of the outpayments) for calls to 0845 and 0870 numbers ( ). 28. Ofcom publishes consolidated version of General Conditions The General Conditions of Entitlement apply to anyone who provides an electronic communication service or an electronic communications network. This consolidation reflects Ofcom s recent amendments to the General Conditions, including updating the regulatory framework as it applies to VoIP services to help ensure that consumers interests could be best met, and the new general condition on broadband service migrations ( ). 29. Ofcom publishes update in disputes between H3G and each of O2, Orange and T-Mobile The update sets out the proposed scope of the disputes and the timeframes for comments, expressions on interest and the provision of evidence. The disputes concern donor conveyance charges ( ). Water 30. Ofwat publishes report on competition enquiries and complaints The report sets out the type and volume of competition enquiries and complaints that it received under the Water Supply Licensing regime and under the Competition Act 1998 between 1 April 2006 and 31 March 2007 ( ). 31. Ofwat publishes its responses to CC s provisional findings and remedies statement in Mid Kent Water/ South East Water merger Ofwat agrees with the CC that the merger will have a prejudicial effect on its ability to make comparisons. However, Ofwat considers that the CC has not given sufficient weight to the prejudice that the merger will cause. It considers that a structural remedy is the most appropriate option ( gov.uk, ). 32. Ofwat publishes document outlining best practice in the operation of Water Supply Licences (WSL) Ofwat has published the outcome of its internal review of market competition. It has also consulted on some specific aspects of WSL guidance and will publish a wider consultation paper in June In the meantime Ofwat encourages appointed water companies and licensed water suppliers to follow the best practice guidelines when adopting access agreements ( ). 33. Ofwat publishes approach to interim determinations Ofwat has published a letter setting out its intended approach to any interim determinations that it is requested to make or that it initiates in 2007 ( gov.uk, ). 34. Ofwat publishes position paper into Anglian Water s acquisition Ofwat does not consider that the recent takeover of AGW plc, the owner of Anglican Water, by Osprey Acquisitions Limited (Osprey) raises any significant regulatory issues. The decision follows a public consultation by Ofwat. Ofwat will modify Anglian Water s conditions of appointment to reflect the new ownership. Anglian Water s price limits will also remain unchanged for ( ). Postal Services 35. Postcomm publishes updated guidelines on exceptions to universal postal service Postcomm has published updated guidelines on the exceptions to Royal Mail s obligation to provide a universal postal service. The main exceptions to this obligation are where delivery is not possible for health and safety reasons or because of difficulty of access. The revised guidelines (including a statutory direction) set out the application of these exceptions; Royal Mail s obligations to offer and attempt to agree alternative delivery points; and the appeals process that applies in respect of Royal Mail s delivery decisions ( ). 7 slaughter and may

8 Consultations 36. ORR consults on changes to performance regime ( ). 37. Ofgem publishes further consultation on draft licence conditions for gas transmission price control (www. ofgem.gov.uk, ). 38. Ofgem consults on licence modifications resulting from supply licence review ( www. ofgem.gov.uk, ). 39. Ofwat consults on secondary supplies guidance for water supply licensing ( ). 40. Ofwat consults on changes to the water supply licensing (WSL) guidance ( ). 41. Ofgem consults on its proposal to modify the electricity transmission licence treated as granted to SP Transmission plc ( ). 42. Ofgem consults on application by Statoil for exemption from negotiated third party access regime (www. ofgem.gov.uk, ). For further information on any UK or EU Competition related matter, please contact your usual Slaughter and May contact, or: Lindsay Draffan One Bunhill Row London EC1Y 8YY United Kingdom T: +44 (0) E: Ingrid Lauwers Avenue de Cortenberg 118 B-1000 Brussels Belgium T: +32 (0) E: Published to provide general information and not as legal advice Slaughter and May, 2007 One Bunhill Row, London EC1Y 8YY, United Kingdom T +44 (0) F +44 (0)