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Customer sharing in re redistribution of unadressed mail between Mediecenter Danmark AS, and each of Mediabroker, Carat, IUM, and OMD

25. maj 2011

On May 25, 2011, the Danish Competition Council (DCC) issued a decision concerning customer sharing agreements.

The case concerns four horizontal and separate, yet parallel, customer sharing agreements between Mediacenter Danmark A/S (MCD) and (1) Mediabroker A/S and GroupM (Mediabroker), (2) Carat Danmark A/S (Carat), (3) Initiative Universal Media A/S and MediaPrint ApS (IUM), and (4) OMD Danmark A/S (OMD) respectively, which were initiated in 2007. Mediabroker, Carat, IUM, and OMD are all media corporations and are all subsidiaries of international companies.

The three customer sharing agreements between MCD and each of Mediabroker, Carat and IUM involves inter alia, conditions setting out (1) a mutual ban on active sales to the parties’ exclusive customers, (2) that MCD may only contact the other undertakings’ customers subject to prior accept from the respective other media corporation, (3) surplus sharing in re conflicted customers (i.e. when a MCD or one of the media corporations obtains an order from the other party’s exclusive customers), and (4) cool off periods; i.e. covenants not to compete on exclusive customers for a duration of 12 months after the expiry of the customer sharing agreement.

The fourth customer sharing agreement between MCD and OMD involves inter alia, conditions setting out (1) a ban on MCD’s active sales to OMD’s exclusive customers, (2) that MCD may only contact OMD’s customers subject to prior accept from the respective other media corporation, and (3) cool off periods; i.e. covenants not to compete on OMD’s customers for a duration of 12 months after the expiry of the customer sharing agreement.

The DCC finds that it is likely that there is a relevant market for redistribution of the distribution of unaddressed mail for the end users. The DCC bases its findings on (1) the fact that the end users demand distribution of unaddressed mail, (2) the fact that the parties as well as the distributors offer the (re-)distribution of unaddressed mail, and (3) the fact that the DCC previously has found that there is a market for distribution of unaddressed mail. When the DCC defined a market for distribution of unaddressed mail it was only the distributors themselves which sold this service to the end users. The DCC finds that there is still a market for distribution of unaddressed mail. However, in this case the DCC leaves open the definition of the relevant market as the DCC finds that the market is not broader than the market for distribution of unaddressed mail for end users.

The DCC concludes that MCD, Mediabroker, Carat, IUM and OMD have engaged in customer sharing agreements which restrict competition by object and thereby infringe section 6 of the Danish Competition Act and TEUF Article 101 (1). The decision also states that the information sharing between MCD and Mediabroker, Carat, IUM, and OMD respectively supports the customer sharing agreements. Moreover, the DCC has found that the conditions for an exemption according to TFEU Article 101(3) and section 8 of the Danish Competition Act are not fulfilled.

Facts of the case

Mediabroker, Carat, IUM, and OMD have each in 2007 established a purchasing arrangement with MCD concerning the distribution of unaddressed mail for end-users via Post Denmark A/S. This purchasing arrangement was made possible after Post Danmark in 2005 accepted conditions to supply this distribution. The DCC has as a part of these conditions accepted joint purchasing agreements, but the DCC has not accepted restrictions of the effective competition.

The market players on the market for distribution of unaddressed mail may be described according to the model below.

Graph

Mediabroker, Carat, IUM, and OMD each cooperate with MCD on the purchasing of distribution of unaddressed mail for end-users (the dark grey box in the middle of the model above). According to the structure of the purchasing arrangement MCD is, on behalf of itself and the other parties to the purchasing arrangement, in charge of the purchasing agreements with Post Danmark.
I.e. MCD consolidates its own customers’ volume with the volume of the four other parties’ customers. MCD purchases distribution of unaddressed mail for end-users from Post Danmark based on the aggregated volumes. Accordingly, MCD obtains a lower price for the distribution than MCD and the four other parties would be able to obtain separately.

Thus, MCD redistributes distribution of unaddressed mail for end-users via Post Danmark to the four other parties to the purchasing agreement (Mediabroker, Carat, IUM, and OMD) as well as to MCDs own end-user customers. MCD is therefore both a wholesaler of distribution of unaddressed mail for end-users to other undertakings which redistributes to the end-users, and a distributor of the distribution of unaddressed mail for end-users. There is thus, both a vertical and a horizontal link between MCD and the four media companies, Mediabroker, Carat, IUM, and OMD. It is only the horizontal link which is subject to the present case.

In relation to the purchasing agreement Mediabroker, Carat, IUM, and OMD send information concerning customers, volumes and other more specific customer information to MCD. Mediabroker, Carat, IUM, and OMD e.g. send MCD consolidation plans as to expected specific customers and their expected volumes. MCD aggregates all of the information.

On January 19, 2010, the DCC carried out dawn raids at the premises of MCD, Mediabroker, Carat, IUM, and OMD. The dawn raids were motivated by two tip-offs from customers and one tip-off from a competitor, which detailed that MCD, Mediabroker, Carat, IUM, and OMD employ customer sharing agreements.

The DCC issued statement of objections to MCD, Mediabroker, Carat, IUM, and OMD on June 25, 2010. Subsequently, the authority held orientation meetings with parties. In addition to the orientation meetings the authority sent questions to the parties and to some of the parties’ customers.

The DCC takes the view that the evidence obtained during the dawn raids and via subsequent meetings and correspondence with the parties is sufficient to initiate proceedings against MCD, Mediabroker, Carat, IUM, and OMD as well as to conclude that as off 2007 MCD has entered into customer sharing agreements with Mediabroker, Carat, IUM and OMD respectively and that accordingly MCD, Mediabroker, Carat, IUM, and OMD have infringed TFEU Article 101 and section 6 of the Danish competition act.

Legal assessment

The DCC has assessed that MCD, Mediabroker, Carat, IUM, and OMD infringe TFEU Article 101 (1) and section 6 of the Danish Competition Act by means of customer sharing agreements.

Albeit, a customer sharing agreement constitutes an object offence, which means that it is not necessary to define the relevant market, the DCC has referred to case law setting out the relevant market, which the authority finds is applicable in the present case.

Hence, the DCC has assessed the four fundamental criteria for an infringement of TFEU Article 101 (1) and section 6 of the Danish Competition Act; i.e. (1) undertaking(s), which (2) enter into agreement(s) or concerted practice, which (3) has as its object or effect the restriction of effective competition (4) to an appreciable extent.

The DCC has found that all five undertakings constitute undertakings according to both the EU and the Danish competition law concept of undertaking, as all the undertakings are separate and independent economic entities involved in economic activities.

Subsequently, the DCC has found that MCD has adopted mutual customer sharing agreements with Mediabroker, Carat, and IUM, and that MCD has adopted a non-reciprocal customer sharing agreements with OMD. The agreements between MCD and Mediabroker, Carat, IUM, and OMD, contain provisions on customer sharing, which constitute a restriction of competition which has as its object the restriction of the effective competition. The DCC has, thus, not carried out an effect analysis of the investigated customer sharing agreements.

The DCC has furthermore found that some of the information exchanged as a part of the parties’ purchasing agreement have facilitated and supported the customer sharing agreements.

The de minimis notice is not applicable due to the nature of the infringement.

Some of the parties have raised voices as to the indispensability of the customer sharing agreements. As to the indispensability the parties state that the customer sharing agreements are necessary to protect the customer information exchanged via the purchasing agreement as well as in order to avoid that a customer (for the same task) figures more than once when the task is reported to MCD. However, none of the parties have formally invoked the applicability of TFEU Article 101 (3) and section 8 of the Danish Competition Act. The DCC has assessed the four cumulative criteria for exemption and has found that at least three of the four criteria are not fulfilled.

Hence, the DCC has concluded that MCD, Mediabroker, Carat, IUM, and OMD infringe TFEU Article 101 and section 6 of the Danish Competition Act by means of customer sharing agreements.

The DCC has accordingly ordered MCD and Mediabroker, Carat, IUM, and OMD to terminate the anti-competitive elements of their cooperation agreements and to refrain from such behaviour in the future; i.e:

  1. the customer sharing agreements, and
  2. the information exchange which supports and facilitates the customer sharing.