ECO 226 Economics of European Integration

Sara Loric

In-Class Exercise 2
Cartel: Smart Card Chips
Answers:
1. The Commission opened a case against several companies accusing them of collusion
through a network of bilateral agreements, effectively establishing a cartel. They have
shared information in order to keep the prices in the market artificially high.
2. Relevant aspect of competition policy refers back to the Article 101 of the EC Treaty
antitrust rules that prohibit price fixing, customer allocation and the exchange of
commercially sensitive information. Said in other words, this case is concerned with
collusion through cartel.
3. Relevant model to use in order to try to understand the decision made by the Commission
would be BE-COMP model. I believe it would be most suitable one because, through
establishing a cartel, companies involved have distorted and limited the competition in
the market. This resulted in keeping the price higher than the equilibrium market price,
and this model would help us understand this effect and why the Commission was so
concerned.
RESEARCH NOTES:
Smart card chips are used in mobile telephone SIM cards, bank cards, identity cards and
passports, pay TV cards, and various other applications. Those used in the SIM segment rely
mainly on memory, for example to store telephone numbers, while the smart card chips used in
other applications also rely on security devices like cryptography in order to ensure data
confidentiality.
Several smart card chip producers in several Member States were inspected based on the
Commissions suspicions that they have breached EC Treaty antitrust rules prohibiting practices
such as price fixing, customer allocation and the exchange of commercially sensitive information
(Article 101).
The Commission has concerns that certain chips suppliers may have agreed or coordinated their
behaviour in the European Economic Area (EEA) in order to keep prices up. This would breach
Article 101 of the Treaty on the Functioning of the European Union (TFEU) and Article 53 of
the Agreement on the EEA, which prohibit cartels and restrictive business practices.
Today the European Commission has found and sanctioned a cartel set up by companies
producing Smart Card Chips, a product used in the SIM cards of mobile phones, in payment
cards or identity cards for example. We have imposed fines totalling 138 million euros.
The companies involved were Infineon, Philips, Samsung and Renesas, a joint venture of Hitachi
and Mitsubishi. Instead of competing, these companies colluded through a network of bilateral
contacts in order to coordinate their market behaviour throughout Europe.

They held contacts to discuss prices, price trends as well as production capacity.
The fine amounts imposed today reflect the gravity of the infringement, the turnover generated
by the cartelised products and the duration of participation of each company in the cartel.

Antitrust: Samsung - Enforcement of UMTS standard essential patents

Answers:
1. In this case the company in question, Samsung, failed to fulfil its commitments to the
European Telecommunications Standards Institute (ETSI). These commitments included
Samsung licencing its patents that are essential for the implementation of a standard on
fair, reasonable and non-discriminatory (FRAND) terms. However, Samsung sought
injunctive relief in various Member States' courts against Apple Inc. based on alleged
infringements of certain of its patent rights.
2. In this case, the relevant aspect of the competition policy would be the abuse of dominant
position as specified in Article 102 of the EC Treaty antitrust rules.
3. BE-COMP model could be used in order to understand the decision made by the
Commission regarding this case. It would help us understand how a company can
introduce a distortion to the market when it abuses its dominant position and restricts the
competition.
RESEARCH NOTES:
The European Commission has opened a formal investigation to assess whether Samsung
Electronics has abusively, and in contravention of a commitment it gave to the European
Telecommunications Standards Institute (ETSI), used certain of its standard essential patent
rights to distort competition in European mobile device markets, in breach of EU antitrust rules.
In 2011, Samsung sought injunctive relief in various Member States' courts against competing
mobile device makers based on alleged infringements of certain of its patent rights which it has
declared essential to implement European mobile telephony standards. The Commission will
examine whether such behaviour amounts to an abuse of a dominant position prohibited by
Article 102 of the Treaty on the Functioning of the EU (TFEU).
In line with the Commission's Guidelines on standardisation agreements (see IP/10/1702 and
MEMO/10/676), standard setting organisations, including ETSI, require the owners of patents
that are essential for the implementation of a standard to commit to license these patents on
FRAND terms. This commitment serves to ensure effective access to the standardised
technology. Such commitments were given to ETSI by many patent holders, including Samsung,
when the third generation ("3G") mobile and wireless telecommunications system standards were
adopted in Europe.
In order to guarantee undistorted competition and to reap the positive economic effects of
standardization.

In the light of the commitments offered by Samsung, the Decision considers that there are no
longer grounds for action and that, without prejudice to Article 9(2) of Regulation (EC) No
1/2003, the proceedings in this case should therefore be brought to an end.

Article 101 of the EC Treaty (ex Article 81 TEC)

1. The following shall be prohibited as incompatible with the common market: all agreements
between undertakings, decisions by associations of undertakings and concerted practices which
may affect trade between Member States and which have as their object or effect the prevention,
restriction or distortion of competition within the common market, and in particular those which:
(a) directly or indirectly fix purchase or selling prices or any other trading conditions;
(b) limit or control production, markets, technical development, or investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby
placing them at a competitive disadvantage;
(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary
obligations which, by their nature or according to commercial usage, have no connection with the
subject of such contracts.
2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void.
3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:
- any agreement or category of agreements between undertakings;
- any decision or category of decisions by associations of undertakings;
- any concerted practice or category of concerted practices,
which contributes to improving the production or distribution of goods or to promoting technical
or economic progress, while allowing consumers a fair share of the resulting benefit, and which
does not:
(a) impose on the undertakings concerned restrictions which are not indispensable to the
attainment of these objectives;
(b) afford such undertakings the possibility of eliminating competition in respect of a substantial
part of the products in question.

Article 102 of the EC Treaty (ex Article 82 TEC)

Any abuse by one or more undertakings of a dominant position within the internal market or in a
substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect
trade between Member States.
Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading
conditions;
(b) limiting production, markets or technical development to the prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby
placing them at a competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the other parties of
supplementary obligations which, by their nature or according to commercial usage, have no
connection with the subject of such contracts.