The CNMC did not meet the standard of proof
The Spanish High Court (“High Court”) overturned a recent decision of the Spanish Competition Authority (“CNMC”) that sanctioned various companies for a cartel infringement due to their participation in public tenders together as a temporary business association (“Union Temporal de Trabajadores” or “UTE” for its acronym in Spanish). At the time of the decision, the CNMC’s sanctioning activity has been targeting these practices for several years.
As in previous judgments discussed on this blog, the High Court firmly overturns the decision of the CNMC, emphasizing that sanctioning decisions of the CNMC must be more accurate, substantiated and justified, rather than relying on “categorical statements”. In this way, the judgment upholds the standard of proof required from the CNMC and confirms a line of case law that has carefully reviewed the evidence brought by the CNMC to support its decisions, and heavily criticized the sanctioning decisions of the CNMC over the last few years.
The decision of the CNMC: incorporating an UTE as the driver of the anticompetitive behavior
On June 30, 2016, the CNMC decided on proceedings S/0519/14, Infraestructuras Ferroviarias (the “Decision”). The Decision considered that it has been demonstrated that AMURRIO FERROCARRIL Y EQUIPOS, S.A., JEZ SISTEMAS FERROVIARIOS, S.L., TALLERES ALEGRÍA, S.A. and DURO FELGUERA RAIL, S.A.U, four companies active in the railway turnout manufacturing and commercialization market, (i) entered into market sharing, price fixing and other agreements of the sort; and (ii) exchanged commercially sensitive information regarding the supply of railway turnouts in the tender procedures called first by GIF and then by ADIF from July 1, 1999, to October 7, 2014. The CNMC imposed fines totaling €5.58 million.
The entire line of reasoning of the CNMC was based on an allegedly instrumental use of UTEs as a way of sharing the public contracts awarded by GIF and ADIF. The Decision reaches this conclusion by emphasizing that UTEs are unnecessary, arguing that there were no objective economic-financial or technological grounds, or reasons related to the lack of capability to timely meet GIF’s and ADIF’s requirements that would justify the joint participation in the tenders. The line of reasoning of the CNMC was entirely based on these two arguments: (i) the companies could have entered into licensing agreements to access the technology instead of creating UTEs; and (ii) since 2014, they were able to participate in the tenders individually.
The fined companies challenged the Decision of the CNMC claiming, among other things, the lack of evidence of the infringement and that the incorrect classification of their behavior as a cartel.
The High Court highlights the inconsistent line of reasoning of the CNMC
The High Court examines the elements on which the CNMC relies to determine that there was no objective justification for incorporating the UTEs and for their collusive nature, concluding that the Decision does not provide sufficient evidence to substantiate an infringement, and overturns the Decision of the CNMC and, therefore,the fines.
The High Court first points out the contradictions of the CNMMC. In the Decision, the CNMC criticizes that the companies repeatedly created UTEs while acknowledging that they were the only sector companies specialized in the relevant market, adding that it is a highly specialized market. In this manner, according to the High Court, the Decision of the CNMC does not explain how the companies could affect potential competitors if there were only four companies that could meet the demand of such a restricted sector with extremely specific technical and professional requirements. The High Court thus considers that the CNMC failed to provide a sufficient explanation about the effect of UTEs on competition given the market conditions.
The High Court heavily criticizes the arguments of the CNMC on the ability of the companies to participate in the tenders individually, explaining that (i) the turnover does not show that the companies could meet the technical capability requirements of the tenders; and (ii) regarding technological capability, the awarding body itself (GIF or ADIF) preferred a combined technology (German and French), thus forcing the companies to rely on foreign-owned patents.
The High Court also rejects that the companies participating individually in the tenders from 2014 implies that they were capable of participating individually during the infringement period, since the Decision acknowledges that, after 2014, the technology used by the companies was almost entirely Spanish and had been developed by these companies. Therefore, to a certain extent, it was no longer necessary to participate in the tenders as an UTE, since all the companies could access the technology.
Finally, regarding the repeated argument of the CNMC that the companies could have entered into licensing agreements instead of participating as an UTE, the High Court firmly states the following about the limits on the scope of action of the CNMC:
“Keep in mind that the exercise of sanctioning powers cannot go as far as to intend to influence business decisions or decide what may be more convenient, advantageous or suitable from the Government’s perspective. The CNMC’s role is to determine if the chosen [option] is contrary to competition law, particularly when the assessment of the other options does not include any reasons other than a categorical statement deprived of additional arguments.”
Based on the above, the High Court upholds the appeals filed by the fined companies and overturns the Decision of the CNMC.
The High Court judgments address a highly controversial matter that has been in the spotlight of national and international competition authorities over the last few years, that is participating in public tenders as an UTE. These judgments not only confirm that the CNMC must perform an appropriate legal test allowing for an accurate and in-depth analysis of whether there is an objective justification for creating UTEs; but provide several criteria allowing to clarify the legal framework applicable to these agreements.
Aside from confirming the essential role of judicial review, these judgments follow the lead of recent High Court judgments (discussed on this blog), evidencing the importance of the standard of proof that must be applied by the competition authorities when sanctioning anticompetitive practices and, in this case, when assessing the participation of UTEs in public tenders. Additionally, the High Court reminds the CNMC that it must give substantiated and sufficient reasons for its decisions, emphasizing that sanctioning decisions should be of increasingly higher quality.