Competition and EU Law | Competition, state aid and public procurement law in Norway: 2022 in review and what to expect for 2023
In state aid, 2022 was marked by the war in Ukraine and the energy crisis as well as the pandemic. State aid has become an important tool in international trade and the turn from globalisation to protectionism will continue to have an effect on the relevance of state aid going forward. Within public procurement, we continue to see an increase in the number of damage claims brought before the courts. Given the increase in scale and complexity of public contracts, as well as the remaining uncertainty surrounding the threshold for liability, we expect this trend to continue in 2023.
The NCA impose substantial fines and follow-on damage claims as the new normal
Companies and individuals that violate antitrust rules face severe consequences both from the NCA, as well as customers and competitors. During the past years, the NCA has gradually increased its fines as well as levels indicated and are now at the very top in Europe. The NCA calculates fines following a regulation similar to the European Commission’s fining guidelines. As the Commission, the NCA will set the gravity of infringement at a level of up to 30% of the value of sales when calculating the fine. The NCA has consistently held the gravity of infringement to be in the 15-19% range, regardless of the form of conduct. Recent and on-going investigations all relate to direct or indirect information exchange.
Most notable is the case where the three largest grocery chains in Norway are under investigation for their joint practice of not hindering competitors accessing each other’s stores for the collection of actual shelf prices (the price hunter case). The investigation dates back to a dawn raid in 2018. The practice was established through a long-running industry standard for collaborative advertisement. If the NCA’s Statement of Objections from 15 December 2020 is upheld, the grocery chains face highest fine ever imposed in Norway of NOK 21 billion (EUR 2.1 billion). In the absence of the cap on antitrust fines of 10% of annual turnover, the combined fines indicated would have amounted to NOK 150 billion (EUR 14.8 billion).
On 29 November 2022, the NCA issued a total fine of MNOK 540.7 (MEUR 53.5) to the four biggest publishers in Norway for sharing information on prices and dates of future publications through an online industry portal (Bokbasen). Customers, such as bookstores and libraries, as well as publishers had access to, and could purchase books from, Bokbasen. Hence, the information sharing was not secret. The NCA considered that the information sharing through Bokbasen made it easier to coordinate prices and the selection of publications. Bokbasen was fined MNOK 4.1 (MEUR 0.4) for its role as a facilitator. The NCA considers this as a serious breach of the Competition Act. The decision is not yet publicly available.
In 2022, one new investigation under the prohibition against anticompetitive agreements was opened through a dawn raid in the construction market. In addition, the NCA has ongoing investigations in a health-related market and the market for relocation services. The names of the companies involved are not publicly available. All cases concern a suspicion of information exchange.
With respect to the prohibition against the abuse of dominance, the NCA has been more reserved and fewer cases have surfaced. The only case opened in 2022 is a case towards pension company, KLP. In addition, the case against delivery supplier, Foodora, was settled with commitments. Foodora committed to no longer use exclusivity clauses with restaurants for a period of three years. As the case was settled, no fine was issued.
Follow-on damage claims
As expected, follow-on damage claims in the aftermath of antitrust cases are increasingly on the agenda, also for Norwegian courts. Follow-on damage claims have become more accessible after, in particular, the introduction of specific rules on statutory limitation establishing a limit of one year after a legally binding decision. There are currently three cases pending:
- The truck cartel: Posten Norge’s (the Norwegian incumbent postal operator) damage claim following the Commission’s decision in the truck cartel case, has been heard by the District Court in the second half of 2022. Proceedings had until then been paused awaiting the outcome of several procedural questions, hereunder that the Appeal Court gave Posten access to the Commission’s Statement of Objections. As the Posten case is one of the first cases in Europe to reach a court decision following the truck cartel, the outcome could have an impact on other cases pending throughout Europe. A decision is expected the first half of 2023. Further, dairy producer Tine has also filed a damage claim following the truck cartel.
- The alarm case: In 2021, the CAT upheld the NCA’s decision against home security supplier Verisure for sharing markets with competitor Sector Alarm. Verisure decided not to bring the case to the courts. Sector Alarm had already been fined in a separate decision by the NCA which was not appealed to the CAT. Now, a class action damage claim has been filed by the consumer interest organization Alarmkundeforeningen. The case is structured as an opt-out damage claim covering all end-users unless they actively withdraw. Currently, procedural aspects of the case are pending before the Supreme Court which has to decide whether the damage claim can be financed by an independent third party. The Supreme Court decision will be pivotal for the structuring of opt-out damage claims. The hearing is scheduled for May 2023 and a decision is expected shortly thereafter.
- Cases against Telenor: The EFTA Court issued its judgment on 5 May 2022 upholding the EFTA Surveillance Authority’s (“ESA”) decision to fine incumbent telecom operator, Telenor, for the abuse of dominant position in the wholesale mobile networks market. In a different case related to Telenor’s pricing practices pursued by the NCA, the Norwegian Supreme Court in 2021 rejected Telenor’s access to appeal. Thus, almost 10 years after the initial dawn raid, the two cases against Telenor have finally come to an end with total fines amounting to NOK 2 billion (MEUR 198). The cases have paved the way for damage claims filed in 2022 by Telenor competitor Telia ensuring that Telenor will remain in the judicial spotlight in the years to come.
Two prominent prohibition decisions overturned in appeal proceedings
The spring of 2022 was a set-back for the NCA’s merger enforcement, as two NCA prohibition decisions of mergers were overturned.
The first case concerned the leading Norwegian bank DNB’s acquisition of rival Sbanken. The NCA prohibited the transaction in November 2021 based on concerns related to the market for distribution of mutual funds to private consumers. The acquisition did not result in a dominant position. However, the NCA considered Sbanken to be a close competitor and challenger in price and innovation in the market. In its decision in March 2022, the CAT for the very first time overruled a merger case. The CAT has the competence to evaluate the case in its entirety and conducted a thorough analysis of the evidence at hand before concluding to reverse the NCA decision. As the NCA cannot appeal the CAT’s decisions, the decision is final.
The second case concerns Norwegian based media house Schibsted’s acquisition of Nettbil; an online service for the sale of used cars. The transaction did not reach notification thresholds and was therefore completed when the NCA required a notification in March 2020 and subsequently prohibited the transaction in November 2020. The CAT upheld the NCA decision in May 2021. In a judgment of 23 March 2022, the Appeal Court however annulled the CAT prohibition decision. The Appeal Court found that the CAT had not sufficiently proved that, amongst other things, Nettbil would continue to grow and be a significant competitor in the counterfactual scenario. The case was appealed by the NCA to the Supreme Court. The hearing was held in January 2023 and a decision is likely to be handed down before Easter. This is the first time a merger case has been litigated before Norwegian courts. The Supreme Court has admitted the case in its entirety and will therefore assess the legal basis and the assessment on several important points. It will be interesting to see to what extent the Court will address the principal questions related to the market definition, the threshold for prohibiting a merger and the use of internal documents as evidence, or whether it will take a restrictive approach in terms of review intensity.
All time high number of mergers – three cases cleared on remedies and two notifications required under the mandatory thresholds
In 2022, the NCA received a record high number of 161 notifications. The NCA has a good track record of handling non-complicated notifications swiftly. Perhaps not surprisingly, the NCA’s average handling time for phase I decisions increased slightly from 8.9 working days in 2021 to 11.1 working days 2022. Whereas the NCA has cleared on average 1.76 cases on remedies from 2004-2020, we saw tree cases cleared with remedies in Phase II in 2022. Two of the cases concerned acquisitions of a competing undertaking and one concerned an acquisition of a supplier:
- Royal Unibrew’s acquisition of Hansa Borg: The parties were competitors within the sale of cider and flavoured alcoholic beverages. The acquisition was cleared subject to Royal Unibrew terminating a distribution agreement for cider and flavoured alcoholic beverages. Royal Unibrew was further prohibited from entering into such an agreement for the next three years (which can be extended by the NCA). This is the first time the NCA has cleared a merger on a quasi-structural remedy by termination of an agreement.
- Nortura’s acquisition of Steinsland: Nortura is Norway’s biggest supplier of poultry and eggs and Steinsland is a supplier of day-old laying hens. The acquisition was cleared on a behavioural remedy whereby Nortura commited to certain delivery and non‑discriminatory terms in its agreements with farmers for a period of 10 years.
- Bewi’s acquisition of Jackon: The parties were competitors within the market for polystyrene boxes used for storage and cooling of fish. The acquisition was cleared by the NCA subject to the sale of factories in certain local markets with overlap.
The cases in 2022 confirms that the NCA has a clear preference for structural fix-it first remedies and the use of a hold-separate manager to monitor the sales process in horizontal mergers. When assessing vertical mergers, on the other hand, the NCA seems more willing to accept behavioural remedies. The three cases in 2022 confirm that the NCA is willing to clear transactions with remedies.
Although traditionally not frequently used, the NCA has the competence to require notifications in transactions that either do not meet the turnover thresholds or that do not result in the acquisition of control. The NCA has required notifications in 10 cases since 2014 – 8 out of these were required after 2018. In 2022 we saw two such requirements for notification: Axcess Logistics acquisition of ATS (cleared in phase II) and SKion’s acquisition of Enwa (ongoing). We suspect that some cases do not show up on the statistics, as the NCA in our experience tend to nudge the parties to make a voluntary filing in cases where a request for notification is considered.
The NCA is further actively using its powers to require large players in concentrated markets to disclose transactions that do not meet the notification thresholds, in order to detect potentially harmful mergers. This typically concern already investigated markets, such as the markets for motor fuel, electricity generation, newspapers, groceries, and online marketplaces. The NCA uses the information to decide if further investigation is warranted and thus whether a notification should be required. Although the NCA has been informed of a large volume of transactions each year under this regime, we rarely see these resulting in a require for notification.
In 2022, we saw an increase in disclosure requirements also including acquisitions of minority shareholdings. For at least one market operator (Schibsted) the disclosure requirement was expanded to include not only acquisitions of companies with business activities in Norway, but also of foreign companies with “plans to enter” the Norwegian market.
New tools to regulate the markets?
As in the US and the EU, the need to regulate particular markets and the question of whether competition rules are sufficient to ensure competitive markets have been subject to debate also in Norway. Through the EEA Agreement, the provisions in the EU Digital Markets Act and Digital Services Act will also be implemented in Norway. The Government as well as the NCA have acknowledged that the existing enforcement tools are not always sufficient and look to the CMA, as well as the Icelandic Competition Authority for inspiration. Accordingly, the Government has announced that it will send a proposal for a new market investigation tool on consultation during the first quarter of 2023. The tool will essentially involve a three-level process:
- Information collecton;
- Market investigation: the NCA will evaluate whether there are market conditions or conduct that are capable of restricting competition;
- Develop competition enhancing measures.
The tool will give the NCA the ability to regulate markets without having found a breach of the antitrust rules. It remains to be seen how the fundamental legal rights of the parties involved in the market is taken care of, and how this will affect the effectiveness of the NCA.
Political pressure to regulate the grocery market
Currently, the grocery market is high on the political agenda. Inflation resulting in higher grocery prices has stirred public debate. The current administration has taken several initiatives to investigate and, if necessary, regulate the market, to a large degree pushed by initiatives from the Parliament. We do not expect this focus to fade in 2023.
In 2018, the Parliament made a resolution requesting measures to improve the competition in the grocery market, including possible measures against input price discrimination for dominant suppliers. This resulted in the Government instructing the NCA to map the actual input price differences the grocery market.
The NCA found that several of the largest suppliers charged the largest grocery chain significantly lower prices than its two smaller rivals, in some instances exceeding 15%. Based on these findings, the NCA opened investigations and carried out dawn raids against two suppliers and the largest grocery chain, NorgesGruppen, in 2019. The investigation was closed in 2021 without any finding of wrongdoings.
In 2022, the Parliament entered the fray again. After a comprehensive debate in media, the Parliament made several resolutions 31 May, pressuring the Government and the NCA to act. In one resolution, the Parliament instructed the Government to arrange a public consultation for a proposal for a regulation banning input price discrimination not objectively justified. The Parliament further instructed the Government to present the results of the public consultation by the end of 2022. It is highly unusual for the Parliament to involve itself in the preparations of regulations, as it is in the Government’s prerogative to enact regulations. It is expected that the Government will conclude whether to enact a regulation during 2023. The NCA has been strong opponents of the suggested regulations, and has suggested the introduction of the abovementioned market investigation tool, which the NCA argues may be a more efficient remedy in cases where input price discrimination harms consumers.
In addition, a proposed prohibitions against restrictive covenants on properties secured by grocery chains, obstructing competitors’ access to these locations, and exclusive lease agreements within the grocery sector are also on public consultation. Further, the Government has announced that a study into the margins in the grocery market will be carried out, as a result of reports of increases in consumer prices being at a higher level than upstream price changes.
New forms of individual sanctions against individuals?
Criminal sanctions upon individuals used to be a dormant threat under the Competition Act until the NCA reported one individual for prosecution in 2021.
The new Director General, which took office in February 2022, has more than once stated that the current system should pose a credible threat also towards individuals involved in any illegal conduct. She has stated that the NCA is also looking into other means to sanction individuals, most likely in the form of administrative sanctions. We expect these ideas to be further developed during the course of 2023.
Minor amendments to the Competition Act and proposal on new act on pricing of books
In the autumn of 2021, the Government initiated a consultation of proposed amendments to the Competition Act. Some of the proposed amendments were sanctioned in 2022 and entered into force from 1 January 2023. Most importantly, from 1 January 2023 all fines imposed in decisions by the NCA are subject to interest rates equal to the base rate adding 1 percentage point.
The Government has also sent a proposal for a new act on the pricing of books on consultation. The current regulation allows book publishers to fix their retail prices on books regardless of the prohibition against anticompetitive agreements. The new act will replace and further develop the current exemption regulation. By sanctioning this in a law, as opposed to a regulation, there will be no need for renewals.
The NCA published its strategy plan until 2027
On 11 January 2023, the NCA published its strategy plan. In the short term, the NCA will focus on four priority areas:
- Enforcement of the digital economy
- Sustainability through competition
- Strengthen the competition in the grocery market
- Be an attractive and flexible workplace
The portfolio of the NCA depends on cases received. The priority areas reflect the type of cases it will prioritize.
Ongoing crisis aid
The beginning of 2022 was marked by what is hopefully the last vestiges of the COVID-19 pandemic. The Norwegian authorities had a number of COVID measures approved by ESA.
Subsequently, with Russia’s invasion of the Ukraine, the Norwegian authorities introduced several new crisis aid measures. The first wave of which came before the summer and were designed for industry directly affected by the war. The second wave came in the fall, after the Commission amended the Temporary Crisis Framework and was tailored to industry coping with dramatically increased energy costs. Finally, the focus has gradually shifted to what can be done to combat foreign subsidies, with the adoption of the Foreign Subsidies Regulation the Commission has been given new tools to combat aid from outside the EU. It remains to be seen how these rules will affect Norwegian industry. On 1 February 2023, with a proposal to turn the aforementioned Temporary Crisis Framework into the Temporary Crisis and Transition Framework, in order to keep green industry in Europe, the Commission took the extraordinary step to propose to allow EU subsidies to match subsidies from non-EU states, such as subsidies under the US Inflation Reduction Act.
Energy and environment
The Norwegian authorities also got Brussels’ clearance for a number of energy and environmental measures.
The scheme for compensating indirect emission costs was approved by ESA for the years 2021 to 2030. The scheme is aimed at preventing “carbon leakage” – the relocation of energy-intensive industry outside of the EEA to countries with less stringent climate policies, more carbon heavy electricity and lower energy prices. Although approved in 2022, the scheme permits the coverage of emission costs from 1 January 2021.
The Norwegian authorities participated in the hydrogen IPCEI (Important Projects of Common European Interest) and had two projects cleared by ESA, aid to Barents Blue and Tizir. The two players aim to make innovative use of hydrogen in industrial contexts.
2022 also saw the continuation of the zero VAT scheme for electric and other zero-emission vehicles. A novelty is that going forward the standard 25% VAT rate applies above a NOK 500 000 (EUR 47 670) threshold, thus penalizing more expensive electric cars compared to lower-cost alternatives.
ESA rejected complaints concerning alleged subsidies involved in the temporary amendments to the depreciation rules under the petroleum tax act. This demonstrates that the Norwegian authorities have the possibility of incentivizing petroleum activities, without being caught by the state aid rules, by adopting time limited tax breaks that apply to all undertakings in a general manner.
Recovery decision and formal investigation
2022 saw the first negative recovery decision against Norwegian aid since 2015. After having carried out a formal investigation on the basis of a 2017 complaint, ESA required the Norwegian authorities to recover unlawful aid for the operation and maintenance of street light infrastructure in the Bergen area. ESA did not specify the exact recovery amount in the decision. The decision has been challenged before the EFTA Court by the aid beneficiary and the case is currently pending.
During the course of 2022, ESA opened one formal investigation against Norway, in the Catapult case. This is a rare instance of a formal investigation of aid for research, development and innovation. More specifically, the case concerns aid to innovation clusters under a block exempted aid scheme. After having monitored the aid, ESA concluded that it has doubts about the compatibility of the aid with the general block exemption regulation (GBER), as well as with the Research and Development and Innovation (RDI) Guidelines and the EEA Agreement. ESA therefore opened a formal investigation on 7 September 2022. It is worth noting that ESA in December 2022 adopted new guidelines on state aid for research, development and innovation. However, in case ESA were to find that the Catapult aid does not comply with the block exemption it is likely that the aid under investigation will be assessed in accordance with the rules applicable on the date on which the aid was awarded.
Norwegian act on state aid procedures
2022 saw the adoption of a new national Norwegian Act on State Aid Procedures. It entered into force on 1 January 2023. The act sets out a national procedural framework for the granting and control of state aid. The act also notably sets out provisions on the recovery of aid. The act has a limitation period of merely three years. This is in a somewhat stark contrast to the ten-year limitation period applicable under the EEA Agreement for cases handled by ESA. Additionally, already prior to the entry into force act, doubts have been cast about the robustness of its recovery provisions. In the Grønnegata 21 case, Borgarting Appeal Court held that Oslo municipality having paid an excessive price for real estate, had granted unlawful aid. The Court found that the municipality did not have a legal basis to recover this aid. Even more so, the Court indicated that it would have come to the same result under the new act on state aid procedures (that had yet to enter into force at the time). To us this is a somewhat surprising result, given the non-debatable recovery obligations laid upon public authorities and flowing from EEA law. The Norwegian Supreme Court will hear the case on appeal in April 2023.
We continue to see an increase in the number of damage claims brought before the courts following a public procurement process, mostly in the form of loss of profits. The combination of increased contract values and limited downsides against significant potential upsides by suing for damages, will most likely continue to fuel this trend. Reliance losses are far less common as standalone cases, and we suspect that most of these cases are settled outside the courts. Not only a dismissal of an offer but also cancellation of the tender may result in liability for damages. Looking at the statistics for 2022, if the courts have found a basis for liability, most of the cases result in full liability for the alleged amount.
There is still uncertainty concerning the threshold for liability in cases where public authorities have breached the public procurement regulations. In particular, since the Supreme Court’s establishment of the liability norm in 2019 in the Fosen Linjen case, according to which there needs to be a sufficiently qualified breach, there has been uncertainty as to how to interpret this norm. Thus, expectations for clarity were high when the Supreme Court’s took on a similar case this fall. The case concerned a public tunnel works contract in the west of Norway. The Norwegian Public Road Administration (“Statens Vegvesen”), had rejected the tenderer Flage Maskin from the process as Flage Maskin did not have sufficient traffic management experience to qualify. Statens Vegvesen was held liable in the Appeal Court. Despite the call upon the Supreme Court by the Parties to elaborate on the norm for liability, the Court unfortunately in the end did not address the issue. The Court concluded that Statens Vegvesen had done nothing wrong in dismissing Flage Maskin. A second case, Perpetuum Miljø, concerning liability following a cancellation of the entire tender was recently sent back to the Appeals Court by the Supreme Court. A final judgement which hopefully can give a bit more flavor to the exact content of the norm is thus still pending.
Another interesting case in 2022, which may also be admitted to the Supreme Court this year, is the case between the Municipality of Bodø and IT solutions supplier Braathe, were the Appeal Court held the Municipality liable yet significantly reduced the liable amount. Braathe’s claim before the District Court was MNOK 100 (MEUR 9.9). The District Court reduced the amount to MNOK 90 (MEUR 8.9) and the Appeal Court reduced it yet again to MNOK 45 (MEUR 4.5) as a result of considerations related to Braathe’s duty to mitigate the damages.
Before the Complaints Board for Public Procurement, we continue to see an increase in cases. In fact, in 2022 we saw a record high number of 35 cases concerning illegally non-published tenders where a fine was enforced in 25 of the cases. The level of fines continues to be in the range of 5-15% of the contract value, with an average of 8.9%.