Telefónica and PT (Portugal Telecom) are the primary telecoms operators in their home countries of Spain and Portugal respectively. They jointly controlled Vivo, one of the largest telecoms operators in Brazil. In September 2010, Telefónica and PT agreed that Telefónica would buy out PT’s stake in Vivo. The Share Purchase Agreement (SPA) included a non-compete clause which provided that, to the extent permitted by law, the parties would refrain from competing in the Spanish and Portuguese telecoms markets. The duration of the clause was from September 2010 to December 2011.
In January 2011 the European Commission opened an investigation for breach of competition law, which prompted the parties to remove the clause in February 2011. The European Commission concluded its investigation in February 2013, deciding that the clause amounted to a market sharing agreement with the object of restricting competition in the internal market. It fined Telefónica and PT €67 million and €12 million respectively. The parties appealed the European Commission’s decision to the General Court, but the General Court dismissed the appeal almost entirely.
Whilst the full facts of the case are complex, two of the more important points are as follows:
- Under EU competition law, non-compete clauses in SPAs may be deemed compliant as long as they are directly related to, and necessary for, the implementation of the transaction. The European Commission found that a non-compete clause covering the Spanish and Portuguese markets could not be considered directly related to or necessary for Telefónica’s buy-out of PT’s stake in Vivo in Brazil, and this finding was upheld by the General Court.
- The parties argued that the clause did not constitute a restriction of competition by object, since the European Commission had not demonstrated that they were potential competitors and that the clause was therefore capable of restricting competition. The General Court held that the Commission was not obliged to carry out detailed analysis on this point, as the very existence of the clause was a strong indication of potential competition between Telefónica and PT.
Contributed by Sheila Tormey
