U.S. DECISIONS

NINTH CIRCUIT AFFIRMS SUMMARY JUDGMENT FOR DEFENDANT RAILROAD ON MONOPOLIZATION AND ATTEMPTED MONOPOLIZATION CLAIMS

Truck-Rail Handling, Inc. v. Burlington Northern and Santa Fe Ry. Co., 2007 WL 2050860 (9th Cir. July 13, 2007).

The plaintiffs, Truck-Rail Handling, Inc. and Quality Transport, Inc., are "transload operators" who move freight from trains to trucks. The defendant, Burlington Northern and Santa Fe Railway Co. (BNSF), is a railroad that leases terminal facilities to the plaintiffs. BNSF requires transload operators, including the plaintiffs, to sign a "transload service agreement" as a condition of leasing its terminal facilities. 2007 WL 2050860, at *1. The decision does not discuss the terms of the agreements. The plaintiffs sued BNSF, alleging price fixing under Section 1 of the Sherman Act, and monopolization, attempted monopolization, and conspiracy to monopolize under Section 2. Id. The United States District Court for the Northern District of California granted summary judgment to the defendant on all claims, and the plaintiffs appealed. Id.

The Ninth Circuit affirmed the district court’s grant of summary judgment. As to the plaintiff’s monopolization and attempted monopolization claims, the court held that the plaintiff "failed properly to define the relevant product markets." Id. The plaintiffs had defined the relevant markets as "BNSF transload terminals" and "transload services provided to BNSF shippers." The court held that these markets were "unduly narrow" and "not defined from the perspective of the end consumer, as the cases require." Id.

On the plaintiff’s conspiracy to monopolize claim, the court also held there was insufficient evidence to show that BNSF had the necessary specific intent to conspire with the transloaders. Id.

NEW YORK COURT GRANTS SUMMARY JUDGMENT FOR DEFENDANT UNIVERSITY ON FRATERNITY’S HOUSING MONOPOLIZATION CLAIM

Delta Kappa Epsilon (DKE) Alumni Corp., et al., v. Colgate Univ., 2007 WL 1953149 (N.D.N.Y. July 2, 2007).

The defendant, Colgate University, is a small liberal arts college in Hamilton, New York. 2007 WL 1953149, at *1. Plaintiff Delta Kappa Epsilon (DKE) is a national fraternity, and plaintiff DKE Alumni Corporation is a non-profit organization that formerly operated DKE’s fraternity house on Colgate’s campus (together, DKE).

Following a deadly car accident caused by a drunken Colgate student and DKE member, Colgate adopted a new policy requiring all students to live in University-owned housing. Id. Under the policy, Colgate required all fraternities and sororities to sell their chapter houses to the University or lose Colgate’s recognition. DKE chose not to sell its house, and Colgate withdrew its recognition. DKE argued that the new housing policy amounted to monopolization of residential services in violation of Section 2 of the Sherman Act. Id. at *6. Colgate moved for summary judgment. Id. at *1.

DKE alleged a market for student residential services in the city of Hamilton and its immediate vicinity. Id. Colgate argued that the market was elite liberal arts colleges nationwide. The parties agreed that in one market, which Colgate deemed the relevant market and DKE termed a primary market, college applicants shop for highly selective colleges. Id. at *9. Relying on Eastman Kodak Co v. Image Technical Services, 504 U.S. 451 (1992), however, DKE argued that the relevant market was the alleged aftermarket for local student housing services. Once students decide to matriculate at Colgate and pay a substantial initial payment, DKE contended, they cannot switch to the myriad alternative schools. Id. at *9. The court rejected that argument. The housing constraints flowed from students’ implied contract with Colgate to comply with its housing and other policies, the court held, and economic power derived from contracts affecting “a distinct class” of consumers cannot sustain a monopolization claim. Id. at *10 (quoting Hack v. President & Fellows of Yale College, 237 F.3d 81, 85 (2d Cir. 2000)). As a matter of law, the court held, Colgate’s exercise of its “parietal rights” to enforce a residential housing policy was lawful and appropriate. Id. The court therefore granted summary judgment on DKE’s monopolization claim.

VIRGINIA COURT HOLDS THAT ATTEMPTED MONOPOLIZATION CLAIM THAT FAILS TO ALLEGE MARKET SHARE, WHILE WEAK, CAN SURVIVE A MOTION TO DISMISS

Rescue Phone, Inc. v. Enforcement Technology Group, Inc., 2007 WL 2045514 (E.D. Va. July 9, 2007).

The defendants argued that Rescue Phone failed adequately to plead a relevant market, for two reasons. First, the defendants argued that the difference between the “hostage negotiation telephone systems” sold by Rescue Phone and the “hostage negotiation systems” sold by ETGI caused Rescue Phone’s claim to fail as a matter of law. Id. at *3. The defendants’ systems allegedly include video and audio technology in addition to the standard telephone communication allegedly offered by Rescue Phone, the defendants argued, and the parties’ products therefore occupy separate markets. Id. Accepting the plaintiff’s allegations as true, namely that both ETGI and Rescue Phone deal in the same product, the court held that both ETGI and Rescue Phone are active in the same product market, despite Defendants’ “semantic argument” regarding the omission of the word “telephone” in Rescue Phone’s complaint. Id.

Second, the defendants challenged Rescue Phone’s alleged geographic market. Id. The complaint alleged in some portions of the complaint that the relevant geographic market was nationwide, and in others that it was limited to Virginia. Id. The court acknowledged ambiguity in Rescue Phone’s complaint, but nevertheless held Rescue Phone’s relevant market allegation to suffice, because either alleged market separately would suffice. Id.

The defendants next argued that Rescue Phone failed to allege a dangerous probability of monopolization. Id. at *4. Rescue Phone had not alleged that the defendants had any particular market share. The court held, however, that the defendants cited no precedent for the proposition that Rescue Phone must allege market share as part of its attempted monopolization claim. Id. The court also held that a weak showing of market power can be offset by more compelling evidence of monopolistic intent or anticompetitive conduct. Id. (citing M & M Med. Supplies & Serv., Inc. v. Pleasant Valley Hosp., Inc., 981 F.2d 160, 168 (4th Cir. 1992)). Here, Rescue Phone had alleged that (1) the defendants acted intentionally, fraudulently, and recklessly in obtaining the patent at issue; (2) ETGI’s attempted enforcement of its fraudulently obtained patent threatened market competition by dissuading consumers from purchasing Rescue Phone’s products; and (3) ETGI made statements to consumers in the relevant market that Rescue Phone does not have the right to sell its products in violation of ETGI’s patent, which damaged Rescue Phone’s business. Id. The court held that these allegations sufficiently pleaded anticompetitive conduct and specific intent. Id. While noting “the failure to allege market share weakens the claim considerably,” the court denied the motion to dismiss. Id.

The court noted that because Otto is an employee of ETGI, Rescue Phone probably could not prove that he has any market share aside from that held by ETGI. Id. It also held, however, that a claim for attempted monopolization does not automatically fail despite alleging a particular defendant’s low market share. Id. (citing M & M Med. Supplies & Serv., Inc. v. Pleasant Valley Hosp., Inc., 981 F.2d 160, 168 (4th Cir. 1992)). The court thus concluded that Rescue Phone adequately stated a claim for attempted monopolization against Otto and denied the defendants’ motion to dismiss. Id.

CALIFORNIA COURT DENIES DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT ON SECTION 2 MONOPOLIZATION, ATTEMPTED MONOPOLIZATION, AND CONSPIRACY CLAIMS IN UTILITY VAULT MARKET

Jensen Enterprises Inc. v. AT & T Inc., 2007 WL 2009797 (N.D. Cal. July 6, 2007).

Plaintiff Jensen Enterprises Inc. manufactures and sells pre-cast concrete vaults used by telephone companies to connect newly constructed homes and businesses to the existing landline telephone network. The vaults are also used to connect properties to electric utilities. Defendant Oldcastle, Inc. is a direct competitor of Jensen. Defendants Pacific Bell, Nevada Bell, and SBC Services (collectively, AT&T) are the sole providers of landline telephone services in most of California and Nevada. The developer of a new property purchases and installs a vault and then is typically required to resell it to AT&T before AT&T will provide the landline telephone service to the property. Thus, AT&T is the ultimate purchaser of most telephone vaults sold in California and Nevada.

Plaintiff Jensen Enterprises Inc. manufactures and sells pre-cast concrete vaults used by telephone companies to connect newly constructed homes and businesses to the existing landline telephone network. The vaults are also used to connect properties to electric utilities. Defendant Oldcastle, Inc. is a direct competitor of Jensen. Defendants Pacific Bell, Nevada Bell, and SBC Services (collectively, AT&T) are the sole providers of landline telephone services in most of California and Nevada. The developer of a new property purchases and installs a vault and then is typically required to resell it to AT&T before AT&T will provide the landline telephone service to the property. Thus, AT&T is the ultimate purchaser of most telephone vaults sold in California and Nevada.

The crux of Jensen’s suit is that Oldcastle entered into an exclusive contract with AT&T whereby AT&T required property developers to use Oldcastle’s vaults, thus excluding Jensen from the market. Id. at *2. Jensen’s complaint alleged, inter alia, three Section 2 violations: monopolization and attempted monopolization, each against Oldcastle only, and conspiracy to monopolize against all defendants. Id. Each of the defendants moved for summary judgment. Id. at *3.

Jensen defined the relevant markets as the California telephone vault market, the Nevada telephone vault market, and the Northern California electrical vault market. Jensen maintained that there were no reasonably close substitutes for AT&T vaults (those made to AT&T’s specifications and used to connect properties to AT&T’s landline network), since developers were limited to a single seller, Oldcastle, and could not switch to Jensen even if Oldcastle were to raise prices. Id. at *5. The defendants argued that Jensen’s market definitions were too narrow, since, on the supply side, they were limited to telephone vaults as opposed to the whole market of precast concrete vaults and, on the demand side, they were limited to one buyer, AT&T. Id. at *3. Noting that the Supreme Court rejected the argument that a single brand of product can never be a relevant market under the Sherman Act, and further noting that a relevant product market was composed of products that have reasonable interchangeability, the court held that a reasonable jury could agree with Jensen’s market definitions and therefore denied the defendants’ motion for summary judgment on that issue. Id. (citing Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 481-82 (1992)).

Next, the court addressed the defendants’ argument that Jensen’s antitrust claims must fail because Jensen did not sustain a direct, cognizable antitrust injury. Jensen contended that the defendants limited developers’ choice to one source of product, Oldcastle-manufactured vaults, and that it was further harmed in the market for electric utility vaults, since developers prefer to purchase both telephone and electricity vaults from the same manufacturer. Id. at *6. Jensen also submitted evidence showing that it had lost millions in profits as a result. Id. The court determined that Jensen had sufficiently identified a cognizable antitrust injury and that there were disputed issues of fact as to whether Jensen’s injuries were caused by the defendants’ conduct. Accordingly, the court denied summary judgment as to antitrust injury. Id.

Finally, Jensen argued that there existed both circumstantial and direct evidence that Oldcastle and AT&T conspired to allow AT&T to purchase vaults at low prices and for Oldcastle to resell them at high prices, forcing developers to bear the difference and depriving Jensen of the chance to compete. Id. at *7. Based on this evidence, which included internal Oldcastle emails in which Oldcastle management discussed their strategy for bidding on the AT&T contract, the court found that Jensen’s conspiracy claim was sufficiently alleged to defeat summary judgment. Id. at *8.

DELAWARE COURT DENIES INTEL’S MOTION TO DISMISS MONOPOLIZATION CLAIM IN CONSOLIDATED CLASS ACTIONS

In re Intel Corp. Microprocessor Antitrust Litig., 496 F. Supp. 2d 404 (D. Del. July 12, 2007).

This case is a consolidated class action filed by U.S. purchasers of personal computers (containing Intel x86 microprocessors) against microprocessor manufacturer Intel Corp for, inter alia, monopolization in violation of Section 2 of the Sherman Act and comparable state antitrust laws. As regards their federal monopolization claim, the plaintiffs sought only injunctive relief. Id. at 408. The plaintiffs had filed multiple class action suits against Intel after Intel was sued by competing microprocessor manufacturer Advanced Micro Devices, Inc. (AMD). 496 F. Supp. 2d 404 at 407. The plaintiffs’ multiple class action suits were consolidated into the instant case. Intel filed a motion to dismiss the consolidated class action plaintiffs’ complaint for failure to state and claim and for lack of standing. Id.

Intel argued that the plaintiffs could not show antitrust injury because they benefited from Intel’s alleged price cuts and rebates. Id. at 408. The plaintiffs contended that the Supreme Court’s five-factor test for standing, announced in Associated General Contractors of California v. California State Council of Carpenters (AGC), 459 U.S. 519, 537-45 (1983), did not apply to claims for injunctive relief. Id. at 407. Such claims, the plaintiffs asserted, require only proof of a threat of antitrust injury. The court agreed that a more permissive standard applied to claims for injunctive relief, holding that such a claim can be based on “a threat of loss” rather than actual antitrust injury. The court held, however, that the threatened injury must still be the type of injury the antitrust laws were designed to prevent. Accordingly, the court “loosely” applied the AGC factors. Id. at 409-410.

The court held that the plaintiffs had alleged that Intel engaged in multiple anticompetitive actions with the goal of keeping its competitors small and keeping Intel’s customers dependent on it for substantial amounts of product. Id. The court also held that Intel allegedly kept customers vulnerable to threats of retaliation by Intel and was able to keep its competitors’ capacities restrained through its anticompetitive conduct. These and other allegations, the court held, were sufficient to state a claim and show antitrust standing under AGC. Id. Accordingly, the court denied Intel’s motion to dismiss.

ILLINOIS COURT GRANTS DEFENDANT’S MOTION FOR SUMMARY JUDGMENT ON MONOPOLIZATION CLAIMS IN LARGE CAPACITY GRAIN DRYER MARKET

GSI Group, Inc. v. Sukup Manufacturing, Co., 2007 WL 2683737 (C.D. Ill. July 27, 2007).

Plaintiff Sukup Manufacturing, Co. (Sukup) and defendant GSI Group, Inc. (GSI) compete in the market for large capacity tower grain dryers. 2007 WL 2683737 at *1. GSI brought an action against Sukup for allegedly violating certain patents for a dryer tower unloading mechanism. Sukup asserted counterclaims against GSI for allegedly monopolizing or attempting to monopolize the market for large capacity dryer towers through GSI’s wrongful enforcement of invalid patents that it obtained from a predecessor company. Id. GSI moved for summary judgment on Sukup’s monopolization and attempted monopolization claims.

The Central District Court of Illinois granted GSI’s summary judgment motion, holding that Sukup could not show that GSI possessed monopoly power or that GSI willfully acquired or maintained monopoly power. In regard to monopoly power, the court examined whether GSI “had the ability to control the supply of the product in the market and thereby to control the price.” Id. at *5. The court stated that, although GSI’s large market share may be sufficient to establish market power in certain circumstances, market share alone would not be sufficient here where Sukup had presented no evidence on whether other factors within the market would preclude other sources of supply from a consumer’s prospective. Id. The court also stated that GSI’s possession of patents related to large capacity dryer towers was not sufficient to demonstrate GSI’s market power because, according to the court, market power from the use of patents is the consequence of a superior product, not illegal monopolization. Id. The court also rejected Sukup’s arguments that GSI improperly used invalid patents obtained by a predecessor to GSI to exercise power over the market. The court found that Sukup presented no evidence that GSI’s predecessor engaged in inequitable conduct in obtaining the patents at issue. Id. at *6.

Similarly, the court rejected Sukup’s argument that GSI sought to fraudulently enforce patents it knew to be invalId. The court stated that Sukup presented no evidence that GSI had any knowledge of its predecessor’s actions in securing the patent at issue. The court also rejected Sukup’s argument that GSI was engaged in sham litigation and therefore not exempt from antitrust liability under the Noerr/Pennington doctrine, reiterating that Sukup failed to present any evidence that GSI was improperly attempting to exercise market power through fraudulent enforcement of its patents. Id. at *8.

NEW YORK COURT GRANTS MOTION TO DISMISS MONOPOLIZATION AND ATTEMPTED MONOPOLIZATION CLAIMS AGAINST PAINT ROLLER INVENTOR

Linzer Products Corp. v. Sekar, 499 F. Supp. 2d 540 (S.D. N.Y. July 23, 2007).

The plaintiff, Linzer Products Corporation (Linzer), manufacturers and sells paint products. 499 F. Supp. 2d at 543. Linzer entered into a licensing agreement with defendant Chandra Sekar (Sekar) in which Linzer was allowed to use Sekar’s patented process for making one-ply paint rollers. Id. The licensing agreement included a warranty requiring Linzer to make rollers only using Sekar’s patented process. Id. Over time, the parties disagreed over the scope of the licensing agreement, prompting a lawsuit by Linzer. As part of this suit, Linzer alleged that Sekar’s attempts to enforce the warranty agreement amounted to monopolization or attempted monopolization in violation of Section 2 of the Sherman Act. Id. at 546. Sekar moved to dismiss the monopolization and attempted monopolization claims.

The Southern District of New York District Court granted Sekar’s motion to dismiss, finding that Linzer failed to allege a relevant market. Id. at 556-57. The court stated that “a relevant product market consists of ‘products that have reasonable interchangeability for the purposes for which they are produced – price, use and qualities considered.’ Products will be considered to be reasonably interchangeable if consumers treat them as acceptable substitutes.” Id. at 553-54 (quoting Pepsico, Inc. v. Coca-Cola Co., 315 F.3d 101, 105). The court stated that Linzer’s definition of the relevant market was unclear, possibly referring to the market for one-ply rollers manufactured according to: (1) Linzer’s own one-ply manufacturing process; (2) the process outlined in Sekar’s patent; or (3) any one-ply manufacturing process. Id. at 554. The court rejected each possibility. First, the court stated a market consisting of rollers made with Linzer’s one-ply process strained credulity, because Linzer could offer no support for the proposition that there were no substitutes for its one-ply rollers. The court reasoned that a product as simple as a paint roller should be interchangeable to consumers, so that the alleged market of rollers made with Linzer’s process failed to distinguish between products included and excluded from that market. Id. Second, the court stated that the relevant product market cannot be the market for Sekar’s patented rollers because, under the patent, Sekar has the right to exercise monopoly power over the sale of these rollers. Id. at 554-55. Third, the court stated that, if the relevant market were all one-ply rollers, Linzer failed to allege facts that allow an inference of anticompetitive effects, because Linzer did not allege that Sekar has the power to exert control over that market. Id. at 555. Accordingly, the court dismissed Linzer’s monopolization and attempted monopolization claims.

EUROPEAN DECISIONS

COURT OF FIRST INSTANCE ANNULS ALROSA COMMITMENTS DECISION

Alrosa v. European Commission.

On July 11, 2007, the European Court of First Instance (CFI) annulled the European Commission’s February 22, 2006 decision imposing commitments arising from Article 82 proceedings against De Beers, a global supplier and producer of diamonds (see Case T-170/06). At issue were the commitments offered by De Beers, and made binding by the Commission decision, obliging De Beers to cease buying rough diamonds from Alrosa, another global supplier and producer of diamonds. While the Commission initiated Article 81 proceedings against both companies following the 2002 notification of an Alrosa-De Beers trade agreement, its Article 82 investigation was directed only against De Beers.

First, the CFI ruled that while the Commission enjoys some discretion in imposing commitments, it must adhere to the principle of proportionality. The extent to which a given measure is proportionate is an objective determination. The CFI held that the Commission erred in accepting De Beers’ proposed commitments without seeking alternatives that would have been less onerous to Alrosa than those submitted by De Beers.

Second, the CFI held that the Commission violated Alrosa’s right to be heard. Even though the Commission treated the Article 81 proceedings against De Beers and Alrosa and the Article 82 proceedings against De Beers as separate proceedings, it effectively treated the two cases as one. The CFI considered this distinction arbitrary, asserting that Alrosa should have been treated as an “undertaking concerned,” and not as an “interested third party.” Alrosa’s third-party status in the Article 82 case against De Beers meant that it was denied the rights of defense given to parties in Commission antitrust investigations.

> This judgment marks the first annulment of a Commission decision giving legal force to commitments proposed by a company to enable the Commission to terminate proceedings against it prior to a formal finding of a competition law violation. This precedent sets the standard that the Commission must observe regarding the principle of proportionality.

COURT OF FIRST INSTANCE DISMISSES APPEAL AGAINST AEROPORTS DE PARIS FOR ABUSE OF A DOMINANT POSITION

Au Lys de France SA v. European Commission.

On July 3, 2007, the CFI dismissed an appeal by Au Lys de France SA, a French retailer, against a Commission decision finding that Au Lys de France’s complaint against Aéroports de Paris for alleged abuse of Aéroports de Paris’ dominant position lacked Community interest (see Case T-458/04). Au Lys de France took the case to the Commission in 2003, alleging that the license fees imposed by Aéroports de Paris to operate a concessions stand at Charles de Gaulle Airport constituted an abuse of a dominant position. The Commission rejected the case, replying that none of the arguments brought by Au Lys de France revealed behavior that would affect the common market to an extent sufficient to warrant Commission action. The court affirmed the Commission’s position that the case did not warrant Commission action, as it did not affect the common market. Even if Aéroports de Paris enjoyed a dominant position in the local airport services market, it did not seek to distort competition in its dealings with Au Lys de France.

COURT OF FIRST INSTANCE DISMISSES APPEAL IN BELGACOM/TELENET PRICE COORDINATION CLAIMS CASE

Gerolf Annemans v. European Commission.

On July 12, 2007, the CFI dismissed an appeal by Gerolf Annemans against a Commission decision rejecting a complaint concerning the pricing schemes of Belgacom and Telenet (see Case T-411/05). Coupled with Article 81 price-fixing concerns, the complainant, a broadband consumer, alleged that the two companies abused their dominant positions in the Belgian broadband services market. Annemans claimed, inter alia, that the combined market share of Belgacom and Telenet—90%—constituted a dominant position and that their uniformly high prices were an abuse of this dominant position. In dismissing the case, the Commission reasoned that evidence of high prices in Belgium is not sufficient evidence of abuse of a dominant position.

Annemans appealed the case, submitting that while uniform, high prices from Belgacom and Telenet may not prove abuse of a dominant position, it does not mean that these companies did not infringe Article 82 EC. The CFI’s subsequent dismissal pointed to an insufficient Community interest in the matter, confirming the Commission’s judgment that the limited probability of finding evidence of an infringement did not warrant Commission action.

DANISH APPEALS TRIBUNAL ANNULS IN PART AND REMANDS A DANISH COMPETITION AUTHORITY FINDING OF NO ABUSE OF DOMINANCE BY FILM DISTRIBUTOR FOR ENTERING INTO EXCLUSIVE DISTRIBUTION AGREEMENTS

DBC .

On May 8, the Danish Appeals Tribunal annulled in part a Danish Competition Council decision, dated May 31, 2006, concerning DBC medier A/S’ exclusive distribution agreements. The Appeals Tribunal remitted the case to the Council for reconsideration under the applicable provisions on abuse of dominance.

The Council had found that it had no grounds to intervene with DBC’s exclusive distribution agreements with certain film companies on the basis of abuse of dominance or on the prohibition of anticompetitive agreements. Under the relevant DBC agreements, DBC was granted exclusive rights to distribute films and multimedia content to libraries. As a consequence, DBC’s sole competitor, Flex Medie, was unable to distribute titles covered by DBC’s rights, including titles considered “must-have” by libraries. DBC’s dominant position on the relevant market was not disputed.

The Appeals Tribunal found that DBC’s exclusive distribution agreements constituted behavior that could affect the market structure on a market where competition was already weakened due to DBC’s dominance. In addition, the Appeals Tribunal found that the Council’s decision lacked the necessary factual basis to conclude that the use of exclusive rights was part of “normal” competition in the market, and that the Council failed to show that effects on competition were so negligible that no abuse existed. The Appeals Tribunal thus annulled the Council’s decision in relevant part and referred the case back to the Council for reconsideration. The remainder of the Council’s decision was upheld.

SPANISH COURT ANNULS COMPETITION TRIBUNAL FINDING OF ABUSE OF DOMINANCE BY SPANISH TELECOM IN FIXED TELELPHONY MARKET

Astel/Telefónica.

In January 2007, the High Administrative Court (Audiencia Nacional) revoked and annulled the Tribunal’s decision of April 1, 2004 (Expte. 557/03), whereby Telefónica de España, S.A.U. (Telefónica) was found to have abused its dominant position in the fixed telephony market and was fined €57 million, at the time the highest fine ever imposed by the Tribunal.

The Tribunal held that: (i) making the provision of certain services (e.g., call waiting and voicemail) dependent on whether a user was pre-assigned to a particular operator; and (ii) conducting advertising campaigns that belittled competitors and confused users, constituted abusive conduct, prohibited under Article 6 of the Law for the Protection of Competition and Article 82 EC. In particular, Telefónica’s campaign may have confused users into believing that if they “pre-assigned” their calls through a single agreed competing operator, they would face delays and technical difficulties, which might even include suspension of supplementary services. It is worth noting, however, that Telefónica’s technology did not allow it to suspend such services as punishment for “pre-assignment” with another carrier, nor was it able to do so under the relevant telecommunications regulations, which obliged the company to provide such services where it exclusively owned and operated the applicable telecommunications access network.

Applying the Supreme Court’s reasoning in a prior ruling (Expte. 456/99, Retevisión/Telefónica), the High Administrative Court held that in order to find an abuse of dominant position it would need to examine not only the aim pursued by the allegedly unlawful practice, but also the objective unlawfulness of the conduct. The court held that the Tribunal had incorrectly examined what it viewed to be an act of unfair competition under the Article 6 prohibition against abusive conduct; instead, the Tribunal should have applied Article 7, which penalizes acts of unfair competition only when they seriously distort competition and such distortion affects the public interest.

For this reason, the High Administrative Court declined to impose a fine under Article 6 and instead, under Article 7, went on to evaluate whether the alleged unlawful conduct seriously distorted competition and whether such distortion affected the public interest. The court found that the Tribunal failed to show that Telefónica’s unfair practices had distorted competitive conditions in this way. In particular, the Tribunal had not shown that Telefónica had increased the number of its clients as a result of this unfair conduct.

The court specifically rejected Astel’s allegations that in order to assess the effect of Telefónica’s unfair practices, the court would need to consider whether, but for Telefónica’s conduct, competitors’ market shares might have been higher. While it acknowledged that such an argument might appropriately be made in cases of abusive conduct under Article 6, it held that the same approach should not apply to acts of unfair competition under Article 7, since this provision requires a serious and effective distortion of competition in the market.

Notably, the High Administrative Court did not address why Telefónica’s conduct could not be considered abusive under Article 82 EC.

Astel has appealed the High Administrative Court’s ruling to the Supreme Court.

EUROPEAN ANTITRUST ENFORCEMENT AGENCIES

EUROPEAN COMMISSION SENDS STATEMENT OF OBJECTIONS TO INTEL

Intel Corp.

On July 27, the Commission sent Intel Corp. a Statement of Objections outlining the Commission’s preliminary conclusion that Intel abused its dominant position in the computer processing units (CPU) market (see IP/07/314). The Commission accused Intel of three forms of abuse aimed at excluding its main rival AMD: (i) Intel provided rebates to various original equipment manufactures (OEMs) that required all, or the majority, of their CPU requirements to be purchased from Intel; (ii) Intel made payments to induce OEMs to delay or terminate the launch of a product line incorporating AMD CPUs; and (iii) in bids against AMD-based products for strategic customers, Intel offered to sell CPUs (on average) below cost. The Commission determined that these activities may reinforce each other and constitute a broad anti-competitive strategy. Intel was given ten weeks to reply.

EUROPEAN COMMISSION LAUNCHES PROCEEDINGS AGAINST ELECTRABEL & EDF

Electrabel/EDF.

On July 26, the Commission initiated antitrust proceedings against Electrabel, the incumbent electricity company in Belgium, and EDF, the incumbent electricity supplier in France (see IP/07/313). The Commission believes that both companies enforced long-term exclusive purchase agreements in their supply contracts. The duration and exclusive nature of these contracts could prevent customers from switching, which would substantially foreclose the French and Belgian electricity markets. New electricity suppliers would have difficulty entering markets where potential industrial customers are bound by these long-term agreements. The resulting lack of competition could harm French and Belgian consumers by resulting in higher prices and lower quality of service.

The Commission predicts that removing such obstacles to competition will encourage the entry and development of suppliers in the French and Belgian electricity markets. It plans to conduct an investigation to determine whether Electrabel and EDF have breached Article 82 EC.

EUROPEAN COMMISSION FINES TELEFONICA FOR UNFAIR PRICING IN SPANISH BROADBAND MARKET

Telefónica.

On July 4, the Commission fined Telefónica, Spain’s incumbent telecommunications operator, €151,875,000 for abuse of its dominant position in the Spanish broadband market (see IP/07/1011). In its decision, the Commission pointed to the discrepancy between the retail prices charged by Telefónica to its customers and the wholesale prices Telefónica charged to its competitors. The alleged margin squeeze imposed by Telefónica between 2001 and 2006 forced competitors to leave the market or to incur losses. Telefónica controls the Spanish ADSL value chain, so potential competitors rely on it for broadband access services. The Commission submits that Spain’s relatively low broadband penetration rate and high cost of broadband access results from weakened retail competition in the broadband market. The Commission intends the decision to deter other incumbents from similar abuses, especially in the development of new services such as triple play (telephony, internet, and TV over broadband) offers.

EUROPEAN COMMISSION ENDS PROCEEDINGS AGAINST TELECOM COMPANIES IN GERMANY AND THE UK

UK & German Telecom Operators.

On July 18, the Commission ended proceedings against T-Mobile Germany, Vodafone Germany, Vodafone UK, and O2 UK initiated in July 2004 and February 2005 (see IP/07/1113). The Commission’s investigation was based on wholesale roaming tariffs that the aforementioned parties charged to other European mobile network operators during 1997-1998 and 2003. The Commission recognized these charges as potentially excessive, breaching the ban on abuse of a dominant position under Article 82 EC. While the parties charged the tariffs in question to all foreign mobile network operators (MNOs), they did not charge similar tariffs to independent service providers (ISPs). Though not identical, ISPs and MNOs are very similar entities within the telecom industry. This inconsistency increased the potential for Commission action. However, due to the recent European regulation addressing all mobile phone operators, specifically regarding high roaming charges within the European Union (see IP/07/870), the Commission has closed its proceedings against these companies.

AUSTRIAN FEDERAL COMPETITION AUTHORITY INITIATES PROCEEDINGS AGAINST OMV FOR ABUSE OF A DOMINANT POSITION IN THE JET FUEL MARKET

OMV.

On May 31, the Federal Competition Authority (FCA) announced its intention to initiate proceedings before the Cartel Court in relation to an alleged abuse of a dominant position in the jet fuel market at Vienna International Airport, by OMV, Austria’s largest oil company. The FCA initially launched an investigation in September 2006, following a complaint by Austrian Airlines (AUA) alleging that OMV was charging excessive prices for jet fuel. The FCA initiated formal proceedings before the Cartel Court on June 12, 2007, having concluded that there was evidence of abusive behavior by OMV.

The FCA defined the relevant market as the market for the supply of jet fuel with certain specifications to airlines at Vienna International Airport. OMV was found to be dominant on that market because: (i) it was a leading refiner that operated one of the largest refineries in central Europe in close proximity to Vienna International Airport; (ii) it was a leading supplier of jet fuel at the wholesale level; and (iii) it had joint control over infrastructure at Vienna International Airport (including a tank farm and pipeline infrastructure), which is complementary to the supply of jet fuel.

The FCA alleged that OMV abused its dominant position by charging excessively high prices. According to the FCA’s initial findings, OMV’s prices are significantly in excess of the international Platt’s quotation for jet fuel, and such a discrepancy cannot be objectively justified.

The in-depth review currently proceeding before the Cartel Court is not subject to procedural deadlines. If the court confirms the finding of abuse, OMV may face a fine of up to 10% of its consolidated worldwide turnover.

DANISH COMPETITION COUNCIL FINDS REPEAT ABUSE OF A DOMINANT POSITION BY ENERGY COMPANY ELSAM

Elsam.

On June 20, the Danish Competition Council found, for the second time, that Elsam had committed an abuse of its dominant position. The Council found that Elsam had charged excessive wholesale prices for electricity in Western Denmark for 1,484 hours between January 1, 2005 and December 31, 2006. The Council found that the abuse had inflicted a loss of about DKK 111 million (€14.9 million) on Danish consumers. However, the Council did not go so far as to order a price cap.

Elsam had previously been subject to a similar investigation concerning its pricing activities from the second half of 2003 through 2004. At the conclusion of the investigation, the Council had ordered a price cap on Elsam for prices charged to NordPool. The Appeals Tribunal, however, annulled this remedy, albeit noting that Elsam had abused its dominant position “to a certain extent.”

As regards future pricing, the Danish Competition Authority announced that it does not expect further investigations to become necessary, as Elsam's future pricing will be subject to discussions between the Authority and the company.

Several companies, however, have announced their intent to initiate damages claims against Elsam relating to this past behavior.

FINISH COMPETITION AUTHORITY REQUESTS €100,000 FINE BE IMPOSED ON TELECOM CO. FOR ABUSE OF A DOMINANT POSITION THROUGH USE OF DISCRIMINATORY REBATES

Oulun Puhelin.

On May 24, the Finish Competition Authority (FCA) requested the Market Court impose a €100,000 fine on Oulun Puhelin, a telephone company operating in the region of Oulu, for abusing its dominant position in the market for wholesale access to fixed telecommunications networks via illegal rebate practices.

The FCA found that during 2001 through 2002, Oulun Puhelin granted its own retail service operator quantity rebates off its wholesale network access rates. In doing so, Oulun Puhelin favored its own operator over competing providers of retail broadband access. Although Oulun Puhelin’s discount scheme was technically open to both its own service operator and competing service providers, the FCA claimed that the scheme was structured in such a way that, in practice, only Oulun Puhelin’s own service operator actually qualified for the rebates.

Oulun Puhelin’s volume rebate scheme in effect from early 2001 until the end of June 2002, involved five percentage thresholds ranging from a 2% rebate (for rental payments exceeding €168,200) to a 10% rebate (for rental payments exceeding €840,900). The scheme in effect from the beginning of July 2002 until the end of 2002, involved six percentage thresholds ranging from a 1% rebate (for rental payments exceeding €170,000) to a 15% rebate (for rental payments exceeding €5 million). To illustrate the difference in the two rebate schemes, for example, under the first scheme a maximum rebate of 10% was achieved as soon as rental payments exceeded €840,900, while under the second scheme, the threshold giving rise to a 3% rebate was only met when rental payments exceeded €1,020,000.

In its opinion, the FCA was particularly influenced by the fact that Oulun Puhelin had increased the threshold levels for higher rebates in the second scheme to levels at which only Oulun Puhelin’s own service operator could, in practice, benefit. The FCA further opined that Oulun Puhelin had committed an abuse by including in the calculation of the relevant turnover or rental payment figures amounts charged for certain rental services other than wholesale network access, including rent for equipment sites and masts. The FCA noted that Oulun Puhelin, which had a market share of approximately 95% and was previously the monopoly operator in its region, had a special responsibility to ensure that competition not be restricted. The FCA found that the discount scheme applied by Oulun Puhelin was discriminatory by providing Oulun Puhelin’s own service operator with a cost advantage that was not available to its competitors. The FCA did not indicate whether the abusive behavior also involved a margin squeeze, i.e., whether the wholesale prices charged by Oulun Puhelin to its competitors exceeded the retail prices of Oulun Puhelin’s own service operator or whether the wholesale prices left its competitors with an insufficient margin to operate profitably.

HUNGARIAN COMPETITION AUTHORITY RAIDS OFFICES OF MICROSOFT SUBSIDIARY

Microsoft Magyarorszag Kft.

On July 19, Hungary’s Competition Authority raided Microsoft Magyarorszag Kft. on suspicion of illegal relationships with software distributors. Officials from the Competition Authority sought information in connection with loyalty discounts designed to dissuade customers from purchasing software products other than Microsoft office products. Such activity could violate European competition rules on abuse of a dominant position and is the subject of an ongoing investigation.

SWISS TELECOM REACHES AGREEMENT WITH SWISS COMPETITION AUTHORITY TO APPLY UNIFORM CONDITIONS FOR ADSL SUPPLIERS

Swisscom.

On May 7, Swisscom reached an agreement with the Swiss Federal Competition Commission (FCC) that it would offer the same rebate packages to all Internet service providers (ISPs) supplying ADSL services. In so doing, Swisscom has now put itself in compliance with interim measures ordered by the FCC on May 6, 2002, and to which Swisscom had previously contested.

Swisscom’s practice had been to offer its subsidiary, an ISP named Bluewin, preferred access to Swisscom’s wide-band network, providing Bluewin with rebates more favorable than those Swisscom was willing to grant to other ISPs. Following the FCC’s provisional order on May 6, 2002, Swisscom initially ceased its differential rebate system. On December 15, 2003, the FCC confirmed its provisional order, and found that Swisscom had committed an abuse of its dominant position by favoring its subsidiary over other ISPs. The Appeal Commission (as it was then called) annulled the FCC’s decision on June 30, 2005, remanding the matter back to the FCC for re-evaluation.

Given Swisscom’s May 2007 decision to comply with the FCC’s initial ruling, and to abandon its claim for restitution from other ISPs, the FCC has now discontinued its proceedings. Nonetheless, another FCC investigation concerning Swisscom’s activities in the ADSL market, and, in particular, whether it abused its dominant position by engaging in “price squeeze” tactics in the wide-band internet market, will continue. The FCC’s concern in this second investigation is whether prices charged by Bluewin to final consumers are lower than, or roughly equal to, the prices that Swisscom charges to ISPs, such that competing ISPs cannot remain competitive with Bluewin.

SWISS COMPETITION AUTHORITY TERMINATES ABUSE OF DOMINANCE INVESTIGATION BY CABLE COMPANY

Cablecom.

On June 4, the FCC discontinued its proceedings against cable operator Cablecom for potential abuse of dominance. The FCC’s investigation was triggered by a complaint by Teleclub alleging that Cablecom required all Teleclub programming broadcast on the Cablecom network to use Cablecom’s platform and client services.

Cablecom is Switzerland’s principal cable operator, offering “triple play” services consisting of high speed internet, television (including digital television), and telephony. Teleclub is a digital television content provider without a retail outlet. When Teleclub approached Cablecom to request access to its network, Cablecom agreed but required Teleclub to accept other Cablecom services, which resulted in Teleclub’s programs being made available only as part of a bundled package with broader Cablecom offerings.

On September 23, 2002, the FCC imposed provisional measures obligating Cablecom to broadcast Teleclub’s programming unimpeded by Cablecom’s conditions. The FCC was particularly concerned with ensuring the continued existence of competition in what was then the initial stage of the rapidly expanding pay-TV market. One year later, in September 2003, Cablecom succeeded in having these provisional measures partly annulled on appeal. Nonetheless, Cablecom chose not to disturb the broadcasting of Teleclub’s programming, which continued uninterrupted. Cablecom, however, used the partial annulment ruling as an opportunity to initiate negotiations with Teleclub as to future conditions under which Teleclub could access Cablecom’s network. In October 2006, the parties reached an agreement on this matter, and Teleclub retracted its complaint. As a result, the FCC discontinued its investigation.

UK COMPETITION AUTHORITY PUBLISHES DISCUSSION PAPER ON PRIVATE LITIGATION IN COMPETITION LAW

On April 18, the UK Office of Fair Trading (OFT) issued a discussion paper on proposals to make redress for consumers and businesses for breaches of UK competition law more readily available and effective. While recognizing that the main structural and legal elements for effective private actions in competition law already exist in the UK, the OFT identified practical barriers that have, to date, deterred consumers and medium-sized businesses from engaging in litigation. The OFT set out a number of proposals to address these impediments to private action, while mindful of the need to avoid advocating steps likely to encourage a “litigation culture” that could be harmful to legitimate business activities.

In its discussion paper, “Private actions in competition law: effective redress for consumers and business” (the Discussion Paper), the OFT endorsed the general approach adopted by the European Commission in its 2005 Green Paper, “Damages actions for breach of EC antitrust rules” (the Green Paper). As a basic proposition, the OFT, like the European Commission, recognized that private actions are an essential complement to the public enforcement of competition rules. An effective system of private actions system would substantially increase the likelihood of anti-competitive conduct being both detected and addressed. The OFT further envisaged that the increased incidence of detection and heightened financial liabilities in respect of competition law infringements would promote a general culture of competition compliance.

Public comments on the Discussion Paper were due by June 13. The Discussion Paper is likely to have elicited a significant volume of comments from industry groups and the legal profession. On the basis of the comments it receives, the OFT intends to make concrete recommendations to the UK Government as to the steps that can be taken at the domestic level to facilitate private competition litigation. The OFT also intends to draw on these comments as it continues its dialogue with the European Commission on the subject of private damages actions for breach of EU antitrust rules. For more information, see OFT Discussion Paper.