The Danish Supreme Court has now ruled in the lengthy IC3 train engine action against Deutz AG and Diesel Motor Nordic A/S. Last year, the Danish Eastern High Court referred the case back to the Danish Competition Council for further consideration, noting that the Council’s investigation of the market definition was inadequate and that the Council’s interpretation of the vertical block exemption was not correct. The Danish Supreme Court disagrees with the Danish High Court and has upheld the original decision.
Danish Supreme Court judgment of 3 December 2024, Danish Competition Council vs Deutz AG and Diesel Motor Nordic A/S
Summary of facts
In 2010, DSB was planning a major refurbishment of the engines in its IC3 trains, which required spare parts from the German manufacturer of the original engines Deutz AG (“Deutz”). Diesel Motor Nordic A/S (“DMN”) was Deutz’ official and exclusive distributor of spare parts in Denmark.
DSB contacted Deutz, which suggested to replace the engines completely instead of repairing them. However, this would be far more expensive than expected by DSB. As an alternative, Deutz suggested (i) an “exchange solution” with each engine being repaired one at a time and then continuously replaced with other engines in need of repair or (ii) a “kit solution” with preparation of a list of specific Deutz parts to be replaced and generic parts, mechanical services, etc. that would be delivered as an overall package. In DSB’s view, Deutz’ list contained more parts than necessary. Also, DSB preferred to carry out some of the repair work itself. At the same time, DMN had prepared an offer that envisaged far fewer spare parts than proposed by Deutz, but Deutz had “strongly” advised DMN not to submit this offer.
After having conducted an EU tender without receiving any bids, DSB engaged in negotiations with a number of suppliers, including DMN and Fleco ApS (“Fleco”). DSB eventually contracted with Fleco, which had submitted the most favourable bid. According to the Competition Council, Deutz and DMN agreed to prevent Fleco from buying the necessary parts through Deutz’ network of distributors, allegedly by making Deutz’ Dutch distributor, who had already offered the parts to Fleco, withdraw its offer at Deutz’ request. In addition, a system was allegedly set up whereby all distributors buying spare parts for IC3 trains had to state the engine number and country of destination to enable Deutz to block any resale to DSB. As a result of the foreclosure, Fleco had to withdraw from the contract, after which DSB contracted with DMN. Fleco then contacted the Danish Competition and Consumer Authority.
Decisions of the lower courts and tribunals
The Danish Competition Council defined the markets as the aftersales market for “sale of unique spare parts for the TCD2015 engine” and “repair and maintenance of the TCD2015 engine”. Since the TCD2015 engine is Deutz’ own engine, Deutz had a market share of 100% according to the Danish Competition Council. The Council concluded that the practice constituted both an illegal refusal to supply contrary to the prohibition of abuse of dominance, and that Deutz and DMN had allegedly entered into an illegal anti-competitive agreement to prevent parallel imports to Denmark that could not be exempted under the vertical block exemption regulation.
The Danish Competition Appeals Tribunal and the Danish Maritime and Commercial High Court upheld the decision, but the Danish Eastern High Court referred the case back on the ground that the market definition was based on inadequate information. Thus, the Danish Eastern High Court was not sure that the market could be so narrowly defined or that it had been proved that Deutz (i) had a dominant position and (ii) that the agreement between Deutz and DMN to foreclose Fleco was not exempted under the vertical block exemption regulation.
The Danish Supreme Court’s judgment
The case was brought before the Danish Supreme Court, which noted that it is for the courts to consider the facts that form the basis for the competition authorities’ decision and the application of the law, but the courts will only set aside the discretion of the authorities if there is sufficient certainty for doing so. The Danish Supreme Court added that the definition of the relevant market and the assessment of dominance is a matter of discretion that can be challenged by companies (only) if the facts relied upon by the competition authorities are wrong, or if there is certainty that the authorities have acted outside the scope of their discretionary powers.
Unlike the Danish High Court, the Danish Supreme Court found that there was no basis for setting aside the Danish Competition Council’s market definition, noting, inter alia, that the Danish Competition Council had conducted a number of market surveys, obtained information from DSB, and interviewed the parties. The Danish Supreme Court further noted that DSB required the spare parts to be original for safety reasons and that Deutz was able to block approx. 30% of the parts needed for the specific repairs.
On the question of abuse, the Danish Supreme Court found that Deutz had abused its dominant position contrary to Article 102 TFEU and section 11 of the Danish Competition Act. Thus, Deutz had refused to supply spare parts on the upstream market for TCD2015 engines where Deutz was a monopolist, thus eliminating effective competition on the downstream market for repair and maintenance of the engines. According to the Danish Supreme Court, a senior employee had allegedly said that “the door should be closed” and that “the business should be pushed over to DMN” or something like that, and this practice had been pursued consistently and systematically, including with the use of the recording system.
On the question of the anti-competitive agreement, the Danish Supreme Court found that Deutz and DMN had entered into an agreement to prevent parallel imports and passive sales of spare parts from the distributor network contrary to Article 101 TFEU and section 6 of the Danish Competition Act, and that this practice was also followed, illustrated i.a. by the fact that the Dutch offer for spare parts to Fleco was withdrawn at Deutz’ request. Due to the nature of the agreement providing absolute territorial protection, it was not necessary to demonstrate any adverse market effects. Unlike the Danish High Court, the Danish Supreme Court found that the block exemption regulation does not exempt agreements intended to prevent other parties but the contracting parties from engaging in passive sales in the territory from Article 101 TFEU and section 6 of the Danish Competition Act.
On that basis, both Deutz and DMN had violated the prohibition of anti-competitive agreements in section 6 of the Danish Competition Act and Article 101 TFEU. Deutz had also violated the prohibition of abuse of dominance in section 11 of the Danish Competition Act and Article 102 TFEU. The case will now be referred to the police for criminal prosecution.
Our comments
The Danish Eastern High Court’s earlier decision attracted the attention of competition law practitioners, as courts only rarely overrule the competition authorities’ findings. However, the Danish Supreme Court found no basis for setting aside the findings, and the Danish Supreme Court’s decision therefore illustrates the doctrine that it takes a lot to set aside a discretionary competition law assessment. It was the same view that was adopted by the Danish Supreme Court in the road-marking case.
Further, the Danish Supreme Court overruled the Danish Eastern High Court’s decision by finding that the block exemption regulation does not apply in a situation where a supplier and a buyer enter into an agreement for the supplier’s blocking of other customer’s passive sales in the buyer’s territory. The block exemption regulation only states that it amounts to a so-called hardcore restriction if the supplier prohibits the buyer from selling in other territories, but the Danish Supreme Court adopted a broader interpretation and found that this case is also exempted from the scope of the regulation. This interpretation was also supported by observations submitted by the European Commission, seeking to ensure uniform application of the competition rules in the Member States. This is the first time that the European Commission has submitted observations in a Danish competition law dispute heard by the courts.
Read the Supreme Court ruling of 3 December 2024 (In Danish)
