Annual Report 2006 - CHAPTER 2 Promotion of competition

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"Annual Report 2006"

CHAPTER 2
Promotion of competition

2.1 Amendments to the Danish Competition Act

A number of proposed amendments to the Danish Competition Act have been well underway during 2006.

The proposed amendments contain a leniency programme for cartel cases. The programme introduces the possibility to grant participants in a cartel withdrawal of the charge or reduction of the fine that would otherwise have been imposed provided that the leniency applicants submit evidence of which the competition authorities were not already in possession. The first applicant has the possibility to be granted withdrawal of charge. Subsequent applicants fulfilling the conditions can be granted respectively 50 per cent for the first applicant, 30 per cent for the second applicant, and for the subsequent applicants up to 20 per cent reduction of their fines.

In order to qualify for leniency, the applicants must fulfil various additional criteria. Applicants must cooperate fully and loyally with the authorities during the investigation of the alleged cartel. Applicants must end their activities in the cartel immediately following their application and must not have forced others to participate in the cartel.

The proposed leniency programme will be administered jointly by the Competition Authority and the Public Prosecutor for Serious Economic Crime. In most cases it will be the Competition Authority who will grant a reduction of fines but only the Public Prosecutor can grant withdrawal of the charge. The handling of each leniency case will be done in close co-operation between the Competition Authority and the Public Prosecutor and no decision will be made prior to submitting the matter to the other party.

New investigative tools for the authorities are proposed. When on inspection, the Competition Authority is given access to inspect the content of bags, pockets and the like of relevant members of staff and of board of directors. It is also proposed that the Competition Authority can remove identical electronic copies of computers and other electronic media from the premises of the undertaking for further investigation.

The amendments also entail that the Competition Authority can end a case by issuing administrative fines. In cases concerning violation of the Competition Act, legal members of staff of the Competition Authority will by appointment by the Director of Public Prosecutions be able to institute criminal proceedings and conduct certain trials in which the accused pleads guilty.

The independence and impartiality of the members of the Competition Council are made statutory and thereby clarified.

Several amendments are aimed at the public sector and at strengthening the competition on public assignments.

In certain areas, recipients of services can choose between a public and a private supplier. The Competition Council can examine the conditions of payment laid down by the relevant public authority regarding the settling with a private supplier in order to ensure equal and fair competition between public and private suppliers.

An obligation to publish a notice on public contracts not covered by the EU procurement rules, i.e. contracts on goods and services below the thresholds and on annex II B-services, is also proposed as well as a general access for the Competition Authority to obtain information on public purchases.

Furthermore, it is proposed that complaints before the Complaints Board for Public Procurement are given a short suspensive effect as a supplement to the newly introduced “stand-still system”. During this period of automatic suspension the Complaints Board is given the opportunity to decide whether the contract can be signed or the suspensive effect should continue until a decision on substance has been reached.

The proposed amendments have been put forward in February 2007 and are expected to come into force by 1 July 2007.

2.2 Infringements of the Competition Act

Cartels represent one of the most obstructive types of anti-competitive behaviour. Investigation and inquiry into such activities are therefore given top priority by the Competition Authority. Investigations into both cartels and other matters concerning infringement of the Competition Act are generally based on information received by the Authority from companies and the public by way of complaints, inquiries, etc. However, the Authority also collects information as part of its general market monitoring and case administration work.

By means of a court order the Competition Authority can conduct dawn raids (unannounced inspections) and gain access to the premises of an undertaking or association with the purpose of becoming acquainted with any information on the site that could reveal infringements of the Competition Act. In 2006 the Competition Authority conducted a number of dawn raids.

Not only actual cartel agreements infringe the Competition Act. Other anti-competitive agreements and behaviour, e.g. resale price maintenance/fixing and abuse of dominant position, have a significantly harmful impact on the relevant market and the consumers. Consequently, the Competition Authority also attaches great importance to the disclosure of and the investigation into such violations.

2.3 Decisions

The Competition Council decided 15 cases in 2006. The Competition Authority made 186 decisions. There has been a decrease in the number of decisions since 2004. However, the workload has not been reduced since cases are getting more complicated.

The Competition Council may review cases on its own initiative, upon notification or complaint, or cases, which are referred to it by the European Commission or other EU competition authorities. The Competition Council decides whether a complaint gives sufficient grounds for investigation and decisions including whether the investigation of a case shall be suspended temporarily or finally, that is, the Competition Council can dismiss to investigate complaints any further if it so wishes.

Competition cases 2004 - 2006*

* The basis of calculation has been changed as of 1 January 2007. Therefore, figures cannot be compared to previous years’ annual reports.

Council decisions can be based upon both section 6 of the Danish Competition Act and Article 81 of the EC treaty or section 11 of the Danish Competition and Article 82 of the EC treaty. If a case decision is based upon Articles 81 or 82 the case decision will be submitted to ECN (European Competition Network Interactive Case Handling System). Submissions have been made since 1 May 2004.

Council decisions by application of Articles 81 or 82*

* Based on case submissions to ECN.

Decisions of the Council and the Authority can be appealed to the Competition Appeals Tribunal. 12 cases were decided by the Tribunal in 2006. Of these, seven were overruled or remitted for retrial. Decisions of the Appeal Tribunal can be brought before the courts. In 2006 the court system decided one case in relation to decisions by the Competition Council appealed to the Appeals Tribunal – the case was decided in favour of the Competition Council.

Average duration of case handling, Competition 2003 - 2006 (months)*

* Figures are exclusive of cases submitted to the Public Prosecutor for Serious Economic Crime.

Some of the major cases decided by the Council, the Appeals Tribunal or the courts in 2006 are described below.

2.4 Anti-competitive agreements

The Danish High Court affirmed the ban on reporting of prices and profits

In November 2006 the High Court of Western Denmark affirmed the Competition Council’s decision in a case concerning the clothing company Bestseller A/S’ agreements with independent shops. The Court also held that Bestseller was to pay more than DKK 100,000 in legal costs. Bestseller is the owner of the clothing brands Vero Moda, ONLY, JACK & JONES and EXIT, among others.

The case began in 2003 when the Competition Council ordered Bestseller to change its agreements. The agreements required that the shops follow the recommended prices fixed by Bestseller (maintenance/fixing resale price). Bestseller complied with this order and the provisions were subsequently removed from Bestseller’s agreements with the shops.

In addition, the Competition Council ordered Bestseller to change its IT system so that the independent shops do not report their sales prices of and profits on the individual products to Bestseller. This order was initially appealed to the Competition Appeals Tribunal which affirmed the Council’s decision. Subsequently, the decision was appealed to the High Court, which also afirmed the Council’s decision.

The High Court found that the connection between the terminated provisions regarding fixed resale price and the fact that Bestseller continued to require that the shops report their sales prices and profits for every single product was of such a nature that the reporting scheme was contrary to the provisions of the Danish Competition Act regarding anticompetitive agreements.

The Competition Authority was very satisfied with the judgment as it demonstrated that it is illegal for manufacturers to dictate the prices for their products in independent shops. In addition, the judgment demonstrated that manufacturers, which have previously recommended fixed prices, cannot implement systems that can be used to check if the shops follow the recommended prices.

2.5 Abuse of dominance

Elsam’s sale of electricity

In 2006 the Competition Appeals Tribunal decided that the energy company Elsam A/S (today a part of DONG Energy) had abused its dominant position on the market for wholesale of electricity in Denmark west of the Great Belt by selling electricity at unreasonably high prices on the spot market at the power exchange Nord Pool.

This case was an indirect consequence of the Competition Council’s decision of 30 November 2005 that Elsam A/S had sold electricity at unreasonably high prices for 900 hours during the period from 1 July 2003 to 31 December 2004. The Competition Authority found that Elsam A/S’ conduct caused the electricity consumers (corporate and non-corporate) a loss of DKK 187 million during that period. Due to the nature of the case, a number of enterprises have supported the decision of the Competition Council in connection with the Competition Appeals Tribunal’s review of the case.

Elsam A/S abused its position i.a. by entering bids in Nord Pool, which for some hours created bottle necks in the transmission cables between the western part of Denmark and Norway and Sweden. Elsam A/S’ strategy entailed that for some hours Elsam A/S was able to charge unreasonably high prices because competition from Norway and Sweden on the electricity market west of the Great Belt was partly cut off.

At the same time the Competition Appeals Tribunal revoked the order regarding prices issued by the Competition Council on 30 November 2005 to Elsam A/S. The purpose of the order was to prevent Elsam from entering bids in Nord Pool which lead to unreasonably high prices in the western part of Denmark in the future.

The Competition Authority will now be reopening two cases regarding high electricity prices in 2005. The reason for reopening the cases is the fact that the Competition Authority has received a number of complaints regarding Elsam A/S’ conduct in 2005 and the conduct of the largest eastern Danish electricity producer Energi E2 in 2005. Both companies are a part of DONG Energy today.

In order to ensure a well-functioning electricity market, the Competition Authority will also be discussing the future market conduct on the electricity market with DONG Energy.

Arla Foods stopped illegal trade with competitor

In February 2006 the Court in Århus fined Arla Foods A.m.b.A. DKK 5 million for abuse of its dominant position. The nature of the abuse was Arla’s having paid one of its customers – Metro – a sum of money to discontinue trade with one of Arla’s small competitors, the coop dairy Hirtshals Andelsmejeri.

The case began in October 2003 when Hirtshals Andelsmejeri contacted the Competition Authority. The coop dairy had just concluded an agreement with Metro which was cancelled again after only a few days of deliveries. Hirtshals Andelsmejeri suspected that Arla was behind the cancellation.

Consequently, the Competition Authority made some unannounced inspection visits where documents were found which i.a. proved that Arla had paid Metro a so-called anniversary contribution on the condition that Metro removed Hirtshals Andelsmejeri’s products from its product range.

Following further investigation, the Competition Authority filed a report against Arla in March 2004 with the Public Prosecutor for Serious Economic Crime, which in the spring of 2005 decided to bring charges against Arla.

The judgment which has now been handed down is interesting for several reasons. For one, it is the first judgment concerning violation of the prohibition against abuse of dominance. It is also the first judgment handed down after the Danish Competition Act was amended in 2002. The amendment had the purpose of providing more rigorous provisions as to the penalty for violations of the Danish Competition Act.

2.6 Mergers and acquisitions

Merger control was incorporated in the Danish Competition Act in 2000. In 2006, the Competition Authority  handled eight merger cases.

The threshold value for mergers in Denmark is DKK 3.8 billion. The Competition Act includes a special provision on mergers not to be found in any other country. According to this provision, the parties may obtain a preliminary approval, which is not published until later, at an agreed time. This provision may in some negotiations be expedient for the parties – and is naturally only applied in cases where it is quite evident that the merger shall have no impact on competition.

Establishment of distribution company for free newspapers

In August 2006 the Competition Council approved the establishment of a joint venture between Post Danmark and 365 Media Scandinavia. The collaboration between Post Danmark and 365 Media Scandinavia concerned a distribution company for distribution of direct mail before 7 a.m.

The establishment of the joint venture was approved after Post Danmark and 365 Media Scandinavia had both entered into material commitments which eliminated the competition concerns to which the collaboration would otherwise give rise. Without the commitments the collaboration would enhance Post Danmark’s dominant position on the market for distribution of direct mail and thus restrict competition considerably.

The commitments ensured that Post Danmark and the joint venture would be kept separate from each other and that Post Danmark would not give the joint venture special advantages or exchange services with it on terms that would restrict competition on the market. This was i.a. realised by ensuring that Post Danmark would not be able to transfer special resources such as keys and customer databases to the joint venture.

The commitments also ensured that Post Danmark would not be able to use the joint venture to carry out activities which by virtue of Post Danmark’s dominant position would be contrary to the Danish Competition Act. This was i.a. done by ensuring that the joint venture would comply with certain minimum prices and would only be able to conclude short-term agreements with customers.

2.7 Other decicions

The Competition Council may issue orders for the termination or repayment of aid granted from public funds, which has been granted to the benefit of specific forms of business activities, and which is not legitimate according to public regulation. This provision should be considered a supplement to the EC state aid rules. As a result, the Competition Council can intervene if the aid is not legal pursuant to statutory regulation and if it distorts competition. This also applies if public authorities sell or let land, commercial tenancies, etc. below market prices.

In principle, the Danish Competition Act strives to achieve the greatest equality possible between private and public business activities. If anti-competitive practice is a direct or necessary consequence of public regulation, the provisions of the Act do not apply. The assessment of this - which entails putting alternative legislation above the Competition Act - can only be made by the relevant minister answerable to the Danish Parliament. The minister responsible and the Minister of Economic and Business Affairs must motivate governmental restrictions on competition questioned by the Competition Authority.

The county of Funen granted anti-competitive aid to Internet portal

In September 2006 the Competition Council decided that the county of Funen had granted anti-competitive aid to Portal Fyn ApS in contravention of section 11a of the Danish Competition Act. The aid was granted for the establishment and development of the regional portal, fyn.dk, which is an Internet portal holding all information, public as well as commercial, about Funen.

This was the first time the Council issued an order for repayment of illegal aid.

The Council found that the aid was illegal because the county of Funen did not make sure that the aid was only used for the non-commercial portal pages to which the county of Funen could grant legal aid.

The fact that the aid granted by the county of Funen exceeded Portal Fyn’s costs for developing the non-commercial pages of the portal meant that Portal Fyn was overpaid for the task and thereby, the county of Funen indirectly paid for the development of a part of the commercial pages of the portal. Consequently, the county of Funen granted anti-competitive aid to Portal Fyn which obtained an illegal financial advantage of DKK 46,542. On that basis the Competition Council decided that Portal Fyn was to repay the illegal and anticompetitive aid of DKK 46,542 to the county of Funen.

Several facts were of decisive importance to the Council’s conclusion. First, the project was not subject to sufficient competition. Consequently, the county of Funen chose Portal Fyn for the job without inviting tenders for it. Second, the county of Funen did not ensure that the aid was used only for establishing and developing the non-commercial portal pages. That fact previously led the state county of Southern Jutland, which is the supervisory authority of the county of Funen, to conclude that the county’s aid to Portal Fyn was illegal.

The Competition Council wants competition on maps and geodata on equal terms

In June 2006 the Competition Council contacted the Minister for the Environment in connection with the anti-competitive effects of the pricing of the products of the National Survey and Cadastre.

The National Survey and Cadastre is an important player on the market for maps and geodata. The National Survey and Cadastre is in charge of surveying, mapping and the sale of maps and geodata. The rules governing the pricing of the National Survey and Cadastre are anti-competitive as a number of the products receive aid granted from public funds, thus distorting competition in relation to the private players on the market.

Therefore, the Competition Council recommended that the prices of the National Survey and Cadastre should cover its costs so as to ensure equal competition compared with the other suppliers on the market. At the same time the National Survey and Cadastre was to sell its products on the same terms to all its customers. No combination discounts were allowed on products subject to competition and products not subject to competition. If special areas were to receive aid from public funds, such aid was to be granted on the basis of analyses documenting the necessity of the aid.

The Council recognised the advantages of a common standard for the maps produced and noted that effective data capture could be secured by ensuring that public bodies were required to report all changes in geographical basic data to common public databases. All players, public as well as private, should be granted easy access to such databases.

As the rules governing the National Survey and Cadastre are subject to public regulation, the Competition Council could not intervene directly. Instead the Council made use of the possibility to contact the Minister for the Environment.

Version 1.0 May 2007 • © Danish Competition Authority.
Published by the Danish Competition Authority, http://www.ks.dk/
Publication produced according to the standard for electronic publication set by the Government