Netherlands: Competition Newsletter - April 2013

Silence is golden: ex-employees don't have to snitch on former employers

The Trade and Industry Appeals Tribunal has resolved a long-lasting dispute on the scope of a company's right to remain silent. It ruled that ex-employees can invoke this right when questioned by the NMa (now: ACM)1 in connection with an investigation into their former employer. In 2009, the NMa imposed record fines on three ex-employees for failure to cooperate in an investigation into possible anti-competitive conduct by their former employer.2 The ex-employees refused to cooperate, arguing that they had the right to remain silent, a right acknowledged by the NMa, but only with in regard to the company under investigation and its current employees.3 Unlike the European Commission, the NMa is authorised to impose fines not only on companies but also on individuals for failure to cooperate with an investigation.4 

According to the NMa, ex-employees do not have a right to remain silent in cases where its investigation is targeted at the company only.5 In such cases, only individuals interviewed by the NMa on behalf of the company can rely on this right, since an extension of this right to ex-employees would harm the effectiveness of its enforcement powers. The District Court of Rotterdam confirmed the NMa's point of view in the appeals by two of the three ex-employees. The court reiterated earlier case law in which it was held that if a company is interviewed, the right to remain silent can be invoked by anyone who "belongs to the company and through whom the company is being questioned". Accordingly, the right to remain silent applies to individuals in so far as they can make statements on behalf of the company which may lead to self-incrimination by the company. An ex-employee no longer belongs to the company and thus cannot be questioned on behalf of the company, but only as an individual. As a result, he can no longer rely on the company's right to remain silent, irrespective of whether his statements incriminate the company.

In the appeal against the District Court's judgment, the Trade and Industry Appeals Tribunal ruled that such a restrictive interpretation of the right to remain silent will deprive the company of effective protection during investigations. The fact that the employees are no longer employed by the company does not justify such a restrictive approach, since the ex-employees were questioned on the company's behaviour at the time of their employment. The Tribunal overturned the District Court's ruling, thus settling the scope of a company's right to remain silent exercised through ex-employees once and for all.

Health care concentrations: ACM keeps finger on pulse?

The health care sector is likely to stay on the ACM's radar. Not only has the application of the separate notification thresholds for concentrations in the health care sector been extended by another five years, the number of hospitals intending to merge is also rising: the ACM expects a minimum of seven hospital mergers this year and has designated the health care sector as one of its priorities. The bargaining power of health insurers appears to be a significant factor in the ACM's merger assessment and recently resulted in a rather unusual solution in the clearance of three hospital mergers. The minister has indicated that the increase in scale requires a "concentration-effects" test by the Dutch Health Care Authority, in addition to concentration control, as well as an amendment of the policy rules on concentrations between health care providers so as to include concentrations between health insurers.

The Minister of Economic Affairs announced in October last year that the lower merger notification thresholds for health care mergers, scheduled to be repealed on 1 January 2013, will continue to apply for another five years. Many health care concentrations fall outside the "regular" notification thresholds due to the health care companies' low turnovers. These concentrations may still, however, have a negative impact on competition due to the often narrow scope of the relevant geographic markets involved. This is particularly detrimental to the health care sector as it is still in transition to a demand-driven system. The lower notification thresholds are aimed at resolving this problem by bringing more health care concentrations under the ACM's scrutiny through notification. According to the Minister, the NMa (now: ACM) 6 has reviewed twice as many concentrations in the last four years as it would have done without the lower health care notification thresholds. A number of these concentrations had (potential) anti-competitive effects, thus proving the effectiveness of the lower thresholds.

Health care organisations will therefore still need to notify the ACM of concentrations if in the previous calendar year:

  1.  at least two of the companies concerned each generated a turnover of more than EUR 5.5 million by providing healthcare services, and
  2. the combined worldwide turnover of the companies concerned exceeded EUR 55 million, and
  3. at least two of the companies concerned each achieved a turnover in the Netherlands of at least EUR 10 million.

According to the Minister of Health, Welfare and Sport, however, health care mergers need to be subject to a stricter scrutiny than merger control alone. In order to safeguard the quality and continuity of health care, a "concentration-effects" test - to be performed by the Dutch Health Care Authority - should be introduced for intended health care concentrations prior to the ACM's merger control assessment. In addition, the policy rules on mergers between health care providers should be extended to include concentrations between health care insurers in order to oblige the ACM to extensively substantiate its market delimitation.

The more stringent scrutiny of health care mergers through additional tests and lower merger thresholds seems to be at odds with the ACM's clearance of three hospital mergers in November last year on the basis of a self-imposed annual price ceiling instead of an official remedy. Due to the price ceiling's voluntary nature, the ACM has no legal basis for enforcing compliance, but intends to hold the hospitals publicly accountable for any quality decrease or excessive price increase resulting from the mergers. The ACM is, however, confident that the health insurers' bargaining power will guarantee the best possible price-quality ratio, thus leaving the price ceiling to act as a safety net only. Last year, the Dutch cabinet gave health insurers a leading role in the healthcare system by providing them with more opportunities and incentives to buy at competitive prices. According to Henk Don, member of the ACM Board, the health insurers "have already demonstrated that they are able to influence the market by focusing on health care quality. The insured thus benefit directly".

Need to beat the "fear factor"? UTPs in the B2B supply chain

Most terms in contractual relations are the result of tough but fair negotiations between trading partners. However, sometimes "weaker" business partners are confronted by unfair trading practices (UTPs) and do not speak up in fear of losing the commercial relationship. UTPs initiatives at national, EU and ECN level initially focused on the food supply chain but have now been extended to the non-food side. At national level, pilots have been set up with a number of representatives of the agro-food sector and the textiles industry to implement a code of conduct similar to the "Principles of Good Practice" drafted by the Expert Platform set up by the European Commission within the framework of the High Level Forum for a Better Functioning Food Supply Chain.7 At EU level, the European Commission is taking stock of UTPs in both the food and non-food sector through a Green Paper. Interested parties have until 30 April 2013 to submit their views to the Commission on how best to beat the "fear factor".

 The significant increase in EU food prices at all levels of the supply chain over the last years caused the NMa (now ACM8, the European Commission and other national competition authorities within the European Competition Network (ECN) to look into the functioning of the food supply chain and the use of UTPs. The main conclusion of these initiatives is that the competition rules are not the best tool to tackle most UTPs. At ECN level, a large number of ECN competition authorities identified UTPs in the food sector linked to imbalances in bargaining power which escape the prohibition against abuse of a dominant position. Similarly, at national level an NMa study on pricing "from farm to fork" concluded that supermarkets are not dominant in the pricing process of food products despite significant food price increases and thus remain untouched under the competition rules. The Minister of Economic Affairs recently commissioned a study on how best to deal with UTPs in contractual negotiations. According to this study, UTPs can be tackled through self-regulation, provided a code of conduct is drafted with clear-cut rules on what qualifies as an UTP, combined with an effective enforcement mechanism. Pilots in the agro-food and textiles sectors to draft such a code of conduct have now been set up with the minister's support. The first results of these pilots are expected to be published in early 2014.

So far, the European Commission has kept a low profile in resolving UTPs as it considers most cases in the food sector to have a national dimension, falling under the responsibility of the national competition authorities.9 But the increased concentration and vertical integration across the EU in the B2B food and non-food supply chain have moved the Commission to action. In 2009, the Commission adopted a Communication aimed at improving the functioning of the food supply chain in the EU in 2009. A High Level Forum for a Better Functioning of the Food Supply Chain was set up to implement, among other things, the initiatives proposed in the Communication. This resulted in a set of Principles of Good Practicein vertical relations in the food supply chain, currently being implemented on a voluntary basis by a number of trade associations active in the European food supply chain. Furthermore, a "Task Force Food" was established within DG Competition in 2012 to keep an eye on the food sector for a period of two years. And most recently, a Green Paper was launched to assess the different options to resolve UTPs at either national or EU-level by identifying seven types of UTPs together with possible fair practices. Interested parties have until 30 April 2013 to submit their views. The Commission will use these views to come up with appropriate next steps in the second half of this year. 

First substantive ruling on cartel damages

The District Court East Netherlands has ruled that ABB must compensate TenneT, the operator of the Dutch electricity grid, for the damages it suffered as a result of the Gas Insulated Switchgear (GIS) cartel. In 2007, the European Commission fined eleven groups of companies over EUR 750 million for participating in a cartel for GIS projects. ABB received full immunity from fines under the Commission's leniency programme, but will nevertheless need to cough up now. The exact amount of damages to be paid to TenneT will be determined in separate proceedings. This is the first substantive ruling on cartel damages in the Netherlands.

Following the Commission's decision, TenneT claimed damages for the 1993 purchase of a GIS-installation from ABB following a tender procedure in which ABB offered the best price. The court found that even though the Commission decision does not explicitly mention the Dutch GIS projects, it does establish that ABB participated in a worldwide cartel which had a particular impact on the EEA and thus, according to the court, also on the Netherlands. This, in combination with the fact that ABB failed to substantiate why the cartel would not apply to the Dutch project, made it safe to assume that the price paid by TenneT for the GIS-installation was affected by the cartel.

ABB's argument that TenneT's damages claim had lapsed was rejected by the court. ABB argued that the statutory five-year limitation period for damages claims started on 14 May 2004, one day after the European Commission's press release announcing the launch of an investigation into the GIS sector and ABB's subsequent press release stating that an internal compliance audit had revealed that certain ABB employees were involved in anti-competitive activities. TenneT's damages claim of 24 June 2010 was therefore too late. The court did not agree: the limitations period commences once the victim has knowledge of the damage and the parties liable for it. The press releases provided TenneT with insufficient knowledge to conclude it was a cartel victim.

Furthermore, the court considered it highly likely that TenneT sustained actual damage, as the object and effect of a cartel is, almost by definition, to cause customers to pay more for a product than they would under competitive market conditions. Although the exact amount of damages still needs to be established in follow-up proceedings, the court indicated that a comparison between offers made by ABB during and after the cartel - resulting in a 54% price overcharge according to a report submitted by TenneT - would make a suitable calculation method. ABB's argument that TenneT did not suffer any loss because it passed on the overcharge to its customers was rejected by the court. According to the court, potential "benefits" gained by a cartel victim may in some cases be off-set against the damage sustained, if (i) there is a sufficient causal link between the benefits and the harmful event and (ii) it is reasonable to deduct these benefits from the damages to be paid by the cartel participant. In the court's view, the latter condition had not been fulfilled in the case at hand, provided that TenneT uses ABB's compensation to the benefit of its customers by reducing its energy prices.

The TenneT ruling can still be appealed and the exact amount of damages will have to be determined in separate damages assessment proceedings. Nevertheless, the ruling provides useful pointers for cartel damages claims in the Netherlands.

Footnotes

1.The NMa, the Netherlands Consumer Authority and the Dutch Independent Post and Telecommunications Authority (OPTA) joined forces on 1 April 2013, creating a new regulator: the Netherlands Authority for Consumers and Markets (ACM).

2.See our Competition Newsletters of July 2009 and November 2009.

3.It should be noted that employees and former employees can be fined individually for anti-competitive acts committed after 1 October 2007. In such event, they do have a right to remain silent during the investigation.

4.Regulation 1/2003 (OJ 2003, L1/1) does not authorise the European Commission to impose fines on staff members. The European Commission can, however, interview staff members under Articles 19 and 20(2)(e) of Regulation 1/2003. However, only in the latter case may a fine be imposed on the undertaking for failure to respond to a question (see Article 23(1)(d) of Regulation 1/2003).

5.Employees and former employees can now also be fined individually for illegal acts committed after 1 October 2007. In such case, these individuals should have a right to remain silent during the investigation.

6.The NMa, the Netherlands Consumer Authority and the Dutch Independent Post and Telecommunications Authority (OPTA) joined forces on 1 April 2013, creating a new regulator: the Netherlands Authority for Consumers and Markets (ACM).

7.The European Commission set up a High Level Forum for a Better Functioning Food Supply Chain to implement a roadmap of initiatives to improve the competitiveness of the agro-food industry in cooperation with the stakeholders. The Forum is composed of representatives of selected Member States, European companies dealing with food production, processing or distribution, professional associations and non-governmental organisations representing the citizens' expectations.

8.The NMa, the Netherlands Consumer Authority and the Dutch Independent Post and Telecommunications Authority (OPTA) joined forces on 1 April 2013, creating a new regulator: the Netherlands Authority for Consumers and Markets (ACM).

9.The Commission did not initiate a sector inquiry into the food sector. In the words of Commissioner Almunia: "Maybe we will need one day to launch a sectoral enquiry in this sector, but so far what we need to know is what is going on and if we should act at the EU level because the [national authorities] are not able to tackle the problems". See Mlex, DG Comp 'task force' examines need for EU action on food-chain problems, 8 March 2012.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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