Antitrust Law Daily Wrap Up, ANTITRUST—EU Gen. Ct.: European Commission rejections of challenges to De Beers’ diamond distribution system upheld, (Jul 12, 2013)

By Tobias J. Gillett, J.D., LL.M.

European Commission decisions rejecting, on the grounds of a lack of sufficient European Community interest to investigate further, complaints filed by diamond dealers against The Diamond Trading Co. Ltd (DTC), part of the De Beers group of companies, over DTC’s Supplier of Choice system for distributing rough diamonds have been upheld by the European General Court (Diamanthandel A. Spira BVBA v. European Commission, July 11, 2013, Truchot, L.; Belgische Vereniging van handelaars in- en uitvoerders geslepen diamant (BVGD) v. European Commission, July 11, 2013, Truchot, L.).

On May 3, 2001, DTC notified to the European Commission agreements between it and certain of its customers, known as sightholders. The agreements established a system for the distribution of rough diamonds from DTC to its customers, called the Supplier of Choice system. The agreements were intended “to limit the number of sightholders selected, encourage them to work with downstream partners in order to improve the efficiency of diamond distribution and invest in retail branding.”

The EC issued a statement of objections against the agreements. DTC responded by proposing changes to the Supplier of Choice system, including the appointment of an Ombudsman, subject to approval by the EC, who could determine whether DTC had followed improper procedures in making selection or de-selection decisions and supply decisions; revisions to the sightholder profile; and amendments to the sightholder criteria, policy statement, and conditions of sale. The EC subsequently closed its procedure, reserving the right to reopen it.

On September 25, 2003, Diamanthandel A. Spira BVBA filed a complaint against De Beers and DTC, asserting that the SOC system implemented by them infringed European antitrust law, and requesting the EC to reopen its procedure, as well as a complaint against a trade agreement between De Beers and Alrosa, the second largest rough diamond producer in the world after De Beers, under which De Beers would purchase half of Alrosa’s production for five years. Belgische Vereniging van handelaars in– en uitvoerders geslepen diamant (BVGD), the Belgian Association of Dealers, Importers and Exporters of Polished Diamonds, also filed a complaint against the SOC on July 14, 2005.

The EC later adopted a decision making binding commitments made by De Beers to cease purchasing rough diamonds from Alrosa from 2009 onwards, following a period of gradual reduction in the amounts purchased between 2006 and 2008. On January 26, 2007, the EC adopted decisions rejecting the complaints filed by Spira and BVGD. The applicants appealed to the European General Court, contending that the Court should annul the EC’s decisions.

The General Court rejected the appeals, concluding that the EC was entitled to reject the complaints.

Belgische Vereniging van handelaars in– en uitvoerders geslepen diamant. With respect to BVGD’s appeal, the Court determined that the EC did not infringe BVGD’s “right of access to the documents on which it had based its provisional assessment set out in the rejection decision,” that the EC did not impose excessively short time limits on BVGD during the procedure, and that the EC did not infringe BVGD’s right to be heard. The Commission also did not fail to examine BVGD’s complaint fairly and impartially, did not prioritize BVGD’s complaint against the Alrosa agreement to the detriment of BVGD’s complaint regarding the SOC, did not unduly limit the nature of its inquiries during its initial and supplementary investigations, and did not infringe its obligation to take into consideration all relevant matters of law or of fact.

In addition, the EC did not incorrectly reach “assessments which led it to reject the complaint on the ground of insufficient Community interest,” according to the Court. The EC did not misinterpret or misapply the criteria for evaluating the Community interest in BVGD’s complaint, did not incorrectly find a “small likelihood of finding any appreciable anti competitive effects of SOC resulting from the alleged foreclosure of access to rough diamonds for the secondary market operators,” did not make manifest errors in its assessment of the effectiveness of the Ombudsman’s revised terms of reference, was entitled to conclude that BVGD did not establish the existence of a price-fixing agreement concerning rough diamonds between De Beers and Alrosa, and did not make a manifest error in concluding that the information available to it did not enable it to establish a causal link between SOC and an increase in the price of diamonds.

Since the objections concerning the substantive legality of the contested decisions were rejected and since BVGD did not present any specific argument concerning an alleged failure to state adequate reasons in respect of the contested decisions, the EC did not fail to fulfill its obligation to state reasons.

Diamanthandel A. Spira BVBA. With respect to Spira’s appeal, the Court determined that the EC had a legal basis to open a supplementary procedure following its rejection decision and to adopt the supplementary rejection decision, and thus did not commit an abuse of process. The EC did not infringe the legal principles of legal certainty and sound administration by failing to withdraw its rejection decision and adopt a new one.

The Court found that the EC did not infringe Spira’s right of access to documents on which it had based its provisional assessment. Temporary confusion caused by an EC case orientation letter did not affect Spira’s right to be closely associated with the procedure. The EC did not apply undue pressure on Spira by setting unnecessarily short time limits. The Court rejected Spira’s contention that it was unable to comment on new information that became available after the EC sent an Article 7 letter.

The EC also did not fail to examine Spira’s complaint carefully and impartially, and did not infringe its obligation to take into consideration all relevant matters of law or of fact.

The Court determined that the EC did not incorrectly reach “assessments which led it to reject the complaint on the ground of insufficient Community interest.” The EC did not incorrectly find a “small likelihood of finding any appreciable anti competitive effects of SOC resulting from the alleged foreclosure of access to rough diamonds for the secondary market operators,” did not make manifest errors in its assessment of the effectiveness of the Ombudsman’s revised terms of reference, and did not incorrectly assess other De Beers practices Spira contended the EC should have examined as “forming part of a general strategy of De Beers aimed at remaining the only big player in the market.”

Finally, the EC did not breach its obligation to state reasons in either its rejection decision or its supplementary rejection decision.

The Court ordered both BVGD and Spira to bear their own costs and to pay those incurred by the EC, and ordered De Beers, as intervener, to bear its own costs.

The cases are Joined Cases T 104/07 and T 339/08 and Joined Cases T 108/07 and T 354/08.

Attorneys: F. Castillo de la Torre, J. Bourke, R. Sauer, and T. Soames for European Commission. L. Levi, C. Ronzi, G. Vandersanden, and M. Vandenbussche for Belgische Vereniging van handelaars in- en uitvoerders geslepen diamant. Y. van Gerven, F. Louis, A. Vallery and J. Bourgeois for Diamanthandel A. Spira BVBA. W. Allan, S. Horwitz, J. Ysewyn, N. Gracia Malfeito, B. van de Walle de Ghelcke, J. Marchandise, and P. Riedel for De Beers.

Companies: Belgische Vereniging van handelaars in- en uitvoerders geslepen diamant; Diamanthandel A. Spira BVBA; De Beers; De Beers UK Ltd.

Cases: Antitrust