Competition Law Assignment 2008

MegaPhones is a Scottish manufacturer of mobile phones. It has entered into an exclusive distribution agreement with Phones2Buy, a British mobile phone retailer, based in Aberdeen.

 

Phones2Buy has a network of distribution warehouses and individual stores in Britain, the Czech Republic, Germany, the Netherlands and the United States. Phones2Buy also has an online presence.  

 

MegaPhones has informed Phones2Buy that the retail price of the mobile phones in Britain must be £80 whilst in the Netherlands and Germany, the price must be €100. The price in the Czech Republic is to be set at between €120 and €140. In the case of the Netherlands and Germany, MegaPhones has stated that transportation costs are the reason for the price differential, whilst in the Czech Republic, MegaPhones states that market research illustrates that Czech customers are desperate for mobile phones and thus are prepared to pay a premium. The wide scale availability of mobile phones [cell phones] in the United States means that the cost in the United States has been set at . The mobile phone crates supplied by MegaPhones to Phones2Buy contain an RFID chip which allows MegaPhones to track shipments

across the world. MegaPhones has intimated that mobile phone crates must only be delivered to the named country of supply. MegaPhones also requires that each distributor only sell within its territory to customers based in that territory, irrespective of whether the customer is online or visits the store in person. If MegaPhones discovers that mobile phones destined for one country are delivered to another country, then a fine of €5,000 per crate is payable by Phones2Buy and in serious cases termination of the contract will follow.

 

MegaPhones has also introduced a new reward system. MegaPhones has informed Phones2Buy that if it sources 10% of its mobile phone requirements from MegaPhones then Phones2Buy will receive a 5% discount. If Phones2Buy sources 50% of its requirements from MegaPhones, the discount increases to 40% and if Phones2Buy sources 90% of its requirements from MegaPhones then the discount will be increased to 50%.

 

Mobile Phone Television looks set to be the next big thing in mobile phone technology. MegaPhones has invented a mobile phone TV receiver and has started to automatically install the tuner in all of its new handsets. BritCom is a UK company specialising in making and selling television comedy programmes. BritCom has requested that MegaPhones either provide it with the source code of the TV tuner software or alternatively grant it a licence so that it can produce compatible comedy shows. MegaPhones has rejected both requests from BritCom.

 

TellyOnTheGo is an American company which has created a rival Mobile Phone TV tuner. MegaPhones has been so successful in its recent advertising campaign that it has now cornered 45% of the global mobile phone handset market.

 

MegaPhones has decided to begin manufacturing mobile phones in Hungary, due to the availability of cheap labour. The Hungarian government is keen to attract MegaPhones

and has offered MegaPhones a tax free loan to buy a factory in Budapest. In addition, for 5 years, the Hungarian government will give a rebate on corporation tax worth €110,000. Smaller companies wishing to relocate to Hungary have only been offered the tax free loan.

 

Bell Phones, an American mobile phone manufacturer, has commenced talks with MegaPhones, with a view to merging. The worldwide mobile phone market has seen major consolidation in the last few years. Both the American and European competition regulators are interested in the activities of Bell Pones and MegaPhones.   

 

In Europe, the National Competition Authorities and the European Commission have received letters of complaint from a number of customers in Germany, the Netherlands, Scotland and the Czech Republic.

 

The National Competition Authorities and the Commission are working in close cooperation with one another and wish to conduct a ‘dawn raid’ in the four EU territories. In particular, the officials wish to inspect the homes of the Managing Directors of MegaPhones and Phones2Buy. They have also intimated a desire to refuse to allow the Company Secretaries of both firms to contact their legal representatives during such a raid and to seal off rooms and confiscate files and laptops during the proposed investigation.

 

Identify, discuss and critically evaluate the legal issues raised by the scenario.

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