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On December 13, 2017, the Court of Justice of the European Union (CJEU) rejected the appeal filed by Teléfonica against the General Court’s (GC) judgment of June 28, 2016. It confirmed that the non-competition clause between Telefónica and Portugal Telecom in relation to the acquisition of Vivo in 2010 constituted a market-sharing agreement that was contrary to article 1 of the Unfair Competition Act.

In 2010, Telefónica took exclusive control of the Brazilian mobile communications operator Vivo which, until then, had been jointly controlled by Telefónica and PT via Brasilcel NV. In their agreements, the operators inserted a non-competition clause of a limited duration and with the following content:

to the extent permitted by law, to refrain from participating or investing, […] , in any project falling within the telecommunications sector (including fixed telephone and mobile telephone services, internet access services and television services, with the exception of any investment or any activity in progress on the day on which the present agreement is signed) which is liable to be in competition with the other company on the Iberian market,’ for a period starting on the operation’s end date [that is September 27, 2010] and ending on December 31, 2011.

Following an investigation that started in 2011, in 2013, the European Commission issued a decision confirming that the clause (i) amounted to a market-sharing agreement aimed at restricting competition in the internal market, and (ii) breached article 101 of the Treaty on the Functioning of the European Union (TFEU). It imposed fines of €66,894,000 and €12,290,000 on Telefónica and PT respectively.

The GC concluded that the clause could not be analyzed as a restriction directly related and necessary to the implementation of the Vivo transaction, because the clause referred to the Iberian market and the transaction in question involved an operator whose activity was limited to Brazil; therefore, the clause could not be considered necessary to carry out the transaction.

The GC rejected the arguments put forward by Telefónica against the Commission’s decision. The GC considered that the Commission was not obliged to analyze in detail the structures of the markets and the potential competition between PT and Telefónica to conclude that the clause constituted a restriction of competition by object. However, it partially annulled the decision in relation to calculating the fine, as the volume of sales made on markets not subject to potential competition during the clause’s period of application must be excluded for calculating the fine.

 

Telefónica appealed the GC’s judgment on three main grounds:

  • First, it claimed that the GC breached its right to defend itself by not accepting certain witnesses that, according to Telefónica, had knowledge of the negotiations behind the purchase agreement. In its judgment, the CJEU concluded that the GC had rejected the witness proposal on good grounds, given that, at the time in question, Telefónica had not claimed that its motive for calling those witnesses was because they could have proved that the non-competition clause had been imposed by the Portuguese government.
  • Second, Telefónica claimed that the GC breached article 101 of TFUE when it concluded that the non-competition clause constituted a restriction by object. The CJEU also did not accept this, declaring that there were important precedents on which to base the argument that market-sharing agreements are very serious breaches of competition rules (in particular, it refers to the Toshiba judgment). In the same way, the CJEU rejected Telefónica’s repeated arguments about the clause only being applied “to the extent to which it was permitted by law”: as the GC had concluded, Telefónica did not provide sufficient evidence to support its argument that it was a clause self-assessing the lawfulness of a non-competition undertaking.
  • Third, the CJEU also rejected the grounds according to which the GC had made an error in the assessment of the amount of the fine.

Although the CJEU’s decision is limited to technical and procedural matters, the decision reminds us once again of the importance and possible dangers arising when non-competition clauses not of an ancillary nature are included in agreements.

Read the CJEU’s judgment in full in Spanish here.

Autora: Blanca Marzal

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