Abuse of Dominant Position by Hf. Eimskipafélags Íslands

The Competition Authority has concluded in its new decision that Eimskip (Hf. Eimskipafélag Íslands) abused its dominant position in the sea freight market, thereby breaching the prohibition provisions of the Competition Act. Eimskip did this, on the one hand, through actions aimed at deliberately driving Samskip out of the market and, on the other, by entering into numerous so-called exclusive purchase agreements with its customers. By exclusive purchasing in this context, we mean agreements whereby Eimskip bound its customers to purchase transport services exclusively from the company. Exclusive purchasing agreements are illegal when a dominant undertaking is involved. Some of the contracts also contained anti-competitive loyalty discounts. The Competition Authority considers that Eimskip's breach of Article 11 of the Competition Act was serious and liable to cause significant competitive harm to business and the public.

This case was initiated following a complaint from Samskip, and a search of Eimskip was carried out as a result, see below for further details on the proceedings.

Article 11 of the Competition Act prohibits the abuse of a dominant position in the market. For this provision to apply, the relevant market must be defined and the position of the undertakings on it assessed. As Eimskip argued that the company was not dominant, this issue had to be subject to detailed examination in the case. The Competition Authority comes to the conclusion that the market in this case carriage of cargo in regular scheduled sailings between Iceland and ports in Europe on the one hand and North America on the other. Regular scheduled services as described above also include services which are an integral part of such transport services, such as cargo handling, including loading and unloading. The case examined the market share of Eimskip, Samskip and Atlantsskip in this market over a four-year period. It was found that Eimskip had a dominant market share (70-80% share). In light of this share and with reference to the company's dominance in transport capacity and its significant financial strength, the Competition Authority assesses that Eimskip was in a dominant market position.

1.        A section of Eimskip

Eimskip's breaches of competition law consist, in essence, of the following actions:

Market attempt

The evidence shows that in the autumn of 2001, Eimskip implemented price increases for its transport services for its customers, and that Samskip took advantage of this to acquire new customers. Eimskip was dissatisfied that Samskip did not take this opportunity to increase its prices. The evidence also shows that around the turn of 2001/2002, Eimskip again took action with the aim of achieving a price increase for its transport services. Internal Eimskip documents show that these measures were, in part, successful. However, Samskip once again exploited Eimskip's customers' frustration with the price increases and offered them better terms, with the result that Eimskip lost customers to Samskip. This in turn caused dissatisfaction at Eimskip and was „attack“ as it was called at Eimskip, a decision against Samskip

Following this, Eimskip took extensive measures aimed at transferring as much of Samskip's business as possible to Eimskip. The measures were named „market strategy“ and they were organised by the senior management of Eimskip. It is clear that extensive work has been initiated to map the market, such as creating lists (files) of all Samskip's customers and organising a campaign. The data also show that it was decided to „power“ Eimskip would be used for this purpose to secure the company's dominant position in the market.Eimskip's objective with the measures was to prevent or significantly restrict competition and enable the company to increase prices following the measures. This is particularly clear when considering the scope of the measures.

The actions mainly consisted of Eimskip systematically approaching numerous Samskip customers and trying to win them over from Samskip with specific discounts or terms. These offers involved undercutting, i.e. the price was lower than the price stated in the relevant company's contract with Samskip. The price was also much lower than that stated in Eimskip's tariff. The offers were to be taken to Samskip's customers as a matter of confidence so that information about the reduced price would not reach companies that were already doing business with Eimskip. A memorandum found during a search of Eimskip's premises stated that the company's customers, who were comparable to the Samskip customers to whom Eimskip had made offers, paid a much higher price for shipping services from Eimskip than was reflected in Eimskip's offers to Samskip's customers.

The value of the business that Eimskip sought from Samskip was at least three billion króna per year, and the company's management believed it was realistic to secure business from Samskip worth around 800 million króna. In early May 2002, an email from Eimskip stated that business worth approximately 200 million króna had been transferred from Samskip to Eimskip, and that it was expected that a further 400 million króna of business would be transferred shortly. The evidence indicates that Eimskip's management believed that the marketing campaign had been a success.

The above-mentioned measures constitute unlawful specific price reductions aimed at weakening Samskip as a competitor. It is clear that had Eimskip's plans been fully realised, there was a significant risk that Samskip would have been driven out of the market.

Exclusive purchases and anti-competitive discounts

The Competition Authority's decision states that Eimskip entered into unlawful exclusive purchasing agreements with its customers. Exclusivity agreements in this context refers to commercial contracts where Eimskip bound its customers to purchase transport services exclusively from the company. In such agreements with large customers, Eimskip also applied anti-competitive discounts to further ensure that customers would not do business with Eimskip's competitors. The company, among other things, applied retroactive discounts intended to secure business with Eimskip and prevent its customers from trading with its competitors. Eimskip would sometimes make remarks to its customers who, in the company's view, had breached their contracts by turning to Eimskip's competitors.

Agreements of this kind are liable to prevent competitors of a dominant undertaking from growing and prospering. Such agreements therefore strengthen or maintain a dominant market position and thereby distort competition. The decision of the Competition Authority details numerous agreements by Eimskip which the Competition Authority considers to have contravened Article 11 of the Competition Act in this respect.

2.        Sanctions

Taking into account, among other things, Eimskip's intent to distort competition, the fact that the company's infringements were organised by its senior management, and the scale and nature of the infringements, the Competition Authority considers in its decision that a fine of 310 million króna is appropriate.

3.        Delayed proceedings

This case began with a search of Eimskip, which was carried out on 4 September 2002. Various matters have delayed its proceedings.

Litigation before the courts

Eimskip demanded that Samskip not be regarded as a party to the proceedings. The competition authorities rejected this. Eimskip, however, first appealed this aspect of the case to the Competition Appeal Tribunal and later to the courts. The Supreme Court confirmed the competition authorities' decision that Samskip should be regarded as a party to the proceedings. A dispute also arose over Samskip's access to certain documents in the case, and Eimskip appealed the Competition Authority's decision in this regard to the Competition Appeals Board. This dispute delayed the proceedings until November 2003.

Delayed data collection

The traditional proceedings, in which both parties presented their views and commented on each other's, continued until 2004. Concurrently with these proceedings, the data obtained from the search at Eimskip was processed. Both Eimskip and Samskip have submitted very detailed submissions in the case, and in mid-2004 Eimskip demanded that the competition authorities compile a statement of objections outlining the alleged infringements by the company. The case concerns extensive infringements and complex issues. There has been disagreement on all the main aspects of the case, such as the definition of the market, the companies' position within it, the scope of the prohibition on the abuse of a dominant position, the nature of Eimskip's conduct, and the significance of organisational changes within the company. This has required extensive additional data collection and examination. The procurement of certain data has also proved to be time-consuming. This data collection continued until 2005. In the latter part of 2005, the drafting of a detailed submission began, which was completed in April 2006, and the document was delivered to Eimskip on 2 May 2006. Eimskip's comments on the submission were received on 8 September 2006.

Major changes to the Steamship

The offences in this case took place in the shipping operations of Hf. Eimskipafélag Íslands, mainly in 2001 and 2002. Hf. Eimskipafélag Íslands established the limited liability company Eimskip ehf., which took over the transport operations of its parent company at the beginning of 2003. At the general meeting of Hf. Eimskipafélag Íslands on 19 March 2004, it was decided to change the name of both companies. The name of the parent company, Hf. Eimskipafélag Íslands, was changed to Burðarás hf. and the name of the subsidiary, Eimskipa ehf., was changed to Eimskipafélag Íslands ehf. On 24 June 2005, the ownership of Eimskipafélag Íslands ehf. changed when Burðarás hf. sold its entire shareholding in the company to Avion Group hf. Subsequently, in 2005, Burðarás hf. was broken up and the company was merged, with Landsbanki Íslands hf. and Straumur fjárfestingarbanki hf. taking over its assets and liabilities respectively. On 21 November 2006, the name of Avion Group hf. was then changed to Hf. Eimskipafélag Íslands, and on 26 February 2007, the board of directors of that company decided that it would be merged with its subsidiary, Eimskipafélag Íslands ehf.

Faced with a lack of access – new forms of advocacy

In June 2006, Eimskip first put forward the view that responsibility for the aforementioned breaches lay with Landsbanki Íslands and Straumur-Burðarás, and not with the company that was then operating the relevant shipping activities. Until that time, the Competition Authority had been entirely unaware that a dispute existed concerning this aspect of the case. This necessitated a special data collection exercise and further investigation. It was necessary, among other things, to repeatedly obtain the views and data of Landsbanki Íslands, Straumur-Burðarás, Avion Group and Eimskip. The last letter in this regard was received on 26 March 2007. As is justified in the decision of the Competition Authority, it is not possible to accept Eimskip's view that the penalty decisions should be directed at the aforementioned financial institutions. The conclusion of the Authority is that Hf. Eimskipafélag Íslands (the younger) has assumed responsibility for the infringements of Hf. Eimskipafélag Íslands (the older), and the decision is therefore directed at the former company. Consideration was given, among other things, to the fact that Hf. Eimskipafélag Íslands the younger operates the same sea freight business as was operated in the name of Hf. Eimskipafélag Íslands the elder.

At the end of April 2007, Eimskip submitted an economic expert's opinion setting out its views on the definition of the market, its position within it, and its actions in 2001 and 2002.

Unacceptable delays – hope for a remedy

In view of the foregoing, the lengthy duration of the proceedings was unavoidable given the complexity of the case and the events that arose during its course.  The Competition Authority considers it generally unacceptable that important competition matters can be delayed due to the actions of companies. The Authority hopes that amendments to the Competition Act, which came into force this year and are intended to enhance the Competition Authority's ability to obtain information, will have a positive effect on the speed of proceedings.

The Competition Authority's decision (346 pages) can be found on its website, www.samkeppni.is.