- EU Court Considers Antitrust Liability for Failing to React to Third Party Actions
- July 31, 2015 | Authors: Alan Davis; Yvan N. Desmedt; Matt Evans; Alexandre G. Verheyden
- Law Firms: Jones Day - London Office ; Jones Day - Brussels Office ; Jones Day - London Office ; Jones Day - Brussels Office
- An advisor to Europe's highest court, the Court of Justice of the European Union ("CJEU"), is encouraging the CJEU to adopt a strict standard for companies to distance themselves from potentially anticompetitive actions by a third party with which they do business. In a case involving Lithuania's travel agents and their common on-line booking system provider, the CJEU must decide whether the travel agents can incur antitrust liability for not publicly distancing themselves from what appears to have been unilateral conduct by their common third party service provider.
In the Eturas and Others litigation (Case C-74/14), the Opinion of Advocate General ("AG") Maciej Szpunar, which is subject to the final judgment of the CJEU, establishes potential cartel liability for conduct that, on its face, appears to be a unilateral notice coming from a non-competing, third party service provider. Under the standard advocated, the fact that competitors were recipients of such a notice can lead to a finding of implicit horizontal collusion. Any recipient would have to publicly distance itself or report the matter to a competition authority in order to escape liability. While the conclusions of the AG may be limited to the particular facts of this case, if the Opinion is followed by the Court, increased caution will be warranted whenever competitors are dealing through common intermediaries or service providers.
"E-TURAS" is an online travel booking system used by more than thirty travel agencies in Lithuania. In August 2009, the system administrator, Eturas AB, posted a system notice informing its users (the travel agents) that discounts for online bookings would be capped at 3%. A technical restriction was implemented in the system on the same day, limiting the discounts to 3%. No travel agent objected to this notice or explicitly agreed to comply with the 3% cap. Subsequently, one travel agent provided the Lithuanian national competition authority with information about the arrangement and applied for immunity from fines under the national leniency regime.
Following an investigation, the Lithuanian Competition Council found that there had been a breach of national and EU competition law and imposed fines on Eturas (in its role as a facilitator) and all the participating travel agencies except the immunity applicant. The decision was subsequently appealed to the Lithuanian Supreme Administrative Court, which requested a preliminary ruling from the CJEU on how EU competition law applied to these facts and in particular on the precise scope of the concept of a "concerted practice."
What is a concerted practice?
Under EU competition law, a "concerted practice" is a form of coordination between companies that, while falling short of a formal agreement or decision, can amount to a breach of the prohibition on anticompetitive agreements when practical cooperation between the parties is knowingly substituted for the risks of competition.
The AG noted that established EU case law requires there must have been some concerted action between competitors for there to be a breach of Article 101 TFEU. However, on its face the system notice posted by Eturas appeared to be a unilateral communication from the online booking platform to each agent (its customers), restricting the discount option to 3%. Therefore, Eturas could be argued to have been acting independently in setting the terms for the operation and use of its booking platform, with the users of the system, the travel agents, being mere passive recipients of this notice.
The particular facts of the case led the AG instead to conclude there was in fact a tacit agreement among the travel agents. Hence, an implicit concerted practice could be established because (i) all travel agents had received the system notice, (ii) each travel agent knew that all the others had received it, (iii) each agent credibly could infer that all other agents would comply with the 3% cap, and (iv) the majority of the travel agents who had previously offered higher discounts then reduced their discount rates to 3%. The facts that Eturas had consulted at least some of the travel agents prior to the system notice (to which it referred in the notice) and that it had the technical ability to ensure automatic and immediate enforcement of the cap were of particular relevance to the AG's finding of concerted action.
In our view, the AG has taken an overly strict approach to establishing the liability of all the travel agents, where there were a number of countervailing arguments as to why no tacit agreement should be found for at least some agents. Some agents did not participate in the prior consultation or said that they had not read the system notice. The notice also only imposed a cap on the discount, and it was argued that there remained uncertainty as to what price an agent would quote a customer because the system still permitted individual lower discounts.
The position adopted by the AG is an aggressive approach and serves as a warning to all companies participating in similar platforms or systems operated by third party providers to monitor carefully actions taken by those third parties. This is particularly relevant in the e-commerce sector given that the operation of platforms is currently one of the key areas of focus in the European Commission's ongoing e-commerce sector inquiry.
Scope of obligation to actively distance from third party action
Of potentially greater concern is the position adopted by the AG with respect to how far a company must go to distance itself from these third party actions. Rules are clear that a company must take steps to actively distance itself from anticompetitive discussions between competitors or when commercially sensitive information is volunteered by one competitor. For example, a company that unprompted receives confidential information from a competitor can return the information or inform the competitor it has been destroyed, request the competitor not again send such information, and not rely on the information for commercial decisions. In those circumstances, the company that actively distances itself can generally avoid being implicated in a breach of competition law.
In the Eturas case, the AG's Opinion relied on this case law to require a public denunciation of the communication. The AG explained this would involve at least informing the system's administrator and those other travel agents the identities of which might be known.
While these actions do not appear inconsistent with the accepted position set out above, the AG then went further to say that public distancing could or should also involve informing its clients through its website and, if these means are not effective, reporting the matter to the administrative authorities. These actions must also be taken expeditiously or at least within a reasonable period of time after the action by the third party system administrator. It would be insufficient for the travel agent merely to act independently in the market, though it is not necessary to bring to an end its commercial relations with the system administrator.
In our view, the requirement to oppose the restriction publicly in the wide manner envisaged by the AG, including in particular the communication to customers, goes much further than previous case law and is inappropriate and unnecessary. Moreover, the proposition that a company in such a situation should report the breach to a competition authority is at odds with the established principle that companies are under no obligation to report to a competition authority all breaches of competition law that they identify. Of course, the option remains open to the company to decide to make an application for leniency
Preliminary rulings of the CJEU are binding on the referring national court as well as on national courts in all EU Member States. Should the AG's Opinion be followed by the CJEU - as it generally does - the consequences would be of particular significance to companies that rely on common platforms or service providers, especially in the e-commerce sector. It is already well understood that platforms and third party service providers may not be used as a cover or conduit for the unlawful exchange of information between competitors. This case shows that, even when there is no information exchange or explicit agreement between competitors, when they participate in such arrangements, they should closely monitor the operation of the platform and consider the appropriate reaction to avoid potential competition liability. We will continue to monitor this case and provide updates on further developments.