EU and UK Competition Law

¶ … Electronics, Ltd.

WORLD ELECTRONICS LTD

Scenario: World Electronics Ltd. is a multinational company, offering top quality products at affordable prices. In recent months, due to a significant number of complaints, some important legal issues have been brought to the attention of the directors of the company. You have been asked to advise the company and its subsidiaries on their legal position in relation to the following legal issues.

Electronics Ltd. is a German company that manufactures and supplies the popularly used LED energy saving bulb that is sold under its unique brand name "OKN." At present, the company has 65% of the German, UK and French market for the "OKN" LED energy saving bulb. The company's EU share of the market for energy saving bulbs is estimated to be 20% and 10% for all energy saving technologies. Using its extensive financial resources generated from healthy profits over the past seven years, Electronics Ltd. has developed a very efficient distribution system. The company's strong market position has enabled it to offer discounts to some of its French customers, negotiated separately with individual suppliers, and based on the size of the orders placed. Recently, one of Electronics' competitors, X-Systems Ltd., discovered that Electronics Ltd. is offering huge discounts to X-System's existing customers if they agree to switch their custom to Electronics Ltd. over the next 18 months. X-Systems Ltd. manufacture and supply the high quality diffusion chip XZ 4 used in the production of the energy saving bulbs. By February 2009, X-Systems Ltd. had captured a 10% share of the UK and German market for the diffusion chips and became popular among manufacturers of the energy saving products. The directors of Electronics Ltd. saw the popularity of the XZ 4 diffusions chip as a chance to expand into new markets. Thus, Electronics Ltd. developed its own PZ 4 diffusion chip which was distributed below its manufacturing costs to all those who bought other products from Electronics Ltd. After 7 months, X-Systems Ltd. found that its own share of the market had fallen to 5%. X-Systems Ltd. are concerned about the actions of Electronics Ltd. And are convinced that Electronics Ltd. is trying to eliminate them from the competition by selling the XZ 4 diffusion chip at the excessively low price. X-Systems Ltd. now questions the compatibility of Electronics' pricing practices with the EU competition policy. IVS Electronics (the subsidiary of World Electronics Ltd.) is one of the well-known British manufacturers of the specialty chips, which are used, in most electronic equipment. In December 2009, the IVS Electronics organized a global summit of the manufacturers of the specialty chips that was meant to address the issues surrounding the impact of the production of chips on the environment. Although, not all leading manufacturers of the specialty chips attended the summit e-mails were sent to all manufactures. On 1 April 2010, the Chief Executive of IVS Electronics e-mailed the CEOs of BVC Digital and Chrome Chip in a message headed 'A proposition'. The message stated that it might serve the interests of the undertakings if they concentrated on selling to particular parts of the EU. He suggested that IVS Electronics might focus on sales to the UK while BVC Digital concentrated on France and Chrome Chip on Germany, the three largest markets for specialty chips in the EU. He also suggested that it might deter parallel imports if all three companies sold their products in the EU at around the same price. The