Leading legal advisor in all areas of competition law

The purpose of the Danish Competition Law is ‘to promote the efficient use of resources in society through effective competition for the benefit of businesses and consumers’. The objective of the law is therefore not competition as such, but the efficient use of resources in society. The means of achieving this efficient use of resources is effective competition.

The concept of ‘efficient use of resources in society’ is inextricably linked to the concept of socio-economic efficiency, according to which goods and services must be produced and distributed at the lowest possible cost, be of the best possible quality, and the supply of goods and services must be in such quantity and composition that the supply reflects customer preferences – and finally, that resources must be used where they are most needed.

The concept of ‘effective competition’ relates to both structural and behavioural conditions in the market. Structural conditions include, for example, the absence of conditions that prevent access to, expansion in or exit from the market (so-called barriers to entry). The Competition Law must therefore seek to ensure that barriers to entry are sufficiently removed or reduced. As far as behavioural conditions are concerned, it is important, among other things, that companies make their own independent decisions. Any agreement that restricts a company’s ability to make its own independent decisions is therefore likely to be illegal.

Whereas the Danish competition rules aim to protect the efficient use of resources, the EU competition rules have two parallel and complementary objectives:

• To protect effective competition in the market and
• To prevent barriers to the integration of the internal market.

To ensure that these objectives are achieved, the competition rules consist broadly of four separate but complementary prohibitions. These prohibitions are set out below.

Agreements between companies that directly or indirectly aim to prevent, restrict or distort competition are illegal, invalid and have no legal effect. If the agreement also affects trade between EU Member States, it is also illegal and invalid under EU rules. The prohibition applies to:

1) Agreements
2) Between companies
3) Which have the direct or indirect object or effect of
4) Preventing, restricting or distorting competition.

The concept of an agreement presupposes that at least two parties have a mutual intention, but the form in which this mutual intention is manifested is not decisive. An actual contract or written agreement is therefore not necessary. Co-called gentleman’s agreements and common understandings are also covered by the competition law concept of agreement, even if they are not legally binding. The concept of agreement in competition law thus merely requires a reflection of the parties’ common intention, regardless of how it is expressed.

The prohibition applies only to agreements between companies. Agreements within the same company/undertaking or the same group of undertakings are therefore not covered. Furthermore, the prohibition applies only to agreements which have as their object or effect the restriction of competition.

By their very nature, infringements of the objective are so harmful to competition that it is not necessary to examine their effect on the market. Examples include cartels, binding resale prices, certain resale restrictions, etc.

Conversely, violations must be assessed on the basis of their actual or anticipated effect. Agreements that violate the prohibition are unlawful and invalid. The invalidity is absolute, meaning that the agreement has never been in force and cannot be enforced.

A company has a dominant position when it has what is known as significant market power. Significant market power is an economic position that enables the company to prevent effective competition in the market. This may be the case, for example, if the company can behave independently of its competitors and customers – and ultimately consumers.

A company that occupies a dominant position has a special responsibility not to restrict competition in the market. Therefore, there are a number of actions that a dominant company may not take, which non-dominant companies are free to take.

A dominant position is generally the result of a combination of several different factors, but a high market share (often above 40%) will often be indicative of a dominant position.

It is not illegal to be dominant; in fact, dominance can often be pro-competitive, as it allows for economies of scale and/or economies of scope, resulting in lower costs and lower sales prices. However, it is illegal to abuse a dominant position.

The decisive factor in determining whether there is an abuse is whether the dominant company behaves in a way that differs from “normal competition”. However, abuse may also occur even if all of the company’s non-dominant competitors behave in the same way. A dominant company has a special obligation not to further harm competition. This means that dominant companies are prevented from engaging in certain conduct which would not constitute abuse and would not be illegal if carried out by non-dominant companies.

There are generally three main categories of abuse;

• Exploitative abuse, where the dominant company seeks to exploit customers and suppliers in order to make more money
  
• Exclusionary abuse, where the dominant company seeks to keep competitors out of the market, either completely or partially, or to force them out
  
• Discriminatory abuse, where the dominant company discriminates between customers and/or suppliers with either an exploitative or exclusionary purpose.

The merger control rules apply when two (or more) companies merge into one entity;
when one company acquires control of another company; or
when two (or more) companies establish a joint venture on a lasting basis.

The merger control rules mean that mergers above a certain size may not be implemented until they have been notified to and approved by either the Competition and Consumer Authority or the European Commission. After notification, the authorities must assess whether the merger significantly impairs effective competition.

If the merger does not significantly impede effective competition, it must be approved. If, on the other hand, the merger significantly impairs effective competition, it must be prohibited.

The decisive factor is therefore whether or not competition is significantly impaired. Since the merger may not be implemented before it has been approved, and approval is not granted until the authorities have assessed the merger, the merger assessment is always an assessment of future circumstances. The authorities will look at, among other things, whether the merger creates or strengthens a dominant position, where market shares are important, but other factors such as actual and potential competition and buyer power are also important aspects. However, a merger may significantly impede competition even if it does not create or strengthen a dominant position. The authorities therefore also assess how close competitors the merging companies are.

As mentioned above, the authorities must either prohibit or approve the merger, depending on whether or not the merger significantly restricts competition. However, the authorities may also approve mergers on certain conditions, provided that these conditions fully address and remedy the authorities’ concerns about effective competition. Such conditions may be structural, e.g. the divestiture of all or part of a business, activity or IPR, or behavioural conditions, e.g. granting third parties access to infrastructure or technology, terminating exclusivity agreements, supplying products to third parties, refraining from raising prices for a specific customer group, etc.

When public authorities grant state aid to companies, this can influence their behaviour in the market: For example, it may affect companies’ entry into a market, their exit (a failing and inefficient company may remain in a market even though it should leave), their choice of inputs and outputs, the quantity of inputs and outputs, their research and development efforts, and the location of their business and facilities.

All these factors may be reasonable and rational for an authority to try to influence. There may be important policy reasons for granting aid, for example, for research and development of a new type of antibiotic or for locating heavy industry in a remote area of the country where jobs are few and far between. What these – and other – compelling reasons have in common is that they mainly concern either the correction of market failures or distributional policy measures. However, it is generally illegal to grant state aid unless it is compatible with the EU’s internal market.

The ban on state aid is enforced by the European Commission and is procedurally supplemented by a requirement that Member States notify the European Commission of any new measures involving state aid. Member States may not pay or implement the aid measure until the European Commission has approved it. Whether state aid is permitted depends primarily on whether the European Commission considers the aid to be compatible with the internal market. The European Commission authorises state aid that is in the common interest of the EU and therefore compatible with the internal market.

EU state aid is involved when six cumulative conditions are met:

• It must involve a transfer of state resources attributable to the state
• The transfer must be made to a company
• The transfer must confer and advantage on the company
• The transfer must be selective, i.e. favour certain companies or the production of certain goods
• The transfer must distort or threaten to distort competition, and
• The distortion of competition must affect trade between Member States.

The six conditions are cumulative. If just one of the conditions is not met, it is not considered EU state aid. However, if the condition that is not met is the condition regarding the effect on trade, it is considered state aid under the rules of the Competition Law. In the case of state aid under the rules of the Competition Law (and not EU rules), the aid is only illegal if it is not lawful under public regulation, e.g. legislation, executive orders or the rules on the municipalities’ non-statutory tasks (municipal powers). There are therefore many exceptions to the Danish state aid rules, while EU rules require prior notification and approval.

We develop compliance programmes, including programmes for compliance with competition rules, and offer targeted training for company employees to ensure that compliance with competition rules is implemented in the company culture.

We also provide assistance during inspections/dawn raids by competition authorities.

Many transactions give rise to one or more competition law issues.

All Danish mergers where the parties have a combined turnover of more than DKK 900 million and where at least two of the parties have a turnover of more than DKK 100 million must be notified to the Competition and Consumer Authority.

After notification, the authorities must assess whether the merger significantly impedes effective competition. If the merger does not significantly impede effective competition, it must be approved. If, on the other hand, the merger significantly impedes effective competition, it must be prohibited. The decisive factor is therefore whether competition is significantly impeded or not.

As the merger may not be implemented before it has been approved, and approval will not be granted until the authorities have assessed the merger, the merger assessment is always an assessment of future circumstances. The authorities will, among other things, consider whether the merger creates or strengthens a dominant position, which is why market shares are important, but other factors such as actual and potential competition and buyer power are also important aspects. However, a merger may significantly impede competition even if it does not create or strengthen a dominant position. The authorities therefore also assess how close competitors the merging companies are.

We assist with all aspects of the merger control process, including preparing merger notifications and communicating with the authorities, but also with structuring the transaction so that obtaining the information and data required for the notification does not place an unnecessary burden on either the buyer or the seller.

During the transaction process, we also advise on competition law issues in the due diligence process, including identifying problematic findings and implementing specific safeguards.

Competition law is enforced through both public enforcement and private enforcement.

Public enforcement is characterised by investigations by the Competition and Consumer Authority and the European Commission, the issuance of orders to cease certain actions, the imposition of fines and, in the most serious cases, imprisonment.

Private enforcement is characterised by legal proceedings for damages for infringement of competition rules. Such infringements, for example in the form of cartels or abuse of a dominant position, have enormous potential to cause losses throughout the value chain. Customers may have purchased products at too high a price. Some may have been refused purchase in a situation where they should have been allowed to buy. Companies have been terminated on the grounds that illegal provisions have been violated. Suppliers may have suffered losses by selling “too cheaply” to a purchasing cartel. Private enforcement is also characterised by legal proceedings for invalidity due to a competition-restricting provision in the agreement, and it is not unusual for competition law to be brought up in a lawsuit between two companies for one party’s alleged breach of a cooperation agreement.

We advise and assist in all types of competition law disputes, both in court and before the EU Commission and the Competition and Consumer Authority.

Competition law is an integral and crucial part of any company’s commercial decision-making process.
Competition law sets some external limits on:

• what the company can do on its own without abusing its dominant position, and
• what the company can do in cooperation with others without entering into an agreement that restricts competition.
  

Competition law is closely linked to microeconomics and industrial economics, and competition law advice therefore takes the company’s current business situation at the time of consultation into account to a very high degree. Our advice is tailored to your company or organisation, so that you receive advice that can be used to exploit the business opportunities that exist within the legal framework.

A public authority or company is also subject to competition rules.

Regardless of its organisational form, a public authority or company is subject to competition rules if the entity engages in ‘economic activity’. The concept of an company in competition law is different from the general concept of a company. The decisive factor is whether an economic activity is carried out, regardless of the legal form or financing of the activity. For example, an economic activity is carried out when a good or service is offered on the market, or if the activity could just as well be offered or carried out – or is actually offered or carried out – by a private operator.

If a public authority or company actually carries out an “economic activity”, the authority or company is subject to the prohibition on restrictive agreements, the prohibition on abuse of a dominant position and the rules on merger control. The authority or company is also subject to the rules on state aid on the recipient side, i.e. the authority may not receive public funding for the economic activities without complying with the state aid rules.

If a public authority or company does not carry out economic activities, the authority or company remains subject to the rules on state aid on the grant side, i.e. the authority may not grant public aid without complying with the state aid rules.
It is crucial to structure a state aid scheme correctly and legally from the outset – both for the authority and the recipient of the aid.

In recent years, there has been increased focus on state aid. Companies that have received aid from public authorities without being entitled to it – but in good faith – may risk having to repay the aid with penalty interest, even if the authority paid the aid in good faith. In addition, competitors of a recipient of aid may bring an action for damages for the loss they have suffered as a result of the recipient having obtained an unlawful competitive advantage by receiving the aid.