The fact that one of the bidders is unlikely to submit an individual bid in the absence of the cooperation, is of less importance. The lawfulness of the cooperation is not changed by the fact that it took place openly. The judgement will impact the future possibility for actual or potential competitors to cooperate in tender procedures.
The Supreme Court's decision as regards to the joint bidding by Ski Taxi company and Follo Taxi company entails that undertakings looking to cooperate in tender procedures must carefully assess whether it is at all possible to cooperate, particularly in situations where the tender procedures allows for partial offers. The Supreme Court holds that cooperation between undertakings where one or several of the cooperating undertakings are individually able to submit individual bids – is a restriction by object under the Norwegian Competition Act, Section 10 (1) prohibiting agreements restrictive of competition. In effect, it is not necessary to conduct an examination of its actual or potential effects on the tender competition or the overall competition, nor is it necessary to carry out an assessment of the pro- and anti-competitive effects.
Facts and procedure
Ski Taxi and Follo Taxi provide taxi services using small passenger cars and are active in the Follo region outside Oslo, Norway. In 2010, the two submitted a joint bid in two tender procedures regarding framework agreements for the provision of patient transport services for the South-Eastern Norway Regional Health Authority. The cooperation took place through a joint management company, SFD, established by the parties in 2001. Pursuant to a "Strategy Document – 2009-2010", SFDs purpose was "to secure and win major contracts" and "to take measures to meet competition in the form of joint projects or marketing effort". The SFD shareholder agreement provided that "the position of the parties in relation to the functions assigned to the company indicates that there will be less competition between them in the market than previously".
In 2011, the Norwegian Competition Authority concluded that the cooperation had the effect that the two taxi companies did not submit separate and competing bids, which they otherwise had a realistic possibility to do. The Authority therefore concluded that the cooperation restricted competition by its object, without it being necessary to analyse the effects on competition.
The Court of First Instance came to the opposite conclusion and noted that the taxi companies were not competitors in the first tender procedure, and only partially competitors in the second tender procedure. Furthermore, the Court concluded that the joint bidding did not restrict competition by object and that the competition in the second tender procedure in no event had been appreciably restricted on its merits. Therefore, the Court ultimately held that the cooperation was lawful and not in contradiction to the Competition Act, Section 10 (1).
The Court of Appeals reversed the judgement from the Court of First Instance. Firstly, the Court of Appeal held that the taxi companies were competitors in both tender procedures, and secondly, that the cooperation had restricted competition by its very object. In the Court of Appeal's assessment, it sufficed to show that the cooperation was "able" to restrict competition. The fines were, however, reduced as the Court of Appeal held that the taxi companies had not acted willfully.
The issue before the Supreme Court was confined to the question as to whether or not the cooperation between the two taxi companies in the two tender procedures restricted competition by its object. The Supreme Court did not assess whether or not taxi companies were in fact actual or potential competitors, but rested on the Court of Appeal's assessment on this point. The Supreme Court concluded as follows:
- It does not suffice that the cooperation is "able to harm competition" in order for it to constitute a restriction by object. In order to fall within the scope of the Competition Act, Section 10 (1), the cooperation must "appear sufficiently harmful to competition", so that it is unnecessary to assess the actual effects of the cooperation. The harmful nature of the cooperation must be easily identifiable in light of experience and economics. This is in accordance with the CB v Commission, C-67/13 P, EU:C:2014:2204) judgement and the EFTA Court judgement of 22 December 2016 in the Ski Taxi and Follo taxi vs. the Norwegian Government request for a preliminary ruling. In effect, the Supreme Court defined a higher threshold to prove the infringement than the Court of Appeal.
- Nevertheless, the Supreme Court reached the same result as the Court of Appeal, cf. paragraph 44 of the judgement:
"When two undertakings individually are in a position to submit individual bids, or can easily attain such a position, they will expose each other to a competitive pressure. Both must then decide on how advantageous their respective offers must be in terms of price and quality in order to be able to compete with the other, otherwise the tender may be lost. The fact that it may subsequently be established that one of the companies would probably not have chosen to bid alone, in this context, is of less importance. The competitive pressure exists as long as the possibility for a separate and competing bid exists."
- When the parties could have submitted individual offers (regardless of whether this actually would have happened), the Supreme Court's assessment was that a joint bid removed the competitive pressure and thus was detrimental to the competition. Since joint bids include joint pricing, there was no need to make a more in-depth assessment of the cooperation and its impact on the competition. According to the Supreme Court, it was sufficient to demonstrate that the parties could have submitted offers alone and that joint bids therefore reduced competition. In support of the fact that the cooperation had an anti-competitive object, the Supreme Court referred to an internal strategy document. However, the Supreme Court disregarded the fact that the bid cooperation took place openly, but noted that it may be easier to show an anti-competitive object if the cooperation is hidden. The Supreme Court also disregarded the fact that the cooperation enabled the taxi companies to bid for a larger lot (higher capacity) than what they would have done otherwise. The Supreme Court noted that any capacity advantages had to be assessed in the context of the Competition Act, Section 10 (3) allowing for restrictions of competition if the undertakings are able to prove efficiencies.
What should your business be thinking on now?
The Supreme Court's decision narrows the scope for undertakings to cooperate in tender procedures, and makes it necessary to carefully assess whether or not the parties to the potential joint bidding are actual or potential competitors, and if they are, whether the cooperation is indispensable to realise efficiencies beneficial to the consumer and not eliminating competition in a substantial part of the market. This applies in particular to tender procedures which allow bids for separate parts and where the relevant undertakings would be able to bid for one or the other part of the tender, regardless of whether the undertaking(s) would in fact submit such a bid in the absence of the cooperation. Competitors should also carefully consider whether it is lawful to establish an ongoing cooperation or structures that leads to or encourages cooperation in tender procedures. This is unless it takes place in the form of a lawfully established and, if relevant, notified and approved joint venture, and is carefully considered in advance.
The Supreme Court judgement also leaves some questions unanswered, particularly in regards to tenders where the parties, when considering capacity, risk, or strategy, have a need to cooperate with one or more competitors. By reading the judgement it is still unclear to which extent two potential competitors may join forces where:
- They will benefit in scale and scope when they deliver jointly (more products, better economy in the offer and thereby a qualitatively or economically better offer etc.);
- They will have the opportunity to compete for more slots/parts of the tender competition when they delivery jointly (the parties are partly complementary and/or have different strengths/focus areas);
- They regard it to be commercially necessary to bid together with another bidder (risk sharing and sharing of exposure etc.).
In summary, there will most likely still be some scope for joint bidding where both undertakings potentially may submit an individual bid, but the possibility for such cooperation has narrowed. It also presupposes a careful assessment (and if relevant, documentation) of whether or not the cooperation in effects leads to otherwise non-achievable cost efficiencies, quality enhancements and/or other efficiencies benefiting the consumer.