Spain: Enforcement powers increased

Following the entry into force of the recently issued Spanish Competition Act 15/2007 (SCA), the new Spanish Competition Authority (Comisión Nacional de la Competencia or CNC) started its activity in September 2007 with increased enforcement powers and with a clear will to focus on the detection and sanctioning of hard-core restrictive practices.

Such will has been notably reflected in the increasing number of investigations that have been initiated by the CNC on its own initiative over recent months. In this context, the recent approval of the regulation developing the new SCA, through Royal Decree 261/2008 of February 22 2008 (RD 261/2008), has also increased the level of activity of the CNC, especially as a result of the implementation, from February 28 2008 onwards, of a new leniency policy in Spain.

It will obviously take some time before being able to assess the quantitative impact of this new approach in terms of proceedings initiated or sanctions imposed on companies. However, as shown in the chart below, this year the CNC has opened a significant number of proceedings, many of which were opened by right of office. It is safe to assume that the increasing importance of the proceedings initiated by right of office is closely related to the increasing number of investigations.

New leniency policy

The Spanish leniency policy is inspired by the existing leniency policy at the EU level, as applied by the European Commission according to its notice on this matter dated December 8 2006.

Accordingly, the CNC will consider an undertaking or natural person exempt from the payment of any fine imposed on them due to their involvement in a cartel, forbidden by Article 1 of the SCA, when:

a) it is the first one to provide the CNC with evidence enabling it to undertake a dawn raid or inspection in relation to a cartel; or

b) it is the first one to provide the CNC with evidence enabling it to verify the existence of an infringement of Article 1 of the SCA in connection with a cartel, provided that an exemption has not been granted to an undertaking or natural person by virtue of (a).

The CNC will automatically refuse any exemption application that is submitted once a statement of objections has been issued.

The granting of such an exemption by the CNC is subject to the following conditions:

i) the applicant must cooperate with the CNC throughout the administrative investigation procedure (provide the CNC with all relevant information and evidence, not destroy, hide or falsify documents or evidence, for instance);

ii) the applicant must bring its participation in the alleged infringement to an end at the time that it submits the evidence of the existence of the cartel (except otherwise agreed with the CNC);

iii) the applicant must neither have destroyed evidence related to the application for exemption nor have disclosed, directly or indirectly, to third parties other than the competent authorities, the existence of its application or part of its contents; and

iv) the applicant must not have adopted any measures to oblige other undertakings to participate in the infringement.

Exemption from payment of the fine granted to an undertaking will also benefit its legal representatives or the members of the management bodies, provided they have cooperated with the CNC.

The CNC may also reduce the amount of the corresponding fine in relation to those undertakings or natural persons that, without meeting the requirements set out in items (a) and (b) above, provide the CNC with evidence of the alleged infringement which represents significant information of added value, and meet the requirements set out in items (i) to (iv) above.

The reduction of the amount of the fine corresponding to an undertaking will be applicable, in the same percentage, to the fine that may be imposed on its representatives or members of the management bodies, provided they have collaborated with the CNC.

Leniency procedure

Any applicant for leniency will submit its application before the Cartels and Leniency Unit (CLU) of the Investigation Directorate of the CNC. Applications will be assessed on a chronological basis, according to their exact time of registration with the registry of the CNC.

Each leniency application must be submitted in two versions: the original (to be kept by the CNC) and a copy (to be kept by the applicant), both of which should be marked with a receipt seal by the registry indicating the date and hour of reception. The CNC can also, if requested by the applicant, provide a document confirming receipt of its application.

If previously agreed with the CLU, applicants may also submit oral leniency applications, which will be recorded at the CNC's premises. The transcription of the application will be immediately registered in the registry of the CNC, indicating the exact date and hour of the registration.

Once the CLU receives an exemption application, it will review its contents and confirm to the applicant whether the exemption can be granted. This will only be confirmed by the council of the CNC at the end of the investigation procedure. If the exemption of the fine is not possible, the CLU will allow any applicant to withdraw its leniency application or to submit an application for a reduction in the fine.

The applications for reduction in fines will only be assessed once the exemption applications (and their contents) in relation to the same cartel have been reviewed. The applicants for reduction will be informed by the Investigation Directorate of the intention of the CNC to grant any reduction of the fine before the end of the infringement procedure. The council of the CNC will only confirm the exact level of reduction in its final decision.

All leniency applications and their contents will be treated as confidential information by the CNC. The affected companies will have access to the information deemed essential in order to reply to the statement of objections issued by the CNC.

RD 261/2008 also provides for mechanisms to coordinate leniency applications that have been submitted before regional competition authorities in Spain in cases where these are the competent authorities.

The new short form

In addition to the new leniency policy, the new competition regulations also provide detailed rules affecting different substantive and procedural issues related to the application of the SCA. These are, among others:

• a new definition of de minimis conduct (in line with the contents of the EC Commission notice of December 2001);
• new rules on infringement procedure (powers of investigation, rights of the parties and interim measures, among others);
• new rules on merger control procedure (turnover and market share calculation, assessment of efficiencies and ordinary and short notification forms); and
• new rules on arbitration mechanisms.

One of the most expected developments is the possibility of submitting a short merger notification form in certain cases. In particular, it can be used for the purpose of notifying concentrations when one of the following circumstances, among others, is fulfilled.

a) Where none of the parties to the concentration is engaged in business activities in the same relevant product and geographic market, or in a market that is upstream or downstream of a market in which another party to the concentration is engaged.

b) Where the participation of the parties in the market is not capable of having a significant effect on competition. This will occur when:

(i) the participants in the concentration do not have a combined market share of more than 15% in the same product or service market at the national level or in a geographic market defined therein, or if they do reach a combined market share of more than 15% and less than 30%, and addition of shares is no greater than 2%; and

(ii) the participants in the concentration do not reach an individual or combined share of 25% in a product market that is upstream or downstream of a market in which the other party to the concentration is active at the national level or in a geographic market defined therein.

c) Where a party is to acquire sole control of a company, several companies or parts of companies over which it already has joint control.

d) Where, in the case of a joint venture, it is not engaged and is not expected to engage in activities in Spanish territory or such activities are marginal. The activities of a joint venture will be considered marginal in Spain if its turnover does not exceed or is not expected to exceed €6 million ($9 million).

The CNC has adopted, to date, quite a narrow approach in this respect, and tends to accept the use of the short form where the specific circumstances described by RD 261/2008 are met. However, the CNC has also shown itself to be flexible in special cases regarding the possibility of waiving the parties' obligation to provide certain information requested in the ordinary notification form, in accordance with Article 56.3 in fine of RD 261/2008.

It is expected that as time goes by the CNC will be less reluctant to accept the short form in cases of transactions with a minimal impact on the Spanish market, even if these cases do not exactly match the examples set forth in RD 261/2008.

Main developments in 2008

Abuse of dominant position in the electricity generation market

The CNC has imposed several fines on a number of electricity generators, such as Iberdrola, Gas Natural and Viesgo, as a result of their involvement in anticompetitive practices, consisting of abuse of their respective dominant positions in the electricity generation markets at times of technical restrictions during specific periods of the year.

According to the CNC, each of these participants intentionally raised the price of electricity generated during specific periods of the year.

Some of these decisions have been quite controversial, with some members of the CNC board voting against the declaration of an infringement. The main grounds of these contrary opinions were related to the difficulty of identifying a real dominant position of these companies in the markets of electricity generation in specific regional areas affected by technical restrictions during specific periods of the year. According to these contrary opinions, there was no clear evidence of the fact that these companies had total certainty that they would be asked to solve the technical restriction problems affecting the areas where their power plants were located. Such total certainty would be the essential element of a possible dominant position that would allow these companies to act independently of the behaviour of their customers and important competitors in the market.

Football broadcasting rights

The CNC has initiated proceedings related to the acquisition and exploitation of football media rights agreements.

On April 9, the CNC opened formal proceedings against a number of audiovisual operators and football clubs for alleged practices prohibited in Article 1 of the SCA and in Article 81 of the EC Treaty. These alleged practices involved the acquisition of nationwide media rights for football events celebrated on a regular basis, as well as the exploitation of those rights.

The initiation of the proceedings was based on evidence found during the assessment by the national competition authorities of the acquisition by Sogecable of the sole control of AVS. While the transaction was cleared subject to certain conditions, the competition authorities noticed the existence of a cooperative agreement between Mediapro and Sogecable with regard to the acquisition and exploitation of the media rights over the Spanish football league (La Liga) and the King's Cup (Copa del Rey).

The proceedings are also based on the existence of several agreements between football clubs and audiovisual operators and/or brokers which could have a foreclosure effect on the market for the acquisition of broadcasting rights for nationwide football events celebrated on a regular basis.

The CNC report on football broadcasting rights

On June 11, the CNC published a comprehensive report on the football broadcasting rights market. The purpose of this report is to analyse the existing models for acquisition and exploitation of such rights in Spain from a competition perspective, as well as to compare them with other models existing at the European level.

The main conclusions of this report are as follows.

• As regards the acquisition of football broadcasting rights, the CNC states that the system now in place in Spain, which requires the consent of both clubs playing every match, constitutes an important advantage for any buyer holding the majority of the rights over the clubs.
• The current system also favours the existence of a single "pool" managing most or all of the broadcasting rights (AVS). The fact that this pool is vertically integrated in a leading audiovisual group leads to potential difficulties for third parties to access this important content.
• The CNC reflects the existence of alternative systems, such as:

i) those organised on a match-by-match basis, giving preference to the rights of the hosting club (arena rights); or

ii) the centralised management of the broadcasting rights by a specific entity with no interests in the downstream audiovisual markets (the system considered reasonable by the CNC).

However, the CNC is not aiming to oblige the set-up of any of these alternative systems. Private operators are entitled to organise the acquisition of rights and the system for broadcasting them. They will therefore assess the compatibility of their agreements with corresponding competition laws.

Neither the current model nor the alternative models assessed sort out all competition concerns, mainly because they do not avoid the risks deriving from the creation of dominance, coordination between operators and vertical integration.

Should the current system remain unchanged, the CNC recommends that certain rules are followed in order to ensure that competition law is not infringed and that access to the broadcasting rights is ensured to any interested party under objective, transparent and non-discriminatory conditions.

The first second-phase concentration

On April 1, the CNC issued a decision by virtue of which it authorised without conditions the first second-phase concentration notified under the new SCA. The case is also relevant because, although the Investigation Directorate proposed authorising the concentration in the first phase, the counsel decided not to authorise it at that point and to initiate the second phase of the proceedings. This is interesting in that it shows independence between the bodies constituting the CNC.

Furthermore, two more practical issues arose during the proceedings, as follows.

• The time limit for the CNC to review the case was suspended until a report was issued by the Spanish Energy National Commission, as provided by the new SCA. This caused uncertainty about the length of the time limit of the first phase of the proceeding.
• It was the first time that the Investigation Directorate ordered the issuance of a market test during the first phase of the proceedings. However, this was not enough to convince the counsel to authorise the concentration at that stage.

The object of the notified transaction was the incorporation of a company (Newco) by BP Oil España, SAU (BP) and Repsol Comercial de Productos Petrolíferos, SA (Repsol), which would provide into-plane services and aviation fuel supply services in airports located in mainland Spain and the Balearic Islands (Spain).

Newco would be a company through which two competitors present in the aviation fuel supply market would cooperate in the provision of certain services necessary to supply fuel to final clients. The creation of Newco could potentially affect several markets, such as: (i) aviation fuel into-plane services; (ii) management of airports' fuel storage facilities (IGCC); and (iii) the vertically integrated market related to aviation fuel supply.

The CNC considered that it was not likely that the notified concentration could hamper the effective competition. However, it highlighted that there might exist competition problems as a result of the vertical integration between both into-plane and fuel supply services resulting from the liberalisation process deriving from the implementation of Council Directive 96/67/EC of October 15 1996.

In the market related to into-plane services, the CNC pointed out that the licences of BP and Repsol do not coincide in any airport, which means that the disappearance of a competitor will not have any direct effect on the market competition of into-plane services in any particular airport.

One of the potential obstacles to competition could be the participation of BP and Repsol in the share capital of CLH, the parent company of CLH Aviación, which is one of their main competitors in the into-plane services market. The CNC understood that it was more likely that the financial stake could imply an obstacle to competition when: a) shareholders operated in the same or connected markets; b) they held a significant stake; and c) the structural link between both parties might affect their economic incentives. However, the CNC considered that it was not foreseeable that the concentration could strengthen the parties' prospect to coordinate CLH's commercial strategy.

As regards competition conditions for the market, the CNC considered that, provided the competitive pressure of CLH, the concentration did not generate potential risks in relation to into-plane services and management of IGCCs located in mainland Spain and the Balearic Islands.

Finally, the CNC stated that the vertical integration deriving from the concentration was limited and only represented less than 10% of the demand for aviation fuel.

Furthermore, provided that the shareholders agreement executed by BP and Repsol expressly obliged them to provide into-plane services in transparent, objective and non-discriminatory conditions, the CNC agreed that the aim of the concentration was not to discriminate against third parties.

Author biographies

Juan Jiménez-Laiglesia DLA Piper Juan has broad experience in European and Spanish competition law, with special expertise in government regulation and competition law in the energy sector (oil, electricity and natural gas), construction, consumer products, the pharmaceutical and automotive industries and mergers and acquisitions. Juan is an associate professor of competition at Carlos III University of Madrid, professor of competition law and energy markets at the Instituto de Empresa in Madrid and sits on the editorial board of the journal Gaceta Jurídica de la Unión Europea y de la Competencia (EU and Competition Law Gazette). Alfonso Ois DLA Piper Alfonso Ois is a senior associate in the EU and Spanish competition law department in the Madrid office of DLA Piper. He specialises in EC and competition law. Alfonso has extensive experience in merger control and antitrust matters. He also has broad expertise in government regulation and competition law in regulated industries, such as telecommunications and energy. Alfonso has practised in London and Madrid. Samuel Rivero DLA Piper Samuel Rivero is an associate in the EU and Spanish competition law department. He has broad experience in competition matters.