European Law - UU - Practice exam 2012/2013

Questions

Question 1

Frizzz is an undertaking having its headquarters in Berlin, Germany. Frizzz is producer of different types of soft drinks. The factories that produces the soft drinks distributes direcly to retail stores in Germany, Belgium, the Netherlands and Spain. Since 2010, X chooses to focus on producing only a few juices, which have been successful over the years. Specifically, X produces orange juice and apple juice.

In the market for distribution of orange juice Frizzz has a market share of 51% in Germany, 47 % in Belgium, 37% in the Netherlands and 28% in Spain. At the European level Frizzz has a market share of 45%, where its main competitors are Juicy and Fresh, both registered in Italy and both distributing their products in the German, Spain, Belgian and Dutch markets. Juicy has a market share of 23% at the European level while Fresh has a market share of 22% at the European level. Juicy and Fresh use the same business model as Frizzz which entails direct distribution to retailers, no wholesalers being involved. During 2010, 2011 and 2012 the prices for orange juice have increased steadily. The table below shows the evolution of prices for the X, Y and Z backpacks throughout these years.

End of 2010 End of 2011 End of 2012

X €45 €47 €49

Y €46 €48 €50

Z €42 €49 €51

The CEO's of Juicy and Fresh went to the same conference in Madrid with the same AirSpain flight departing from Amsterdam, sharing neighbouring business class seats. During the flight and also during the conference they discussed important aspects with regard to the production and distribution of mountaineering equipments in Europe. They both manifested their concern with regard to the costs of the ingredients their companies use for their products; they also exchanged opinions on how their know-how and testing specialists were accustomed to work and, most importantly, they agreed that based on their companies’ production and having in mind the costs incurred, the prices charged for their products are the ‘correct’ ones. Moreover, the two CEO’s were on the same page when talking about the price for the orange juice which they believed should not go below € 1,75 per bottle. During the second day of the conference, they met up with the CEO of Frizzz, with whom they had lunch and a couple of drinks together during the final conference reception. The three CEO’s agreed to keep in touch in the future and maybe organize a nice vacation in the near future.

Since the conference, the CEO’s of Juicy and Fresh exchange constant courtesy emails and phone calls; occasionally, they also send birthday cards to the CEO of Frizzz. In january 2011 the CEO of Frizzz decides not to return the courtesy and moreover, contemplates changing his business plans in the near future. For the first four months of 2011 the following marketing policies will be implemented by Frizzz. First, the decision to lower the prices for the Frizzz apple juice delivered to certain retailers will be taken. Thus, the German and Italian retail stores which by their own choice stock the Frizzz apple juice on their best viewed shelves and store display windows (therefore bringing it ‘closer to the end user’) will be supplied with full orders (as many items as requested by the retail stores in their invoices) of Frizzz apple juice for the price of €1,58 per bottle, which is 10% below the average total cost of production. Also, the CEO of Frizzz instructed his accountants to study the risks and the overall appropriateness of dropping the price for the X backpack even lower, below the average variable cost of production, in case Juicy and Fresh will react to the original price adjustment of january 2011.

Second, the German and Italian retail stores which by their own choice stock the Frizzz apple juice in the same conditions as they stock the Juicy and Fresh orange juice will be supplied with smaller quantities of the items requested.

Question 1a

Have X, Y and Z breached the provisions of Article 101 TFEU in any way between 2008 and 2010?

Question 1b

Are the marketing policies implemented by X in the first three months of 2011 in breach or Article 102 TFEU?

Question 2

The undertaking Party! is a private company which is specialised in party decorations. This undertaking has its registered office and main place of business in Milan, Italy. Celebration is also a privately owned company having its registered office and main place of business in Hamburg, Germany. Suppose Party! purchases 45% of the shares of Celebration and the voting rights pertaining to these shares amount to 55% of the total voting rights in Celebration. The total world-wide turnover of Party! and Celebration is € 7 billion. In the EU Party! had a turnover of € 3.5 billion in Spain and of € 1.5 billion in the Netherlands. Celebration has a turnover of € 550 million euro in Spain and of 350 million euro in the Netherlands.

Question 2a

Why should the transaction between A and B be regarded as a concentration that must be notified to the European Commission under the provisions of the Merger Control Regulation?

Question 2b

What does the application of the ‘one-stop-shop’ principle entail for A and B with regard to the transaction described above? Does the Merger Control Regulation (139/2004) provide any exceptions to this principle that A and B may benefit from?

Question 3

Suppose that the Italian government has changed its policy regarding the public broadcasting companies. One of the new tasks designated to these broadcasting companies is to promote Italian culture. The new (conservative) government is of the opinion that more tax money should be spent on financing events that are typically Italian. The Italian government has, therefore, established a new fund called More Culture On Television. The task of MCOR is to transfer tax revenues to public broadcasting companies making documentaries and events dedicated to Italian culture. One of the first applications MCOR had to decide on was submitted by a public broadcasting company that needed a subsidy in order to finance documentaries about some of the biggest painters, for example Michelangelo and Rafaël. As MCOR has decided to approve this application, a commercial company the main business of which is making the documentaries starts a proceeding, claiming that the EU state aid rules are violated. In court MCOR argues that its decision does not give rise to any state aid problem, as the tax revenues are allocated to public broadcasting undertakings, which are supposed to perform special tasks related to, for example, culture.

Is MCOR right in arguing that the EU state aid rules are not violated due to the (alleged) ‘special tasks’ of the Italian public broadcasting companies? What consequence should the national court draw from the finding that the point of view of MCOR is (in)compatible with EU state aid law? Please explain your answers.

Answers

Question 1

• Identifying X, Y and Z as being undertakings

• Art. 101:

  • Definition of the relevant market: product and geographical

  • Juicy and Fresh: cartel-like behaviour / concurrence of wills? / exchange of sensitive information

  • Juicy, Fresh and Frizzz: concerted practice / steady increase in price for the orange juice

  • Object – effect, intra-community trade, appreciability – 5 points

• Art. 102:

  • Dominance - Predatory pricing

  • Dominance - Reduction of output / Dissimilar conditions

  • Effect on trade

Question 2a

Is there a concentration?: a take over entailing the shift of control (decisive influence) within the meaning of Art 3 (2) Merger Regulation. After all, A controls 55% of the voting rights.

Is there a community dimension: see Art 1 (2) Merger Regulation. The world turnover exceeds 5000 million, whereas the turnover realised in the EU of both companies is larger than 250 million. So, the transaction amounts to a concentration with a Community dimension.

Question 2b

1. A Member States requests for referral of the case to its competition authority (Art 9 Merger Regulation). The Commission decides whether the case will be referred or not.

2. Art 4 (4) Merger Regulation: Parties to the concentration may request the Commission for referral to a particular national competition authority. It is up to the Commission to decide on this request. Further, the Member State concerned must also approve this referral.

Question 3

MCOR refers to the Altmark judgment According to the ECJ in this case financial advantages granted by a state body to an undertaking is not regarded as state aid, if these advantages aim at compensating the performance of PSO. However, four conditions must be fulfilled:

1. the undertaking in question is charged with the execution of a public service obligation

2. the parameters of the amount of the compensation are established in an objective and transparent way

3. the compensation does not go beyond what is necessary, and

4. in case that the public contract concerned is not subject to a public procurement procedure, the amount of the compensation is determined on the basis of the expenses a well-run undertaking would have incurred. It is questionable whether all these conditions are met. For example, it is not clear whether the parameters of compensation are known in advance.

It could also be argued that the granting of a subsidy is justifiable in the light of Art 106 (2) TFEU. Students could also refer to Art 107 (3), sub d (culture). If the Altmark approach is applicable, the subsidy does not need to be notified. In the case of Art 106 (2) or Article 107 (3) TFEU , prior notification is required and due to the standstill obligation the competent court must order the recovery of the subsidy in absence of such a notification.