Deutsche Post Annual Report 2008

54 Litigation

Due to the market-leading position of Deutsche Post AG, a large number of its services are subject to sectoral regulation under the Postgesetz (German postal act). The regulatory authority approves or reviews prices in particular, formulates the terms of downstream access and conducts general checks for market abuse. Any resulting proceedings may lead to a drop in revenue and earnings.

Legal risks arise from, amongst other things, appeals pending before the administrative courts against the regulatory authority’s July 2002 ruling concerning the conditions for the price cap procedure, from appeals against price approvals granted under the price cap procedure for the years 2003, 2004 and 2008, and from appeals against other price approval decisions handed down by the regulatory authority.

European Commission competition proceedings were initiated on the basis of a complaint made by the Deutsche Verband für Post und Telekommunikation (German association for posts and telecommunications) about allegedly excessive mail prices. In these proceedings, Deutsche Post AG has presented detailed evidence to support its argument that the prices are reasonable.

Conditions determined by the regulator oblige Deutsche Post AG to allow customers and competitors downstream access to its network. Proceedings are still pending before the administrative courts against the relevant rulings by the regulatory authority. Depending on the outcome of the proceedings, the Group could be faced with further losses of revenue and earnings. As regards the special problem of downstream access for so-called consolidators, the European Court of Justice decided definitely on 6 March 2008 that access must be granted under European law. Based on an enforceable order by the Bundeskartellamt (German federal antitrust authority), Deutsche Post AG had granted the consolidators access as early as 2005. The expiry of the exclusive license will eliminate the access issue.

In response to a complaint from a third party, the EU Commission made requests for information to the German government concerning an allegation by the Monopolkommission (German monopoly commission). The allegation is that Deutsche Post AG contravenes the prohibition of state aid under the EC Treaty by allowing Deutsche Postbank AG to use Deutsche Post outlets at below-market rates. In the opinion of Deutsche Post AG and Deutsche Postbank AG, this allegation is incorrect and the fee paid by Deutsche Postbank AG complies with the provisions on competition and state aid stipulated in EU law. The EU Commission is also asking the Federal Republic of Germany to comment on the sale of its entire interest in Deutsche Postbank AG to Deutsche Post AG in 1999. However, the EU Commission has already investigated the acquisition of Deutsche Postbank AG as part of the state aid proceedings that were concluded with the ruling dated 19 June 2002. At the time, it explicitly concluded that the acquisition of Postbank involved “no grant of state aid”.

The German government has already argued before the EU Commission that the allegations are in its opinion unfounded. Nevertheless, with regard to the two allegations relating to the requests for information, no assurance can be given that the EU Commission will not find that the facts of the case constitute state aid.

On 12 September 2007, the EU Commission initiated a formal investigation against the Federal Republic of Germany concerning possible subsidies. The investigation will focus on whether the Federal Republic of Germany, using state resources, overcompensated Deutsche Post AG or its legal predecessor Deutsche Bundespost POSTDIENST for the cost of providing universal services between 1989 and 2007 and whether the company was thereby granted state aid incompatible with EU law. According to the decision opening the investigation, the Commission intends to examine all public transfers, public guarantees, statutorily granted exclusive rights, the price regulation of letter services and the public funding of civil servants’ pensions during the period in question. Also to be investigated is the cost allocation within Deutsche Post AG and its predecessor between the regulated letter service, the universal service and competitive services. This also relates to co-operation agreements between Deutsche Post AG and Deutsche Postbank AG as well as between Deutsche Post AG and the business parcel service marketed by DHL Vertriebs GmbH.

Deutsche Post AG and Deutsche Postbank AG hold that the new investigation lacks any factual basis. All public transfers associated with the privatisation of Deutsche Bundespost, the public guarantees and the funding of pension obligations formed part of the subject matter of the state aid proceedings closed by the decision of 19 June 2002. That decision did not identify the measures concerned as incompatible state aid. Deutsche Post AG and Deutsche Postbank AG are further of the opinion that the statutorily granted exclusive rights and the regulated letter prices do not fulfil the legal criteria to be considered a form of state aid in the first place. Deutsche Post AG also considers the internal allocation of costs with its subsidiaries to be consistent with EU state aid rules and the case law of the European Court of Justice. Nonetheless, based on an overall appraisal, the possibility of the Commission finding a case of incompatible state aid cannot be ruled out.

The European Court of First Instance ruled on 1 July 2008 that the EU Commission’s ruling of 19 June 2002, obliging Deutsche Post AG to repay state aid allegedly received, was void. As a result of the EU Commission’s decision, Deutsche Post AG had to pay a total of €907 million to the Federal Republic of Germany in January 2003 (€572 million of alleged state aid plus interest), although it had immediately appealed against this decision. In accordance with the ruling of the European Court of First Instance, Germany repaid this amount plus interest to Deutsche Post AG; Deutsche Post AG received the total amount of €1,067 million from Germany on 1 August 2008.

The EU Commission appealed against the decision of the European Court of First Instance before the European Court of Justice. Deutsche Post AG expects the appeal to offer only little prospect of success. It cannot be ruled out, however, that the European Court of Justice allows the appeal, with the European Court of First Instance having to decide the issue again. Despite the continuing litigation, the 2002 ruling of the EU Commission could possibly become effective again; the total amount received as a result of the decision by the European Court of First Instance dated 1 July 2008 would have to be paid again to the Federal Republic of Germany.

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