Introduction to EU Competition Law Universidad de Murcia, 20.2.2015 Dr. Volker Soyez.

Introduction to EU Competition LawUniversidad de Murcia, 20.2.2015

Dr. Volker Soyez

Dr. Volker Soyez 2

Introduction to EU competition law

The cartel prohibition (art. 101 (1) TFEU)

Exemptions from the cartel prohibition (art. 101 (3) TFEU)

Abuse of dominance (art. 102 TFEU)

EU competition law procedure (reg. 1/2003)

Private enforcement of EU competition law / damages actions

EU merger control (reg. 139/2004)

Work and life as a competition lawyer (in Brussels)

Agenda

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„Competition is a situation in a market in which firms or sellers independently strive for the buyers patronage in order to achieve a particular business objective eg. profits, sales or market shares“ WorldBank,1999

The existence of a free and effective competition is one of the key components of the free market economy

Free competition promotes economic growth, innovation, tecnological progress, and the search for the most efficient production methods

Consumers benefit from free competition in that they can choose from a great variety of products and services which best serve their needs and they receive the best price-quality ratio

Therefore: competition law is set of legal rules which are aimed at protecting the competitive process with the ultimate goal of maximising consumer welfare

Regulatory goal of the competition laws

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In order to safeguard free competition EU competition law:

Prohibits agreements between companies which restrict competition (art. 101 TFEU)

Prohibits abuses of dominance (art. 102 TFEU)

Imposes a merger control system (reg. 139/2004)

Imposes a state aid control system (art. 107 et seq. TFEU)

EU competition law constrains and complements but does not generally replace national competition law

Pillars of EU competition law

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Free Trade Area covering 27 markets: “The Common Market” (plus 3 associated states in the EEA)

Treaty based; souvereign powers in certain areas (principle of subsidiarity), e.g. EU competition law enforcement

European Commission: executive body (with legislative role)

European Courts (ECJ / General Court): judicial bodies

European Council and European Parliament: legislative roles

Hearing Officer at EU Commission

Institutional Framework

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Primary law (Treaty): art. 101 and 102 TFEU

Secondary law: reg. 1/2003 (cartel regulation), reg. 139/2004 (merger control regulation); Block Exemption Regulations

Supplementary law: Communications / Guidelines / Decisions of the EU Commission

http://ec.europa.eu/competition/antitrust/legislation/legislation.html

Caselaw of the European Courts in Luxemburg (www.curia.europa.eu)

Sources of EU competition law

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„The following shall be prohibited as incompatible with the internal 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 internal 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.“

Cartel prohibition, Art. 101 (1) TFEU

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Agreements between undertakings […] and concerted practices

Under the Community courts’ case-law, an agreement encompasses anything which encapsulates the „faithful expression of the joint intention of the parties“, irrespective of its form

Concept of „concerted practice“: „A form of coordination between undertakings which, without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation between them for the risks of competition“

The ECJ and the Commission have promoted an extensive interpretation of the concepts referred to in art. 101 TFEU

In practice: virtually any type of coordination is caught

Cartel prohibition, Art. 101 (1) TFEU ctd.

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Key case „Dansk Rorindustri“

Cartel meeting organised by large competitors; small competitors participated but remained silent and did not implement the anti-competitive agreements.

„It is sufficient for the Commission to show that an undertaking participated in meetings at which anti-competitive agreements were concluded, without manifestly opposing them, to prove to the requisite standard that the undertaking participated in the cartel. Where participation in such meetings has been established, it is for that undertaking to put forward evidence to establish that its participation in those meetings was without any anti-competitive intention by demonstrating that it had indicated to its competitors that it was participating in those meetings in a spirit that was different from theirs. In that regard, a party which tacitly approves of an unlawful initiative, without publicly distancing itself from its content or reporting it to the administrative authorities, effectively encourages the continuation of the infringement and compromises its discovery. That complicity constitutes a passive mode of participation in the infringement which is therefore capable of rendering the undertaking liable in the context of a single agreement.“


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Between (independent) undertakings

“The concept of an undertaking encompasses every entity engaged in an economic activity regardless of the legal status of the entity and the way in which it is financed” (ECJ Case 41/90, Höfner and Elsner v Macrotron, para 21)

The involvement of at least two (independent) undertakings, acting in concert, is thus required

According to the EU Courts, a contract between a mother company and its subsidary – which are two legally separate entities – may fall short of art. 101 TFEU

According to the EU Courts, „true“ or „genuine“ agency agreements fall short of art. 101 TFEU


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Object or effect of restricting competition

Restriction by “Object“: it is not necessary that competition is effectively restricted / that anti-competitive practice has been implemented

Restriction by “Effect”: it is not necessary that the parties intended a restriction of competition

”restriction of competition” not definable

In practice: non-conclusive catalogue of standard restrictions


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The most relevant restrictions of competition

EU Competition Law

Horizontal restrictions

Hardcore Non-Hardcore

Fixing of sales prices or purchasing prices or other commercial conditions

Exchange of confidential information

Fixing production quotas Strategic alliances

Customer allocation or sharing of geographical markets

Agreements relating to joint sales, purchasing or production

Bid rigging Agreements relating to joint R&D

Restricting imports or exports Specialisation agreements

Vertical restrictions

Hardcore Non-Hardcore

Resale price maintenance Exclusive distribution

Prohibition of passive sales Selective distribution

Prohibition of cross-sales between distributors in a selective distribution system

Single branding / exclusive purchasing / non-compete clauses

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Restriction of competition must be „appreciable“

On competition (filter for de facto irrelevant cases)

Commission Notice on Agreements of Minor Importance (“de minimis”)

Market shares: 10% (horizontal) / 15% (vertical)

“hardcore”-restrictions are always appreciable

On trade between Member States (jurisdictional filter)

Sufficient if practice is “capable of constituting a threat, either direct or indirect, actual or potential, to freedom of trade between Member States in a manner which might harm the attainment of the objectives of a single market”

Commission Notice on “Effect on Trade”


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„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.“

Exemptions, Art. 101 (3) TFEU

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Individual exemptions for agreements, which

contribute to improving the production or distribution of goods or to promoting technical or economic progress,

allow consumers a fair share of the resulting benefits,

do not impose restrictions which are not indispensable to the attainment of these objectives,

do not afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products concerned.

Conditions are cumulative; balancing process between pro-competitive and anti-competitive effects; hardcore restrictions unlikely to be exempted; burden of proof lies with the party claiming exemption

Guidelines on the application of art. 101 (3) TFEU

Exemptions, Art. 101.3 TFEU

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Block exemptions:

Art. 101 (3): applies also to categories of agreements = block exemption regulations (BERs)

Block Exemption Regulations (BER) provide “safe harbours”

Definition of agreements in class (e.g. vertical agreements / technology transfer agreements)

Market share thresholds (20-30%)

“Black lists” of prohibited hardcore terms

Exemptions, Art. 101 (3) TFEU ctd.

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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.

Abuse of Dominance, Art. 102 TFEU

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Art 102 prohibits not dominance, but its abuse

Dominance is assessed in the relevant market: “a dominant position is demonstrated by an undertaking’s ability to operate to an appreciable extent independently of its competitors, its customers, and ultimately the consumers in a relevant market.”

Indicators for dominance:

High market shares (>40% = presumption of dominance)

Low market shares of competitors

Financial capacities

Vertical integration

Barriers for market entry

Abuse of Dominance, Art. 102 TFEU

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Art. 102 TFEU prohibits

any abuse

within the common market or in a substantial part thereof, to the extent that it may affect trade between Member States

Art. 102 TFEU provides a non-exhaustive list of examples of abuses; EU Commission, CFI and ECJ have found abuses in other circumstances

Examples:

Excessive pricing

Tying / bundling

Predatory pricing

Abuse of Dominance, Art. 102 TFEU ctd.

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Key case: “Microsoft” – Tying

Microsoft has a near monopoly in PC operating systems (OS). It sells Windows OS to OEM manufactures with “built-in” Microsoft media player. Other customers get Windows without Microsoft media player. Microsoft previously sold Windows to OEMs bundled with a third party media player. Media players are generally offered as a separate software in the market.

Legal test:

two separate products

supplier is dominant in one

sales of two products are tied together

the tie significantly weakens effective competition

there is no objective justification for the tie

Outcome: $ 600 million fine


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Key case: “Wanadoo” – Predatory Pricing

On 16 July 2003, the European Commission found that Wanadoo Interactive SA (Wanadoo) had pursued a predatory pricing policy in relation to its Pack eXtense and Wanadoo ADSL services, as part of a plan to exclude competitors in the high speed internet access market. It sold its products below costs.

EU Commission imposes fines of € 10.35 Million. Wanadoo appeals.

The ECJ’s judgment is significant in confirming that, for a finding that a dominant undertaking has breached art. 102 TFEU by pursuing predatory pricing:

(i) it does not need to be demonstrated that the undertaking could recoup its losses

(ii) a dominant undertaking does not have an absolute right to align its prices with those of its competitors


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Market definition – determines the factual framework for the analysis of market power

Important starting point: Commission Notice on the definition of the relevant market for the purposes of Community competition law (1997)

Relevant product market:

all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of the products‘ characteristics, their prices and their intended use

Method relies on demand substitutability but also supply-side substitutability can be taken into account

Relevant geographical market

Market Definition

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Procedural phases:

Initiation of proceedings

Investigation

Statement of Objections

Access to File

Oral Hearing

Decision / fines

Appeals

“Long and slow” – generally many years

Art. 101 / 102 TFEU - Procedure

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By customers, competitors, suppliers, or consumer

Art. 7 (2) reg. 1/2003, “Form C”, Commission Notice on the handling of complaints (OJ C 101, 27.04.2004, p. 65-77)

Indicative time frame for preliminary assessment of 4 months; but: right of prioritisation

Additional procedural rights for complainants

Partly access to (non-confidential) version of file

Participation in oral hearing

Right to appeal rejection of complaint

Initiation of proceedings - complaints

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Commission Notice on Immunity from fines and reduction of fines in cartel cases (OJ C 298, 8.12.2006, p. 17–22)

Current source of most decisions

Only applicable to cartels, not applicable to vertical restraints or abuses of dominance

Leniency application: strict formal requirements

Rebate system depending on time of application and value of input:

100% reduction in fines for first past post

Up to 50% for “significant added value”

Initiation of proceedings – leniency applications

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Requests for information (art. 18 reg. 1/2003)

Power to take statements (art. 19 reg. 1/2003)

Inspections / “dawn raids” (art. 20 reg. 1/2003)

enter any premises, land and means of transport

examine the books and other records related to the business, irrespective of the medium on which they are stored

take or obtain in any form copies of or extracts from such books or records;

seal any business premises and books or records for the period and to the extent necessary

Investigative powers of the EU Commission

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Key case: “E.on”

May 2006: inspection by the EU Commission of E.on's commercial premises in Munich

Documents selected for closer examination were stored in a room. The door of the room was locked and an official Commission seal affixed

When Commission inspectors later returned to the room, they found the seal had been broken

The Commission imposed a fine of € 38 Million (Art. 23 (1) reg. 1/2003)

E.on appeals to GC and finally to ECJ: (i) undue reversal of burden of proof, (ii) disproportionality of fine

The Court of Justice finds: (i) no undue reversal of the burden of proof. Since the Commission had determined that there had been a breach of seal based on a body of evidence, it was for E.on to adduce evidence challenging that finding, (ii) 0.14% of turnover is not disproportionate


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Key case: “Orkem” – Privilege against self-incrimination

EU Commission asked Orkem to provide information about the purpose of certain meetings

ECJ: The Community law imposes certain limitations on the Commission’s powers of investigation:

Certain questions are permitted (“factual questions”)

Certain questions are not permitted (“incriminating questions”), as for instance questions relating to the purpose of the actions taken and the objectives pursued


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Legal basis: Art. 6 ECHR: “Everyone charged with a criminal offence has the following minimum rights: (a) to be informed promptly, in a language which he understands and in detail, of the nature and cause of the accusation against him; (b) to have adequate time and facilities for the preparation of his defence; (c) to defend himself in person or through legal assistance of his own choosing; [...]”

Statement of Objections (art. 10 reg. 773/2004)

Access to the file (art. 15 reg. 773/2004)

Oral Hearing (art. 12 reg. 773/2004)

“Fair trial” safeguards

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Informal closing of procedure

Finding of inapplicability (art. 10 reg. 1/2003) / informal guidance

Commitment decisions (art. 9 reg. 1/2003)

Prohibition decisions / imposition of behavioural or structural remedies (art. 7 reg. 1/2003)

Imposition of fines on undertakings (art. 23 (2) reg. 1/2003); EU Commission has no competence to impose fines on natural persons (NCAs can)

Settlements (reg. 622/2008) / „Settlement Notice“ (OJ C 167, 2.7.2008, p. 1–6)

Decisions, sanctions & settlements

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Commission guidelines on the method of setting fines imposed pursuant to art 23(2)(a) of reg. 1/2003 (OJ C 210, 1.9.2006, p. 2–5):

Determination of „affected sales“

Basic amount of the fine based on „gravity” and “duration” of the infringement; possible “entry fee” for hardcore-cartels

Adjustment of the basic amount (aggravating circumstances / mitigating circumstances)

Increase for deterrence / Inability to pay

10%-rule (art. 23 (2) reg. 1/2003)

Leniency notice

Calculation of fines

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Competitors A and B enter into a price fixing agreement. A initiated the cartel and coerced B to participate. 5 years later the cartel is exposed and the Commission plans to impose sanctions. What amounts will it come up with?

A has annual sales of € 1 billion (€ 50 million with the cartelised product), B of € 10 million (only cartelised product). A was found guilty of a similar cartel offence a couple of years ago. B stopped its participation in the cartel immediately when the Commission investigation started and admitted its involvement to the Commission.

Calculation of fines – example

EU Competition Law

A B

Basic amount (25%) 12.500.000 2.500.000

Duration (5) 62.500.000 12.500.000

Aggravating circumstances (50%) 93.750.000 12.500.000

Mitigating circumstances (20%) 93.750.000 10.000.000

10% 93.750.000 1.000.000

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Art. 263 (4) TFEU: “Any natural or legal person may, under the conditions laid down in the first and second paragraphs, institute proceedings against an act addressed to that person or which is of direct and individual concern to them, and against a regulatory act which is of direct concern to them and does not entail implementing measures.”

General Court (former Court of First Instance): art. 257 (1) 1 TFEU

2 months deadline for filing the appeal: art. 263 (5) TFEU

judicial review only (except fines): art. 31 reg. 1/2003

Appeals: European Court of Justice (ECJ): art. 257 (1) 2 TFEU

on points of law only

Appeals against Commission Decisions

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Victims of anti-competitive practices have a right to claim damages; key cases Courage Crehan (ECJ, case C-453/99) / Manfredi (ECJ, case C-295/04)

Stand alone actions vs. follow-on actions

Binding effect of Commission decisions (art. 16.1 reg. 1/2003) and – as the case may be – of decisions by national competition authorities (e.g. section 33 (4) German Act against Restraints on Competition)

Instrumentalisation of complaints

Indirect purchaser standing and passing-on defence

Access to the file / interaction with leniency programs (Pfleiderer, ECJ case – C-360/09)

Directive 2014/104/EU of 26 November 2014

Private enforcement of EU competition law

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Collective redress; no “class actions” available throughout the EU; “CDC Model”

Obligation to claim damages for corporations and public bodies

Interaction with public procurement

Compensation as mitigating factor when calculating fines

Limitation periods

Quantification of damages: counterfactual, legal presumptions


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Choice of Forum – Brussels I Reg. 1215/2012

Art. 4 – place of residence / incorporation

Art. 7(2) – place where harmful event occurred

Art. 8(1) – place of any of multiple defendants

Applicable law – Rome II Reg. 864/2007

Art. 6(3) (a) – the law applicable to a non-contractual obligation arising out of a restriction of competition shall be the law of the country where the market is, or is likely to be, affected

Art. 6(3) b) – when the market is affected in more than one country, the person seeking compensation for damage who sues in the court of the domicile of the defendant, may instead choose to base his or her claim on the law of the court seized


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Concept of merger control

Complexity: (27 +1) merger control regimes throughout the EU (plus international merger control regimes)

Reg. 139/2004 of 20 January 2004 on the control of concentrations between undertakings (EU Merger Regulation / EUMR)

If the EUMR applies, the national rules do not („one-stop-shop“)

EU Merger Control

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Certain turnover based thresholds must be met

worldwide turnover of all parties combined > €5 billion; and each of two or more parties have EU-wide turnover > €250 million, or

worldwide turnover of all parties combined > €2.5 billion; and each of two or more parties have EU-wide turnover of > €100 million; and each of two or more parties have national turnover of > €25 million in at least three EU states

Referrals to the EU Commission may occur if a concentration triggers national merger control rules in 3+ EU Member States

EU Merger Control - Applicability

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Mandatory notification (Art. 4 EUMR)

Implementation prohibited pending clearance; “gun jumping”

Notification is information heavy (“front loaded”)

mandatory form: Form CO

detailed requirements

pre-filing contact (‘ping-pong’) with EU Commission usual

some ‘short form’ exceptions

EU Merger Control - Procedure

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Binding deadlines apply for Commission review (automatic clearance if deadlines not met) (Art. 10 EUMR)

Phase I

25 working day deadline (in principle)

clearance unless “serious doubts” (~96%)

Phase II

further 90 working day deadline (in principle)

around 25% of Phase II cases cleared unconditionally; around 60% cleared with remedies (see Commission Notice on remedies, Official Journal C 267, 22.10.2008, p. 1-27)

Judicial review (competitors have standing / parties can recover damages (Schneider), “Fast Track” process)

EU Merger Control – Procedure ctd.

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Will a concentration

“significantly impede effective competition” in the EU “SIEC-Test”

in particular by creating or strengthening a dominant position

In practice

analysis generally less economically detailed

greater focus on structural analysis, in particular market shares

more weight given to competitor complaints / concerns

Commission horizontal and non-horizontal guidelines

EU Merger Control – substantial test

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Types of assignment

Compliance consulting

Transactional work

Public investigations / defense work

Private antitrust litigation / damages actions

Working hours / holidays / salaries

“Prácticas en Bruselas”

Work & Life as a competition lawyer

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Questions / Answers

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Partner. Admitted to the Cologne (2002) and Brussels (2003) bar Universities of Frankfurt/Main, Fribourg (CH) and Madrid; PhD 2002 Founder and Member of the Editorial Board of „Global Competition

Litigation Review“ (Sweet & Maxwell / Thompson Publishing, London) Chair of the working group „Competition Law Compliance“ within the

German Association for Corporate Compliance Owner of state-approved mediation body for competition law disputes Practice areas: European and German competition law (cartels, merger

control, distribution, abuses of dominance, litigation), corporate compliance regarding competition law and EU regulatory law (trade, institutional, regulatory)

Dr. Volker Soyez

EU Competition Law

[email protected]

Introduction to EU Competition Law Universidad de Murcia, 20.2.2015 Dr. Volker Soyez.

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