Overview
iiyama & Ors v Schott & Ors is an English case - not an EU court case, but nonetheless one with the potential to affect a number of civil cases that seek damages for alleged EU competition law infringements. Follow-on actions of European Commission (EC) Article 101 of the Treaty on the Functioning of the European Union (TFEU) infringement decisions will probably be the quickest and hardest hit. If the Directorate-General for Competition (DG COMP) has not read the judgment, it should do so. Since DG COMP is trying to facilitate and encourage private damages actions (see our briefing: “Full Speed Ahead with the EU’s Directive on Antitrust Damages Actions”) it may need to reconsider how it structures its cases and drafts its decisions.
Background
On October 19, 2011, the EC issued its Cathode Ray Tubes (CRT) Glass Decision (the CRT Glass Decision), which found that certain manufacturers of the glass that was used to make CRTs had infringed Article 101(1) TFEU. On December 5, 2012, the EC issued its TV and Computer Monitor Tubes Decision (the CRT Decision), which found, among other things, that certain manufacturers of CRTs had infringed Article 101(1) TFEU. Subsequently, iiyama Corporation, which has subsidiaries that sell monitors in the EU (the Claimants), brought a case against certain addressees of the CRT Glass and CRT Decisions (the Defendants). As it generally happens in civil cases, the Defendants raised a number of procedural issues at the beginning of the proceedings.
What’s the Problem?
None of iiyama’s subsidiaries purchased cartelized products from any of the Defendants. They purchased products that incorporated those cartelized products; but the Defendants’ sales of those cartelized products all took place in Asia and did not involve the EEA. As succinctly captured by Justice Mann, iiyama’s supply chain took the following form:
- CRT glass was made in Asia (or otherwise outside of the EEA)
- It was supplied to CRT manufacturers outside of the EEA (in Asia) who turned it into CRT
- The CRTs were sold to a monitor manufacturer or in some cases to dealers who sold on to monitor manufacturers. This step was generally in Asia (definitely outside of the EEA)[1]
- The completed monitors were sold to iiyama Corp, a Japanese company (in Asia)
- iiyama Corp sold the monitors to its EU subsidiaries (the Claimants). This is when the monitors entered the EEA
- The Claimants sold the monitors within the EEA
The Defendants’ objections, which took various procedural forms, challenged the Claimants’ ability to bring the case in the first place.
CRT Glass: You say Global Cartel, the EC says European Cartel
The Defendants argued that the Claimants’ case is a follow-on case, which relies solely on the Decisions. They are not making any standalone competition law infringement claims, which in itself is a problem. The issue is that the Claimants allege in their Particulars of Claim (e.g. their complaint) that the CRT Glass addressees were involved in a global cartel, but that is not what the CRT Glass Decision says. Justice Mann agreed. He pointed out that the CRT Glass Decision says that: (i) there was a cartel that was intended to operate in the European market; (ii) the cartel was intended to affect prices in the European market, and did so; and (iii) the sales that were affected by the cartel were the addressees’ sales into the European market to European customers.
The Claimants rely on sales outside of Europe to people who were not their European customers (and who were not the Claimants either). But, that type of claim does not fit squarely within the infringement found by the EC. And, the Claimants’ Particulars of Claim does not include any pleading explaining how a cartel’s price-fixing in Europe in relation to European pricing and European customers – which is what the CRT Glass Decision found and was therefore what the Claimants relied on – would have affected pricing in Asia of components manufactured in Asia, which then would have passed down a chain outside Europe, before ending up in monitors bought and brought into Europe by Claimants. Therefore, the Claimants could not maintain this claim.
CRT: You Say Global Cartel, the EC Says Global Cartel but…
As luck would have it, the EC did find a worldwide cartel in the CRT Decision and the Claimants did plead a worldwide cartel. That does not mean that the EU anti-cartel rules reached beyond the EU. Admittedly, the EC’s Decision does send some mixed signals as to the jurisdictional reach of its Decision.
In the section calculating the fine, the EC’s Decision states the sales of CRT directly or indirectly concerned by the infringement in the EEA were:
(a) Direct EEA Sales: CRT directly sold to customers in the EEA by one of the addressees
(b) Direct EEA Sales through Transformed Products: CRT incorporated intra-group into a final product and subsequently sold to customers in the EEA by one of the addressees
(c) Indirect Sales: the value of CRT sold by one of the addressees to customers outside the EEA, which then incorporated the CRT into the final product and sold them in the EEA
To calculate the value of sales in this case, the EC only used (a) and (b), although it states that it could have used (c), too. However, in different recitals in the CRT Decision, the EC states:
“[I]t can therefore be established that the cartel arrangements could and did have a substantial impact on the patterns of trade between Member States and on the EEA market through direct EEA sales of [CRT] and direct EEA sales through transformed products […] on patterns of trade between Member States and on the EEA market. […] Insofar as the activities of the cartel related to sales in countries that are not Member States or Contracting Parties to the EEA Agreement, they lie outside the scope of this Decision.”
It is clear that the EC concluded that there was a world-wide cartel that operated to affect European sales. The question is: did the EC make a determination of liability in relation to goods that were not sold into the EEA by the addressees (in original or transformed state) but which were sold by them upstream and sold into the EEA by third parties (“Indirect Sales”, above)? As pointed out by Justice Mann, the amount of a fine does not have to be inextricably linked to the infringement. For example, the size of the undertaking may be taken into account when the fine is being calculated; this fact does not directly relate to the infringement.
Clearly it was in the Claimants’ interest to argue that the EC had found an infringement in relation to Indirect Sales. Their entire case rested on this point. The Defendants countered that: (i) the EC had not made a finding of infringement in relation to Indirect Sales; it only considered it for the fine and (ii) such a finding would go beyond the scope of Article 101 TFEU regardless.
After combing through the CRT Decision, including the above-referenced recitals and reviewing various interpretative views, Justice Mann agreed with the Defendants’ first point. The EC had not found an infringement with respect to Indirect Sales. Furthermore, the Claimants had not pleaded anything beyond the CRT Decision or explained how the infringement that was found would have affected Indirect Sales. The Defendants’ second point is addressed below.
Where Does It End?
The EC found that the CRT cartel was worldwide (which the Claimants also pleaded) but the infringements of Article 101 TFEU were only in relation to sales by the cartelists in or into the EEA. The Defendants argued that regardless of what the Claimants pleaded, they cannot claim an infringement of Article 101 TFEU for their particular fact pattern – there has to be a link between the infringement and the Claimants’ purchases. Foreign cartelists cannot infringe Article 101 TFEU unless either their cartel is “implemented” in the EEA or it has immediate, substantial, and foreseeable effects in the EEA. Therefore Justice Mann had his attention turned to the burning question – are there territorial limits to the application of Article 101 TFEU, and if so, what are they?
In order to firmly establish and assert jurisdiction, the EC needs to be satisfied that the investigated facts demonstrate a pattern of conduct that has been implemented in the EU/EEA, in accordance with the “implementation” doctrine. In the absence of implementation, there may be an alternative test, although it has not been clearly established as such. The alternative is that the EC needs to show that the conduct had substantial, immediate, and foreseeable effects, in accordance with the “qualified effects” doctrine.
A brief overview of each doctrine, as developed by EU courts, is provided below.
Implementation Doctrine: In A. Ahlström Osakeyhtiö and others v Commission (Woodpulp I), the Court of Justice of the EU (CoJ) relied on the implementation doctrine to establish that the EC had jurisdiction over cartel conduct of companies located outside the EU territory. The case revolved around a number of non-EU‐based wood pulp producers who had engaged in allegedly unlawful coordination relating to prices charged to papermakers in the EU. The EC fined the infringing parties on the basis that their anti‐competitive practices affected competition within the EU. The producers lodged an appeal before the CoJ arguing that the case did not fall within the territorial ambit of EU competition law. The CoJ rejected the appellants’ allegations. It stated that for any anti‐competitive conduct under Article 101 TFEU, two distinct elements are required: (i) the formation of an agreement or concerted practice among competitors; and (ii) its implementation in the EU.
The CoJ ruled that the decisive element for jurisdiction is always the place where the cartel was implemented. As Justice Mann points out, there is no suggestion that infringement can be found where the effects of the cartel are “somehow” felt in a more indirect way. Even giving the Claimants the most favorable view possible, Justice Mann could not see how the cartels were implemented in the EEA. The fact that iiyama’s purchases somehow may have been affected by the cartel was not enough. The principles of Article 101 TFEU and international law, as well as comity, require something more.
Qualified Effects Doctrine: In Gencor Ltd v Commission (Gencor), the General Court of the EU (General Court) relied on the qualified effects doctrine to establish the EC’s jurisdiction over a merger of companies located outside the EU territory. The General Court stated that the EU Merger Regulation does not require the undertakings concerned be established and/or their production activities be carried out in the EU. It is sufficient for the EU Merger Regulation to apply where the merger between undertakings located outside the EU territory has an: (i) immediate; (ii) substantial; and (iii) foreseeable effect on the EU/EEA market.
In Gencor, the General Court concluded that, even though the structural changes were taking place outside of the EU/EEA territory, the EC had jurisdiction over the merger because of the resulting concentration’s likely impact on the EU/EEA market. The General Court’s judgment did not rest on the theory that allegedly anti‐competitive conduct had been implemented in the EU/EEA territory. The General Court had recourse to the qualified effects doctrine in order to justify the extra‐territorial application of EU merger control law.
Justice Mann concluded that regardless of what the Claimants were to plead (either as a follow-on or standalone claim) the facts of the case simply could not satisfy either doctrine. The conduct that the Claimants relied on was too far removed. It was missing the necessary connection with the EU. This in turn meant that the Claimants had no case because they could not show an infringement of Article 101 TFEU.
Bold Statements?
Everyone must live with the EC’s infringement decisions – even the Brits for now. Therefore, the decisions need to be workable, well-drafted documents that authorities, judges, lawyers, potential claimants, and defendants can readily understand and apply. There is a time and place for bold statements and rhetoric – infringement decisions are not it. DG COMP should clearly and simply explain the scope of the infringement. If the infringing conduct took place outside of the EU, it should clearly explain the link between the conduct and the infringement, applying the “implementation” doctrine and/or “qualified effect” doctrine in a step-by-step process. Warning shots, such as the one made in the CRT Decision about the EC’s ability to take indirect sales into account for fining purposes but it choosing not to do so, are unhelpful. It should either be included in the fine or not. As Justice Mann pointed out, the infringement and the fine are related, but not inextricably so. Surely it would have been a stretch for the EC to have found an Article 101 TFEU infringement if only the indirect sales had been affected by the conduct, that is, if there had been no direct sales in or into the EEA of the cartelized products by addressees. Those types of behavior are better left to the jurisdictions more closely linked to the conduct.
[1] There was one exception; Mitsubishi – a manufacturer – had a UK subsidiary.