European Union competition law
Encyclopedia
European Union competition law arose out of the desire to ensure that the efforts of government could not be distorted by corporations abusing their market power
. Hence under the treaties are provisions to ensure that free competition prevails, rather than cartels and monopolies sharing out markets and fixing prices. Competition law
in the European Union is largely similar and inspired by United States antitrust
. Four main policy areas include:
This last point is a unique characteristic of the EU competition law regime. As the EU is made up of independent member states, both competition policy and the creation of the European single market
could be rendered ineffective were member states free to support national companies as they saw fit. Primary authority for applying EU competition law rests with European Commission
and its Directorate General for Competition, although state aids in some sectors, such as transport, are handled by other Directorates General. On 1 May 2004 a decentralised regime for antitrust came into force to increase application of EU competition law by national competition authorities and national courts.
and Robert Schuman
- was the establishment of a Single Market. To achieve this, a compatible, transparent and fairly standardised regulatory framework for Competition Law had to be created. The constitutive legislative act was Council Regulation 17/62 (now superseded). The wording of Reg 17/62 was developed in a pre Van Gend en Loos period in EC legal evolution, when the supremacy of EC law was not yet fully established. To avoid different interpretations of EC Competition Law, which could vary from one national court to the next, the Commission was made to assume the role of central enforcement authority.
The first major decision under Article 101 (then Article 85) was taken by the Commission in 1964. They found that Grundig
, a German manufacturer of household appliances, acted illegally in granting exclusive dealership rights to its French subsidiary. In Consten & Grundig [1966] the European Court of Justice
upheld the Commission's decision, expanded the definition of measures affecting trade to include "potential effects", and generally anchored its key position in Competition Law enforcement alongside the Commission. Subsequent enforcement of Art 101 of the TFEU Treaty (combating anti-competitive business agreements) by the two institutions has generally been regarded as effective. Yet some analysts assert that the Commission's monopoly
policy (the enforcement of Art 102) has been "largely ineffective", because of the resistance of individual Member State governments that sought to shield their most salient national companies from legal challenges. The Commission also received criticism from the academic quarters. For instance, Valentine Korah, an eminent legal analyst in the field, argued that the Commission was too strict in its application of EC Competition rules and often ignored the dynamics of company behaviour
, which, in her opinion, could actually be beneficial to consumers and to the quality of available goods in some cases.
Nonetheless, the arrangements in place worked fairly well until the mid-1980s, when it be clear that with the passage of time, as the European economy steadily grew in size and anti-competitive activities and market practices became more complex in nature, the Commission would eventually be unable to deal with its workload. The central dominance of the Directorate-General for Competition
has been challenged by the rapid growth and sophistication of the National Competition Authorities (NCAs) and by increased criticism from the European courts with respect to procedure, interpretation and economic analysis. These problems have been magnified by the increasingly unmanageable workload of the centralised corporate notification system. A further reason why a reform of the old Regulation 17/62 was needed, was the looming enlargement of the EU, by which its membership was to expand to 25 by 2004
and 27 by 2007
. Given the still developing nature of the East-Central European new market economies
, the already inundated Commission anticipated a further significant increase in its workload.
To all these challenges, the Commission has responded with a strategy to decentralise the implementation of the Competition rules through the so-called Modernisation Regulation. EU Council Regulation 1/2003 places National Competition Authorities and Member State national courts at the heart of the enforcement of Arts 101 & 102. Decentralised enforcement has for long been the usual way for other EC rules, Reg 1/2003 finally extended this to Competition Law as well. The Commission still retained an important role in the enforcement mechanism, as the co-ordinating force in the newly created European Competition Network
(ECN). This Network, made up of the national bodies plus the Commission, manages the flow of information between NCAs and maintains the coherence and integrity of the system. At the time, Competition Commissioner Mario Monti hailed this regulation as one that will 'revolutionise' the enforcement of Arts 101 & 102. Since May 2004, all NCAs and national courts are empowered to fully apply the Competition provisions of the EC Treaty. In its 2005 report, the OECD lauded the modernisation effort as promising, and noted that decentralisation helps to redirect resources so the DG Competition can concentrate on complex, Community-wide investigations. Yet most recent developments shed doubt on the efficacy of the new arrangements. For instance, on 20 December 2006, the Commission publicly backed down from 'unbundling' French (EdF) and German (E.ON
) energy giants, facing tough opposition from Member State governments. Another legal battle is currently ongoing over the E.ON-Endesa merger, where the Commission has been trying to enforce the free movement of capital, while Spain firmly protects its perceived national interests. It remains to be seen whether NCAs will be willing to challenge their own national 'champion companies' under EC Competition Law, or whether patriotic feelings prevail.
Under EU law cartels are banned by Article 101 TFEU. Art. 101 TFEU makes clear who the targets of competition law are in two stages with the term agreement "undertaking". This is used to describe almost anyone "engaged in an economic activity", but excludes both employees, who are by their "very nature the opposite of the independent exercise of an economic or commercial activity", and public services based on "solidarity" for a "social purpose". Undertakings must then have formed an agreement, developed a "concerted practice", or, within an association, taken a decision. Like US antitrust, this just means all the same thing; any kind of dealing or contact, or a "meeting of the minds" between parties. Covered therefore is a whole range of behaviour from a strong handshaken, written or verbal agreement to a supplier sending invoices with directions not to export to its retailer who gives "tacit acquiescence" to the conduct. In the language of Article 101(1), prohibited are,
This includes both horizontal (e.g. between retailers) and vertical (e.g. between retailers and suppliers) agreements, effectively outlawing the operation of cartels within the EU. Article 101 has been construed very widely to include both informal agreements (gentlemen's agreements) and concerted practices where firms tend to raise or lower prices at the same time without having physically agreed to do so. However, a coincidental increase in prices will not in itself prove a concerted practice, there must also be evidence that the parties involved were aware that their behaviour may prejudice the normal operation of the competition within the common market. This latter subjective requirement of knowledge is not, in principle, necessary in respect of agreements. As far as agreements are concerned the mere anticompetitive effect is sufficient to make it illegal even if the parties were unaware of it or did not intend such effect to take place.
Exemptions to Article 101 behaviour fall into three categories. Firstly, Article 101(3) creates an exemption for practices beneficial to consumers, e.g., by facilitating technological advances, but without restricting all competition in the area. In practice the Commission gave very few official exemptions and a new system for dealing with them is currently under review. Secondly, the Commission agreed to exempt 'Agreements of minor importance' (except those fixing sale prices) from Article 101. This exemption applies to small companies, together holding no more than 10% of the relevant market. In this situation as with Article 102 (see below), market definition is a crucial, but often highly difficult, matter to resolve. Thirdly, the Commission has also introduced a collection of block exemptions for different contract types. These include a list of contract permitted terms and a list of banned terms in these exemptions.
Article 102 is aimed at preventing undertakings who hold a dominant position in a market from abusing that position to the detriment of consumers. It provides that,
This can mean,
First it is necessary to determine whether a firm is dominant, or whether it behaves "to an appreciable extent independently of its competitors, customers and ultimately of its consumer." Under EU law, very large market shares raise a presumption that a firm is dominant, which may be rebuttable. If a firm has a dominant position, because it has beyond a 39.7% market share then there is "a special responsibility not to allow its conduct to impair competition on the common market" Same as with collusive conduct, market shares are determined with reference to the particular market in which the firm and product in question is sold. Then although the lists are seldom closed, certain categories of abusive conduct are usually prohibited under the country's legislation. For instance, limiting production at a shipping port by refusing to raise expenditure and update technology could be abusive. Tying one product into the sale of another can be considered abuse too, being restrictive of consumer choice and depriving competitors of outlets. This was the alleged case in Microsoft v. Commission leading to an eventual fine of €497 million for including its Windows Media Player
with the Microsoft Windows
platform. A refusal to supply a facility essential for all businesses attempting to compete can constitute an abuse. An example was a case involving a medical company named Commercial Solvents. When it set up its own rival in the tuberculosis
drugs market, Commercial Solvents were forced to continue supplying a company named Zoja with the raw materials for the drug. Zoja was the only market competitor, so without the court forcing supply, all competition would have been eliminated.
Forms of abuse relating directly to pricing include price exploitation. It is difficult to prove at what point a dominant firm's prices become "exploitative" and this category of abuse is rarely found. In one case however, a French funeral service was found to have demanded exploitative prices, and this was justified on the basis that prices of funeral services outside the region could be compared. A more tricky issue is predatory pricing
. This is the practice of dropping a products's price so low that smaller competitors cannot cover their costs and fail. In France Telecom SA v. Commission a broadband internet company was forced to pay €10.35 million for dropping its prices below its own production costs. It had "no interest in applying such prices except that of eliminating competitors" and was being crossed subsidised to capture the lion's share of a booming market. One last category of pricing abuse is price discrimination
. An example of this could be offering rebates to industrial customers who export sugar that your company sells, but not to Irish customers, selling in the same market as you are in.
As stated above market definition is arguably the most important part of any competition case brought under Article 102. However, it is also one of the most complex areas. If the market is defined too widely then it will contain more firms and substitutable products making a finding of a dominant position for one firm unlikely. Likewise if it is defined too narrowly then there will be a presumption that the defendant company will be found to be dominant. In practice, market definition will be left to economists, rather than lawyers to decide.
, but also the possibility of firms gaining the position within the market structure
that enables them to behave abusively in the first place. Regulation 139/2004 deals with mergers that have a "Community dimension" and lays out a procedure whereby all "concentrations" (i.e. mergers, acquisitions, takeovers) between undertakings are subject to approval by the European Commission.
A merger or acquisition involves, from a competition law perspective, the concentration of economic power in the hands of fewer than before. In the European Union, under the Merger Regulation 139/2004. This is known as the "ECMR", and the authority for the Commission to pass this regulation is found under Art. 83 TEC. Competition law requires that firms proposing to merge gain authorisation from the relevant government authority, or simply go ahead but face the prospect of demerger
should the concentration later be found to lessen competition. The theory behind mergers is that transaction costs can be reduced compared to operating on an open market through bilateral contracts. Concentrations can increase economies of scale
and scope. However, often firms take advantage of their increase in market power, their increased market share and decreased number of competitors, which can have a knock on effect on the deal that consumers get. Merger control is about predicting what the market might be like, not knowing and making a judgment. Hence the central provision under EU law asks whether a concentration would if it went ahead "significantly impede effective competition... in particular as a result of the creation or strengthening of a dominant position..."
Under EU law, a concentration exists when a...
This usually means that one firm buys out the share
s of another. The reasons for oversight of economic concentrations by the state are the same as the reasons to restrict firms who abuse a position of dominance, only that regulation of mergers and acquisitions attempts to deal with the problem before it arises, ex ante prevention of creating dominant firms. In the case of [T-102/96] Gencor Ltd v. Commission [1999] ECR II-753 the EU Court of First Instance
wrote merger control is there "...to avoid the establishment of market structures which may create or strengthen a dominant position and not need to control directly possible abuses of dominant positions."
What amounts to a substantial lessening of, or significant impediment to competition is usually answered through empirical study. The market shares of the merging companies can be assessed and added, although this kind of analysis only gives rise to presumptions, not conclusions. The Herfindahl-Hirschman Index
is used to calculate the "density" of the market, or what concentration exists. Aside from the maths, it is important to consider the product in question and the rate of technical innovation in the market. A further problem of collective dominance, or oligopoly
through "economic links" can arise, whereby the new market becomes more conducive to collusion
. It is relevant how transparent a market is, because a more concentrated structure could mean firms can coordinate their behaviour more easily, whether firms can deploy deterrents and whether firms are safe from a reaction by their competitors and consumers. The entry of new firms to the market, and any barriers that they might encounter should be considered.
Certain exceptions exist, by which a firm whose conduct may be prima facie anti-competitive can be sanctioned under the reference to "technical and economic progress" in Art. 2 of the ECMR. Another defence might be that a firm being taken over is about to fail or go insolvent, and taking it over does not diminish the competitive state any more than what would happen anyway. Mergers vertically in the market are rarely of concern, although in AOL/Time Warner the European Commission
required that a joint venture with a competitor Bertelsmann
be ceased beforehand. The EU authorities have also focussed lately on the effect of conglomerate merger
s, where companies acquire a large portfolio of related products, though without necessarily dominant shares in any individual market.
The EU liberalisation programme entails a broadening of sector regulation, and extending Competition law to previously state monopolised industries, such as railways, electricity
or gas
. Articles 106 to 108 of the TFEU address how public money can distort competition.
The general definition of State Aid is set out in Article 107(1) of the TFEU.
Measures which fall within the definition of State Aid are unlawful unless provided under an exemption or notified.
For there to be State Aid under Article 107(1) of the TFEU each of the following must be present:
Where all of these criteria are met, State Aid is present and the support shall be unlawful unless provided under a European Commission exemption
The European Commission
applies a number of exemptions which enable aid to be lawful. The European Commission
will also approve State Aid cases under the notification procedure.
State Aid law is an important issue for all public sector organisations and recipients of public sector support in the European Union
because unlawful aid can be clawed back with compound interest.
There is some scepticism about the effectiveness of competition law in achieving economic progress and its interference with the provision of public services. France's president Nicolas Sarkozy
has called for the reference in the preamble to the Treaty of the European Union to the goal of "free and undistorted competition" to be removed. Though competition law itself would have remained unchanged, other goals of the preamble—which include "full employment" and "social progress"—carry the perception of greater specificity, and as being ends in themselves, while "free competition" is merely a means.
There are many ways in which the European Commission could become aware of a potential violation:
The European Commission is may carry out investigation or inspections, for which it is empowered to request information from governments, competent authorities of Member States, and undertakings. In some cases, parties have sought to resist the taking of certain documents during an inspection based on the argument that those documents are covered by legal professional privilege between lawyer and client. The ECJ held that such a privilege was recognized by EC law to a limited extent at least.
The European Commission also could become aware of a potential competition violation through the complaint from an aggrieved party. In addition, Member States and any natural or legal person are entitled to make a complaint if they have a legitimate interest.
Article 101 (2) TFEU considers any undertaking found in breach of Article 101 TFEU to be null and void and that agreements cannot be legally enforced. In addition, the European Commission may impose a fine pursuant to Article 23 of Regulation 1/2003. These fines are not fixed and can extend into millions of Euros, up to a maximum of 10% of the total worldwide turnover of each of the undertakings participating in the infringement, although there may be a decrease in case of cooperation and increase in case of recidivism. Fines of up to 5% of the average daily turnover may also be levied for every day an undertaking fails to comply with Commission requirements. The gravity and duration of the infringement are to be taken into account in determining the amount of the fine. This uncertainty acts as a powerful deterrent and ensures that companies are unable to undertake a cost/benefit analysis before breaching competition law.
The Commission guideline on the method of setting fines imposed pursuant to Article 23 (2) (a) of Regulation 1/2003 uses a two-step methodology:
The basic amount relates, inter alia, to the proportion of the value of the sales depending on the degree of the gravity of the infringement. In this regard, Article 5 of the aforementioned guideline states, that
In a second step, this basic amount may be adjusted on grounds of recidivism or leniency. In the latter case, immunity from fines may be granted to the company who submits evidence first to the European Commission which enables it to carry out an investigation and/or to find an infringement of Article 101 TFEU.
The highest cartel fine which was ever imposed was related to a cartel consisting of four car glass producers. The companies Asahi, Pilkington, Saint-Gobain and Soliver were fined over €1.3 billion. Between 1998 and early 2003 those companies had discussed target prices, market sharing and customer allocation in a series of meetings and other illicit contacts. In this case, the European Commission started its investigation based on an anonymous “tip”.
Another negative consequence for the companies involved in cartel cases may be the adverse publicity which may damage the company´s reputation.
Questions of reform have circulated around whether to introduce US style treble damages as added deterrent against competition law violaters. The recent Modernisation Regulation 1/2003 has meant that the European Commission no longer has a monopoly on enforcement, and that private parties may bring suits in national courts. Hence, there has been debate over the legitimacy of private damages actions in traditions that shy from imposing punitive measures in civil actions.
According to the Court of Justice of the European Union, any citizen or business who suffers harm as a result of a breach of the European Union competition rules (Articles 101 and 102 TFEU) should be able to obtain reparation from the party who caused the harm. However, despite this requirement under European law to establish an effective legal framework enabling victims to exercise their right to compensation, victims of European Union competition law infringements to date very often do not obtain reparation for the harm suffered. The amount of compensation that these victims are foregoing is in the range of several billion Euros a year. Therefore, the European Commission has taken a number steps since 2004 to stimulate the debate on that topic and elicit feedback from stakeholders on a number of possible options which could facilitate antitrust damages actions. Based on the outcomes of several public consultations, the Commission has suggested specific policy choices and measures in a White Paper.
Article 17 (1) 1st paragraph of Council Regulation 1/2003 reads:
In case of sector inquiries, the European Commission follows its reasonable suspicion that the competition in a particular industry sector or solely related to a certain type of contract which is used in various industry sectors is prevented, restricted or distorted within the common market. Thus, in this case not a specific violation is investigated. Nevertheless, the European Commission has almost all avenues of investigation at its disposal, which it may use to investigate and track down violations of competition law. The European Commission may decide to start a sector inquiry when a market does not seem to be working as well as it should. This might be suggested by evidence such as limited trade between Member States, lack of new entrants on the market, the rigidity of prices, or other circumstances suggest that competition may be restricted or distorted within the common market. In the course of the inquiry, the Commission may request that firms - undertakings or associations of undertakings - concerned supply information (for example, price information). This information is used by the European Commission to assess whether it needs to open specific investigations into intervene to ensure the respect of EU rules on restrictive agreements and abuse of dominant position (Articles 101 and 102 of the Treaty on the Functioning of the European Union).
There has been an increased use of this tool in the recent years, as it is not possible anymore for companies to register a cartel or agreement which might be in breach of competition law with the European Commission, but the companies are responsible themselves for assessing whether their agreements constitute a violation of European Union Competition Law (self assessment).
Traditionally, agreements had, subject to certain exceptions, to be notified to the European Commission, and the Commission had a monopoly over the application of Article 101 TFEU (former Article 81 (3) EG). Because the European Commission did not have the resources to deal with all the agreements notified, notification was abolished.
One of the most spectacular sector inquiry was the pharmaceutical sector inquiry which took place in 2008 and 2009 in which the European Commission used dawn raids from the beginning. The European Commission launched a sector inquiry into EU pharmaceuticals markets under the European Competition rules because information relating to innovative and generic medicines suggested that competition may be restricted or distorted. The inquiry related to the period 2000 to 2007 and involved investigation of a sample of 219 medicines. Taking into account that sector inquiries are a tool under European Competition law, the inquiry´s main focus was company behavior. The inquiry therefore concentrated on those practices which companies may use to block or delay generic competition as well as to block or delay the development of competing originator drugs.
The following sectors have also been subject of a sector inquiry:
of its existence. The leniency policy was first applied in 2002.
The Commission Notice on Immunity from fines and reduction of fines in cartel cases guarantees immunity and penalty reductions to firms who co-operate with the Commission in detecting cartels.
The mechanism is straightforward. The first firm to acknowledge their crime and inform the Commission will receive complete immunity, that is, no fine will be applied. Co-operation with the Commission will also be gratified with reductions in the fines, in the following way:
This policy has been of great success as it has increased cartel detection to such an extent that nowadays most cartel investigations are started according to the leniency policy. The purpose of a sliding scale in fine reductions is to encourage a "race to confess" among cartel members. In cross border or international investigations, cartel members are often at pains to inform not only the EU Commission, but also National Competition Authorities (e.g. the Office of Fair Trading
and the Bundeskartellamt
) and authorities across the globe.
is France's national competition regulator
. Its predecessor was established in the 1950s. Today it administers competition law
in France, and is one of the leading national competition authorities in Europe.
The Bundeskartellamt,
or Federal Cartel Office, is Germany
's national competition regulator
. It was first established in 1958 and comes under the authority of the Federal Ministry of the Economy and Technology. Its headquarters are in the former West German capital, Bonn and its President is Andreas Mundt, who has a staff of 300 people. Today it administers competition law
in Germany, and is one of the leading national competition authorities in Europe.
Market power
In economics, market power is the ability of a firm to alter the market price of a good or service. In perfectly competitive markets, market participants have no market power. A firm with market power can raise prices without losing its customers to competitors...
. Hence under the treaties are provisions to ensure that free competition prevails, rather than cartels and monopolies sharing out markets and fixing prices. Competition law
Competition law
Competition law, known in the United States as antitrust law, is law that promotes or maintains market competition by regulating anti-competitive conduct by companies....
in the European Union is largely similar and inspired by United States antitrust
Antitrust
The United States antitrust law is a body of laws that prohibits anti-competitive behavior and unfair business practices. Antitrust laws are intended to encourage competition in the marketplace. These competition laws make illegal certain practices deemed to hurt businesses or consumers or both,...
. Four main policy areas include:
- CartelCartelA cartel is a formal agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production. Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products...
s, or control of collusionCollusionCollusion is an agreement between two or more persons, sometimes illegal and therefore secretive, to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair advantage...
and other anti-competitive practicesAnti-competitive practicesAnti-competitive practices are business or government practices that prevent or reduce competition in a market .- Anti-competitive practices :These can include:...
that affect the EU (or, since 1994, the European Economic AreaEuropean Economic AreaThe European Economic Area was established on 1 January 1994 following an agreement between the member states of the European Free Trade Association and the European Community, later the European Union . Specifically, it allows Iceland, Liechtenstein and Norway to participate in the EU's Internal...
). This is covered under Articles 101 of the Treaty on the Functioning of the European Union (TFEU). - MonopoliesMonopolyA monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
, or preventing the abuse of firms' dominant market positions. This is governed by Article 102 TFEU. This article also gives rise to the Commission'sEuropean CommissionThe European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
authority under the next area, - MergersMergers and acquisitionsMergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...
, control of proposed mergers, acquisitions and joint ventures involving companies that have a certain, defined amount of turnover in the EU/EEA. This is governed by the Council Regulation 139/2004 EC (the Merger Regulation). - State aid, control of direct and indirect aid given by Member States of the European UnionMember State of the European UnionA member state of the European Union is a state that is party to treaties of the European Union and has thereby undertaken the privileges and obligations that EU membership entails. Unlike membership of an international organisation, being an EU member state places a country under binding laws in...
to companies. Covered under Article 107 of the Treaty on the Functioning of the European Union.
This last point is a unique characteristic of the EU competition law regime. As the EU is made up of independent member states, both competition policy and the creation of the European single market
Single market
A single market is a type of trade bloc which is composed of a free trade area with common policies on product regulation, and freedom of movement of the factors of production and of enterprise and services. The goal is that the movement of capital, labour, goods, and services between the members...
could be rendered ineffective were member states free to support national companies as they saw fit. Primary authority for applying EU competition law rests with European Commission
European Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
and its Directorate General for Competition, although state aids in some sectors, such as transport, are handled by other Directorates General. On 1 May 2004 a decentralised regime for antitrust came into force to increase application of EU competition law by national competition authorities and national courts.
Historical background
One of the paramount aims of the founding fathers of the European Community - statesmen around Jean MonnetJean Monnet
Jean Omer Marie Gabriel Monnet was a French political economist and diplomat. He is regarded by many as a chief architect of European Unity and is regarded as one of its founding fathers...
and Robert Schuman
Robert Schuman
Robert Schuman was a noted Luxembourgish-born French statesman. Schuman was a Christian Democrat and an independent political thinker and activist...
- was the establishment of a Single Market. To achieve this, a compatible, transparent and fairly standardised regulatory framework for Competition Law had to be created. The constitutive legislative act was Council Regulation 17/62 (now superseded). The wording of Reg 17/62 was developed in a pre Van Gend en Loos period in EC legal evolution, when the supremacy of EC law was not yet fully established. To avoid different interpretations of EC Competition Law, which could vary from one national court to the next, the Commission was made to assume the role of central enforcement authority.
The first major decision under Article 101 (then Article 85) was taken by the Commission in 1964. They found that Grundig
Grundig
Grundig AG is a German manufacturer of consumer electronics for home entertainment which transferred to Turkish control in 2004-2007. Established in 1945 in Nuremberg by Max Grundig, the company changed hands several times before becoming part of the Turkish Koç Holding group...
, a German manufacturer of household appliances, acted illegally in granting exclusive dealership rights to its French subsidiary. In Consten & Grundig [1966] the European Court of Justice
European Court of Justice
The Court can sit in plenary session, as a Grand Chamber of 13 judges, or in chambers of three or five judges. Plenary sitting are now very rare, and the court mostly sits in chambers of three or five judges...
upheld the Commission's decision, expanded the definition of measures affecting trade to include "potential effects", and generally anchored its key position in Competition Law enforcement alongside the Commission. Subsequent enforcement of Art 101 of the TFEU Treaty (combating anti-competitive business agreements) by the two institutions has generally been regarded as effective. Yet some analysts assert that the Commission's monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
policy (the enforcement of Art 102) has been "largely ineffective", because of the resistance of individual Member State governments that sought to shield their most salient national companies from legal challenges. The Commission also received criticism from the academic quarters. For instance, Valentine Korah, an eminent legal analyst in the field, argued that the Commission was too strict in its application of EC Competition rules and often ignored the dynamics of company behaviour
Corporate behaviour
Corporate behaviour is the behaviour of an organisation when considered as a single body.The behaviour of an organisation is influenced by the arrangements for its ownership and control...
, which, in her opinion, could actually be beneficial to consumers and to the quality of available goods in some cases.
Nonetheless, the arrangements in place worked fairly well until the mid-1980s, when it be clear that with the passage of time, as the European economy steadily grew in size and anti-competitive activities and market practices became more complex in nature, the Commission would eventually be unable to deal with its workload. The central dominance of the Directorate-General for Competition
Directorate-General for Competition (European Commission)
The Directorate-General for Competition is a Directorate-General of the European Commission, located in Brussels, Belgium. The DG Competition is responsible for establishing and implementing a coherent competition policy for the European Union. The DG Competition has a dual role in antitrust...
has been challenged by the rapid growth and sophistication of the National Competition Authorities (NCAs) and by increased criticism from the European courts with respect to procedure, interpretation and economic analysis. These problems have been magnified by the increasingly unmanageable workload of the centralised corporate notification system. A further reason why a reform of the old Regulation 17/62 was needed, was the looming enlargement of the EU, by which its membership was to expand to 25 by 2004
2004 enlargement of the European Union
The 2004 enlargement of the European Union was the largest single expansion of the European Union , both in terms of territory, number of states and population, however not in terms of gross domestic product...
and 27 by 2007
2007 enlargement of the European Union
The 2007 enlargement of the European Union saw Bulgaria and Romania join the European Union on 1 January 2007. It was the latest expansion of the EU, though considered by the European Commission as part of the same wave as the 2004 enlargement of the European Union.-Negotiations:Romania was the...
. Given the still developing nature of the East-Central European new market economies
Transition economy
A transition economy or transitional economy is an economy which is changing from a centrally planned economy to a free market. Transition economies undergo economic liberalization, where market forces set prices rather than a central planning organization and trade barriers are removed,...
, the already inundated Commission anticipated a further significant increase in its workload.
To all these challenges, the Commission has responded with a strategy to decentralise the implementation of the Competition rules through the so-called Modernisation Regulation. EU Council Regulation 1/2003 places National Competition Authorities and Member State national courts at the heart of the enforcement of Arts 101 & 102. Decentralised enforcement has for long been the usual way for other EC rules, Reg 1/2003 finally extended this to Competition Law as well. The Commission still retained an important role in the enforcement mechanism, as the co-ordinating force in the newly created European Competition Network
European Competition Network
The European Competition Network consists of the 27 competition authorities within the European Union and the DG Competition of the European Commission....
(ECN). This Network, made up of the national bodies plus the Commission, manages the flow of information between NCAs and maintains the coherence and integrity of the system. At the time, Competition Commissioner Mario Monti hailed this regulation as one that will 'revolutionise' the enforcement of Arts 101 & 102. Since May 2004, all NCAs and national courts are empowered to fully apply the Competition provisions of the EC Treaty. In its 2005 report, the OECD lauded the modernisation effort as promising, and noted that decentralisation helps to redirect resources so the DG Competition can concentrate on complex, Community-wide investigations. Yet most recent developments shed doubt on the efficacy of the new arrangements. For instance, on 20 December 2006, the Commission publicly backed down from 'unbundling' French (EdF) and German (E.ON
E.ON
E.ON AG, marketed with an interpunct as E•ON, is the holding company of the world's largest investor-owned energy service provider based in Düsseldorf, Germany. The name comes from the Greek word aeon which means eternity....
) energy giants, facing tough opposition from Member State governments. Another legal battle is currently ongoing over the E.ON-Endesa merger, where the Commission has been trying to enforce the free movement of capital, while Spain firmly protects its perceived national interests. It remains to be seen whether NCAs will be willing to challenge their own national 'champion companies' under EC Competition Law, or whether patriotic feelings prevail.
Goals
Article 101 TFEU's goals are unclear. There are two main schools of thought. The predominant view is that only consumer welfare considerations are relevant there. However, a recent book argues that this position is erroneous and that other Member State and European Union public policy goals (such as public health and the environment) should also be considered there. If this argument is correct then it could have a profound effect on the outcome of cases as well as the Modernisation process as a whole.Collusion and cartels
"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."
This includes both horizontal (e.g. between retailers) and vertical (e.g. between retailers and suppliers) agreements, effectively outlawing the operation of cartels within the EU. Article 101 has been construed very widely to include both informal agreements (gentlemen's agreements) and concerted practices where firms tend to raise or lower prices at the same time without having physically agreed to do so. However, a coincidental increase in prices will not in itself prove a concerted practice, there must also be evidence that the parties involved were aware that their behaviour may prejudice the normal operation of the competition within the common market. This latter subjective requirement of knowledge is not, in principle, necessary in respect of agreements. As far as agreements are concerned the mere anticompetitive effect is sufficient to make it illegal even if the parties were unaware of it or did not intend such effect to take place.
Exemptions to Article 101 behaviour fall into three categories. Firstly, Article 101(3) creates an exemption for practices beneficial to consumers, e.g., by facilitating technological advances, but without restricting all competition in the area. In practice the Commission gave very few official exemptions and a new system for dealing with them is currently under review. Secondly, the Commission agreed to exempt 'Agreements of minor importance' (except those fixing sale prices) from Article 101. This exemption applies to small companies, together holding no more than 10% of the relevant market. In this situation as with Article 102 (see below), market definition is a crucial, but often highly difficult, matter to resolve. Thirdly, the Commission has also introduced a collection of block exemptions for different contract types. These include a list of contract permitted terms and a list of banned terms in these exemptions.
Dominance and monopoly
"Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States.
This can mean,
(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."
First it is necessary to determine whether a firm is dominant, or whether it behaves "to an appreciable extent independently of its competitors, customers and ultimately of its consumer." Under EU law, very large market shares raise a presumption that a firm is dominant, which may be rebuttable. If a firm has a dominant position, because it has beyond a 39.7% market share then there is "a special responsibility not to allow its conduct to impair competition on the common market" Same as with collusive conduct, market shares are determined with reference to the particular market in which the firm and product in question is sold. Then although the lists are seldom closed, certain categories of abusive conduct are usually prohibited under the country's legislation. For instance, limiting production at a shipping port by refusing to raise expenditure and update technology could be abusive. Tying one product into the sale of another can be considered abuse too, being restrictive of consumer choice and depriving competitors of outlets. This was the alleged case in Microsoft v. Commission leading to an eventual fine of €497 million for including its Windows Media Player
Windows Media Player
Windows Media Player is a media player and media library application developed by Microsoft that is used for playing audio, video and viewing images on personal computers running the Microsoft Windows operating system, as well as on Pocket PC and Windows Mobile-based devices...
with the Microsoft Windows
Microsoft Windows
Microsoft Windows is a series of operating systems produced by Microsoft.Microsoft introduced an operating environment named Windows on November 20, 1985 as an add-on to MS-DOS in response to the growing interest in graphical user interfaces . Microsoft Windows came to dominate the world's personal...
platform. A refusal to supply a facility essential for all businesses attempting to compete can constitute an abuse. An example was a case involving a medical company named Commercial Solvents. When it set up its own rival in the tuberculosis
Tuberculosis
Tuberculosis, MTB, or TB is a common, and in many cases lethal, infectious disease caused by various strains of mycobacteria, usually Mycobacterium tuberculosis. Tuberculosis usually attacks the lungs but can also affect other parts of the body...
drugs market, Commercial Solvents were forced to continue supplying a company named Zoja with the raw materials for the drug. Zoja was the only market competitor, so without the court forcing supply, all competition would have been eliminated.
Forms of abuse relating directly to pricing include price exploitation. It is difficult to prove at what point a dominant firm's prices become "exploitative" and this category of abuse is rarely found. In one case however, a French funeral service was found to have demanded exploitative prices, and this was justified on the basis that prices of funeral services outside the region could be compared. A more tricky issue is predatory pricing
Predatory pricing
In business and economics, predatory pricing is the practice of selling a product or service at a very low price, intending to drive competitors out of the market, or create barriers to entry for potential new competitors. If competitors or potential competitors cannot sustain equal or lower prices...
. This is the practice of dropping a products's price so low that smaller competitors cannot cover their costs and fail. In France Telecom SA v. Commission a broadband internet company was forced to pay €10.35 million for dropping its prices below its own production costs. It had "no interest in applying such prices except that of eliminating competitors" and was being crossed subsidised to capture the lion's share of a booming market. One last category of pricing abuse is price discrimination
Price discrimination
Price discrimination or price differentiation exists when sales of identical goods or services are transacted at different prices from the same provider...
. An example of this could be offering rebates to industrial customers who export sugar that your company sells, but not to Irish customers, selling in the same market as you are in.
As stated above market definition is arguably the most important part of any competition case brought under Article 102. However, it is also one of the most complex areas. If the market is defined too widely then it will contain more firms and substitutable products making a finding of a dominant position for one firm unlikely. Likewise if it is defined too narrowly then there will be a presumption that the defendant company will be found to be dominant. In practice, market definition will be left to economists, rather than lawyers to decide.
Mergers and acquisitions
Under the authority of Article 82 TEC, the European Commission became able not only to regulate the behaviour of large firms it claims abuse their dominant positions or market powerMarket power
In economics, market power is the ability of a firm to alter the market price of a good or service. In perfectly competitive markets, market participants have no market power. A firm with market power can raise prices without losing its customers to competitors...
, but also the possibility of firms gaining the position within the market structure
Market structure
In economics, market structure .* Monopolistic competition, also called competitive market, where there are a large number of firms, each having a small proportion of the market share and slightly differentiated products.* Oligopoly, in which a market is dominated by a small number of firms that...
that enables them to behave abusively in the first place. Regulation 139/2004 deals with mergers that have a "Community dimension" and lays out a procedure whereby all "concentrations" (i.e. mergers, acquisitions, takeovers) between undertakings are subject to approval by the European Commission.
A merger or acquisition involves, from a competition law perspective, the concentration of economic power in the hands of fewer than before. In the European Union, under the Merger Regulation 139/2004. This is known as the "ECMR", and the authority for the Commission to pass this regulation is found under Art. 83 TEC. Competition law requires that firms proposing to merge gain authorisation from the relevant government authority, or simply go ahead but face the prospect of demerger
Demerger
Demerger is a form of corporate restructuring in which the an entity's business operations are segregated into one or more components. It is the converse of a merger or acquisition....
should the concentration later be found to lessen competition. The theory behind mergers is that transaction costs can be reduced compared to operating on an open market through bilateral contracts. Concentrations can increase economies of scale
Economies of scale
Economies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...
and scope. However, often firms take advantage of their increase in market power, their increased market share and decreased number of competitors, which can have a knock on effect on the deal that consumers get. Merger control is about predicting what the market might be like, not knowing and making a judgment. Hence the central provision under EU law asks whether a concentration would if it went ahead "significantly impede effective competition... in particular as a result of the creation or strengthening of a dominant position..."
Under EU law, a concentration exists when a...
"change of control on a lasting basis results from (a) the merger of two or more previously independent undertakings... (b) the acquisition... if direct or indirect control of the whole or parts of one or more other undertakings." Art. 3(1), Regulation 139/2004, the European Community Merger Regulation
This usually means that one firm buys out the share
Share (finance)
A joint stock company divides its capital into units of equal denomination. Each unit is called a share. These units are offered for sale to raise capital. This is termed as issuing shares. A person who buys share/shares of the company is called a shareholder, and by acquiring share or shares in...
s of another. The reasons for oversight of economic concentrations by the state are the same as the reasons to restrict firms who abuse a position of dominance, only that regulation of mergers and acquisitions attempts to deal with the problem before it arises, ex ante prevention of creating dominant firms. In the case of [T-102/96] Gencor Ltd v. Commission [1999] ECR II-753 the EU Court of First Instance
Court of First Instance
The General Court is a jurisdictional instance of the Court of Justice of the European Union. From its inception on 1 January 1989 to 30 November 2009, it was known as the Court of First Instance .-Competence:...
wrote merger control is there "...to avoid the establishment of market structures which may create or strengthen a dominant position and not need to control directly possible abuses of dominant positions."
What amounts to a substantial lessening of, or significant impediment to competition is usually answered through empirical study. The market shares of the merging companies can be assessed and added, although this kind of analysis only gives rise to presumptions, not conclusions. The Herfindahl-Hirschman Index
Herfindahl index
The Herfindahl index is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. Named after economists Orris C. Herfindahl and Albert O. Hirschman, it is an economic concept widely applied in competition law, antitrust and also...
is used to calculate the "density" of the market, or what concentration exists. Aside from the maths, it is important to consider the product in question and the rate of technical innovation in the market. A further problem of collective dominance, or oligopoly
Oligopoly
An oligopoly is a market form in which a market or industry is dominated by a small number of sellers . The word is derived, by analogy with "monopoly", from the Greek ὀλίγοι "few" + πόλειν "to sell". Because there are few sellers, each oligopolist is likely to be aware of the actions of the others...
through "economic links" can arise, whereby the new market becomes more conducive to collusion
Collusion
Collusion is an agreement between two or more persons, sometimes illegal and therefore secretive, to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair advantage...
. It is relevant how transparent a market is, because a more concentrated structure could mean firms can coordinate their behaviour more easily, whether firms can deploy deterrents and whether firms are safe from a reaction by their competitors and consumers. The entry of new firms to the market, and any barriers that they might encounter should be considered.
Certain exceptions exist, by which a firm whose conduct may be prima facie anti-competitive can be sanctioned under the reference to "technical and economic progress" in Art. 2 of the ECMR. Another defence might be that a firm being taken over is about to fail or go insolvent, and taking it over does not diminish the competitive state any more than what would happen anyway. Mergers vertically in the market are rarely of concern, although in AOL/Time Warner the European Commission
European Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
required that a joint venture with a competitor Bertelsmann
Bertelsmann
Bertelsmann AG is a multinational media corporation founded in 1835, based in Gütersloh, Germany. The company operates in 63 countries and employs 102,983 workers , which makes it the most international media corporation in the world. In 2008 the company reported a €16.118 billion consolidated...
be ceased beforehand. The EU authorities have also focussed lately on the effect of conglomerate merger
Conglomerate merger
A conglomerate merger is officially defined as being "any merger that is not horizontal or vertical; in general, it is the combination of firms in different industries or firms operating in different geographic areas". Conglomerate mergers can serve various purposes, including extending corporate...
s, where companies acquire a large portfolio of related products, though without necessarily dominant shares in any individual market.
The effect of Public Funding on Competition
Public sector industries, or industries which are by their nature providing a public service, are involved in competition law in many ways similar to private companies. Under EC law, Articles 86 and 87 create exceptions for the assured achievement of public sector service provision. Many industries, such as railways, telecommunications, electricity, gas, water and media have their own independent sector regulators. These government agencies are charged with ensuring that private providers carry out certain public service duties in line of social welfare goals.The EU liberalisation programme entails a broadening of sector regulation, and extending Competition law to previously state monopolised industries, such as railways, electricity
Electricity
Electricity is a general term encompassing a variety of phenomena resulting from the presence and flow of electric charge. These include many easily recognizable phenomena, such as lightning, static electricity, and the flow of electrical current in an electrical wire...
or gas
Gas
Gas is one of the three classical states of matter . Near absolute zero, a substance exists as a solid. As heat is added to this substance it melts into a liquid at its melting point , boils into a gas at its boiling point, and if heated high enough would enter a plasma state in which the electrons...
. Articles 106 to 108 of the TFEU address how public money can distort competition.
Services of General Economic Interest
Article 106(2) of the TFEU states that nothing in the rules can be used to obstruct a member state's right to deliver public services, but that otherwise public enterprises must play by the same rules on collusion and abuse of dominance as everyone else.State Aid Law
Article 107 TFEU, similar to Article 101 TFEU, lays down a general rule that the state may not aid or subsidise private parties in distortion of free competition, but has the power to approve exceptions for specific projects addressing natural disasters or regional development.The general definition of State Aid is set out in Article 107(1) of the TFEU.
Measures which fall within the definition of State Aid are unlawful unless provided under an exemption or notified.
For there to be State Aid under Article 107(1) of the TFEU each of the following must be present:
There is the transfer of Member StateMember stateA member state is a state that is a member of an international organisation.The World Trade Organization has members that are sovereign states and members that are not, thus WTO members are not called member states.- Worldwide :...
resources;
Which creates a selective advantage for one or more business undertakings;
That has the potential to distort trade between in the relevant business market; and
Affects trade between the Member States.
Where all of these criteria are met, State Aid is present and the support shall be unlawful unless provided under a European Commission exemption
The European Commission
European Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
applies a number of exemptions which enable aid to be lawful. The European Commission
European Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
will also approve State Aid cases under the notification procedure.
State Aid law is an important issue for all public sector organisations and recipients of public sector support in the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
because unlawful aid can be clawed back with compound interest.
There is some scepticism about the effectiveness of competition law in achieving economic progress and its interference with the provision of public services. France's president Nicolas Sarkozy
Nicolas Sarkozy
Nicolas Sarkozy is the 23rd and current President of the French Republic and ex officio Co-Prince of Andorra. He assumed the office on 16 May 2007 after defeating the Socialist Party candidate Ségolène Royal 10 days earlier....
has called for the reference in the preamble to the Treaty of the European Union to the goal of "free and undistorted competition" to be removed. Though competition law itself would have remained unchanged, other goals of the preamble—which include "full employment" and "social progress"—carry the perception of greater specificity, and as being ends in themselves, while "free competition" is merely a means.
Enforcement
The task of tracking down and punishing those in breach of competition law has been entrusted to the European Commission, which receives its powers under Article 105 TFEU. Under this Article, the European Commission is charged with the duty of ensuring the application of Articles 101 and 102 TFEU and of investigating suspected infringements of these Articles. The European Commission and national competition authorities have wide on-site investigation powers. Article 105 TFEU grants extensive investigative powers including the notorious power to carry out dawn raids on the premises of suspected undertakings and private homes and vehicles.There are many ways in which the European Commission could become aware of a potential violation:
The European Commission is may carry out investigation or inspections, for which it is empowered to request information from governments, competent authorities of Member States, and undertakings. In some cases, parties have sought to resist the taking of certain documents during an inspection based on the argument that those documents are covered by legal professional privilege between lawyer and client. The ECJ held that such a privilege was recognized by EC law to a limited extent at least.
The European Commission also could become aware of a potential competition violation through the complaint from an aggrieved party. In addition, Member States and any natural or legal person are entitled to make a complaint if they have a legitimate interest.
Article 101 (2) TFEU considers any undertaking found in breach of Article 101 TFEU to be null and void and that agreements cannot be legally enforced. In addition, the European Commission may impose a fine pursuant to Article 23 of Regulation 1/2003. These fines are not fixed and can extend into millions of Euros, up to a maximum of 10% of the total worldwide turnover of each of the undertakings participating in the infringement, although there may be a decrease in case of cooperation and increase in case of recidivism. Fines of up to 5% of the average daily turnover may also be levied for every day an undertaking fails to comply with Commission requirements. The gravity and duration of the infringement are to be taken into account in determining the amount of the fine. This uncertainty acts as a powerful deterrent and ensures that companies are unable to undertake a cost/benefit analysis before breaching competition law.
The Commission guideline on the method of setting fines imposed pursuant to Article 23 (2) (a) of Regulation 1/2003 uses a two-step methodology:
- The Commission first defines a basic amount of the fine for each involved undertaking or association of undertakings; and then
- Adjusts the basic amount according to the individual circumstances upwards or downwards.
The basic amount relates, inter alia, to the proportion of the value of the sales depending on the degree of the gravity of the infringement. In this regard, Article 5 of the aforementioned guideline states, that
- “In order to achieve these objectives, it is appropriate for the Commission to refer to the value of the sales of goods or services to which the infringement relates as a basis for setting the fine. The duration of the infringement should also play a significant role in the setting of the fine. It necessarily has an impact on the potential consequences of the infringements on the market. It is therefore considered important that the fine should also reflect the number of years during which an undertaking participated in the infringement.”
In a second step, this basic amount may be adjusted on grounds of recidivism or leniency. In the latter case, immunity from fines may be granted to the company who submits evidence first to the European Commission which enables it to carry out an investigation and/or to find an infringement of Article 101 TFEU.
The highest cartel fine which was ever imposed was related to a cartel consisting of four car glass producers. The companies Asahi, Pilkington, Saint-Gobain and Soliver were fined over €1.3 billion. Between 1998 and early 2003 those companies had discussed target prices, market sharing and customer allocation in a series of meetings and other illicit contacts. In this case, the European Commission started its investigation based on an anonymous “tip”.
Another negative consequence for the companies involved in cartel cases may be the adverse publicity which may damage the company´s reputation.
Questions of reform have circulated around whether to introduce US style treble damages as added deterrent against competition law violaters. The recent Modernisation Regulation 1/2003 has meant that the European Commission no longer has a monopoly on enforcement, and that private parties may bring suits in national courts. Hence, there has been debate over the legitimacy of private damages actions in traditions that shy from imposing punitive measures in civil actions.
According to the Court of Justice of the European Union, any citizen or business who suffers harm as a result of a breach of the European Union competition rules (Articles 101 and 102 TFEU) should be able to obtain reparation from the party who caused the harm. However, despite this requirement under European law to establish an effective legal framework enabling victims to exercise their right to compensation, victims of European Union competition law infringements to date very often do not obtain reparation for the harm suffered. The amount of compensation that these victims are foregoing is in the range of several billion Euros a year. Therefore, the European Commission has taken a number steps since 2004 to stimulate the debate on that topic and elicit feedback from stakeholders on a number of possible options which could facilitate antitrust damages actions. Based on the outcomes of several public consultations, the Commission has suggested specific policy choices and measures in a White Paper.
Sector inquiry
A special instrument of the European Commission is the so-called sector inquiry in accordance with Art. 17 of Regulation 1/2003.Article 17 (1) 1st paragraph of Council Regulation 1/2003 reads:
- “Where the trend of trade between Member States, the rigidity of prices or other circumstances suggest that competition may be restricted or distorted within the common market, the Commission may conduct its inquiry into a particular sector of the economy or into a particular type of agreements across various sectors. In the course of that inquiry, the Commission may request the undertakings or associations of undertakings concerned to supply information necessary for giving effect to Articles 81 and 82 of the Treaty (now Art. 101 and 102 TFEU) and may carry out any inspections necessary for that purpose.”
In case of sector inquiries, the European Commission follows its reasonable suspicion that the competition in a particular industry sector or solely related to a certain type of contract which is used in various industry sectors is prevented, restricted or distorted within the common market. Thus, in this case not a specific violation is investigated. Nevertheless, the European Commission has almost all avenues of investigation at its disposal, which it may use to investigate and track down violations of competition law. The European Commission may decide to start a sector inquiry when a market does not seem to be working as well as it should. This might be suggested by evidence such as limited trade between Member States, lack of new entrants on the market, the rigidity of prices, or other circumstances suggest that competition may be restricted or distorted within the common market. In the course of the inquiry, the Commission may request that firms - undertakings or associations of undertakings - concerned supply information (for example, price information). This information is used by the European Commission to assess whether it needs to open specific investigations into intervene to ensure the respect of EU rules on restrictive agreements and abuse of dominant position (Articles 101 and 102 of the Treaty on the Functioning of the European Union).
There has been an increased use of this tool in the recent years, as it is not possible anymore for companies to register a cartel or agreement which might be in breach of competition law with the European Commission, but the companies are responsible themselves for assessing whether their agreements constitute a violation of European Union Competition Law (self assessment).
Traditionally, agreements had, subject to certain exceptions, to be notified to the European Commission, and the Commission had a monopoly over the application of Article 101 TFEU (former Article 81 (3) EG). Because the European Commission did not have the resources to deal with all the agreements notified, notification was abolished.
One of the most spectacular sector inquiry was the pharmaceutical sector inquiry which took place in 2008 and 2009 in which the European Commission used dawn raids from the beginning. The European Commission launched a sector inquiry into EU pharmaceuticals markets under the European Competition rules because information relating to innovative and generic medicines suggested that competition may be restricted or distorted. The inquiry related to the period 2000 to 2007 and involved investigation of a sample of 219 medicines. Taking into account that sector inquiries are a tool under European Competition law, the inquiry´s main focus was company behavior. The inquiry therefore concentrated on those practices which companies may use to block or delay generic competition as well as to block or delay the development of competing originator drugs.
The following sectors have also been subject of a sector inquiry:
- Financial Services
- Energy
- Local Loop
- Leased Lines
- Roaming
- Media
Leniency policy
The leniency policy consists in abstaining from prosecuting firms that, being party to a cartel, inform the CommissionEuropean Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
of its existence. The leniency policy was first applied in 2002.
The Commission Notice on Immunity from fines and reduction of fines in cartel cases guarantees immunity and penalty reductions to firms who co-operate with the Commission in detecting cartels.
II.A, §8:
The Commission will grant immunity from any fine which would otherwise have been imposed to an undertaking disclosing its participation in an alleged cartel affecting the Community if that undertaking is the first to submit information and evidence which in the Commission’s view will enable it to:
(a) carry out a targeted inspection in connection with the alleged cartel; or
(b) find an infringement of Article 81 EC in connection with the alleged cartel.
The mechanism is straightforward. The first firm to acknowledge their crime and inform the Commission will receive complete immunity, that is, no fine will be applied. Co-operation with the Commission will also be gratified with reductions in the fines, in the following way:
- The first firm to denounce existence of a cartelCartelA cartel is a formal agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production. Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products...
receives immunityImmunity (medical)Immunity is a biological term that describes a state of having sufficient biological defenses to avoid infection, disease, or other unwanted biological invasion. Immunity involves both specific and non-specific components. The non-specific components act either as barriers or as eliminators of wide...
from prosecution. - If the firm is not the first to denounce its existence, it gets a 50% reduction in fines.
- If the firm co-operates with the Commission, acknowledging its culpability, it gets a 10% reduction in fines.
- If, once the investigation is opened, the firm gives additional information, it gets a 20-30% reduction in fines.
This policy has been of great success as it has increased cartel detection to such an extent that nowadays most cartel investigations are started according to the leniency policy. The purpose of a sliding scale in fine reductions is to encourage a "race to confess" among cartel members. In cross border or international investigations, cartel members are often at pains to inform not only the EU Commission, but also National Competition Authorities (e.g. the Office of Fair Trading
Office of Fair Trading
The Office of Fair Trading is a not-for-profit and non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UK's economic regulator...
and the Bundeskartellamt
Bundeskartellamt
The Federal Cartel Office is Germany's national competition regulator. It was first established in 1958 and comes under the authority of the Federal Ministry of the Economy and Technology. Its headquarters are in the former West German capital, Bonn and its President is Andreas Mundt, who has a...
) and authorities across the globe.
Poland
The Office of Competition and Consumer Protection (UOKiK) was established in 1990 as the Antimonopoly Office. In 1989, on the verge of a political breakthrough, when the economy was based on the free market mechanisms, an Act on counteracting monopolistic practices was passed on 24 February 1990. It constituted an important element of the market reform programme. The structure of the economy, inherited from the central planning system, was characterized with a high level of monopolization, which could significantly limit the success of the economic transformation. In this situation, promotion of competition and counteracting the anti-market behaviors of the monopolists was especially significant. Therefore, the Antimonopoly Office - AO (Urząd Antymonopolowy - UA) was appointed under this act, and commenced its operation in May once the Council of Ministers passed the charter. Also its first regional offices commenced operations in that very same year.United Kingdom
Following the introduction of the Enterprise Act 2002 the Office of Fair Trading is responsible for enforcing competition law (enshrined in The Competition Act 1998) in the UK. These powers are shared with concurrent sectoral regulators such as Ofgem in energy, Ofcom in telecoms, the ORR in rail and Ofwat in water.France
The Autorité de la concurrenceis France's national competition regulator
Competition regulator
A competition regulator is a government agency, typically a statutory authority, sometimes called an economic regulator, which regulates and enforces competition laws, and may sometimes also enforce consumer protection laws...
. Its predecessor was established in the 1950s. Today it administers competition law
Competition law
Competition law, known in the United States as antitrust law, is law that promotes or maintains market competition by regulating anti-competitive conduct by companies....
in France, and is one of the leading national competition authorities in Europe.
Germany
or Federal Cartel Office, is Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
's national competition regulator
Competition regulator
A competition regulator is a government agency, typically a statutory authority, sometimes called an economic regulator, which regulates and enforces competition laws, and may sometimes also enforce consumer protection laws...
. It was first established in 1958 and comes under the authority of the Federal Ministry of the Economy and Technology. Its headquarters are in the former West German capital, Bonn and its President is Andreas Mundt, who has a staff of 300 people. Today it administers competition law
Competition law
Competition law, known in the United States as antitrust law, is law that promotes or maintains market competition by regulating anti-competitive conduct by companies....
in Germany, and is one of the leading national competition authorities in Europe.
Italy
The Autorità Garante della Concorrenza e del Mercato in Italy was established in 1990.Other authorities
- European CommissionEuropean CommissionThe European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
: European Commission > Competition. - European Court of Justice
- AustriaAustriaAustria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...
: Bundeswettbewerbsbehörde. - BelgiumBelgiumBelgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...
: Ministère des Affaires économiques. - DenmarkDenmarkDenmark is a Scandinavian country in Northern Europe. The countries of Denmark and Greenland, as well as the Faroe Islands, constitute the Kingdom of Denmark . It is the southernmost of the Nordic countries, southwest of Sweden and south of Norway, and bordered to the south by Germany. Denmark...
: Konkurrencestyrelsen. - FinlandFinlandFinland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...
: Kilpailuvirasto. - HungaryHungaryHungary , officially the Republic of Hungary , is a landlocked country in Central Europe. It is situated in the Carpathian Basin and is bordered by Slovakia to the north, Ukraine and Romania to the east, Serbia and Croatia to the south, Slovenia to the southwest and Austria to the west. The...
: Gazdasági Versenyhivatal - NetherlandsNetherlandsThe Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
: Nederlandse Mededingingsautoriteit (NMa). - IrelandIrelandIreland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...
: Competition Authority.
- ItalyItalyItaly , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
: Autorità Garante della Concorrenza e del Mercato. - LatviaLatviaLatvia , officially the Republic of Latvia , is a country in the Baltic region of Northern Europe. It is bordered to the north by Estonia , to the south by Lithuania , to the east by the Russian Federation , to the southeast by Belarus and shares maritime borders to the west with Sweden...
: Konkurences padome. - LithuaniaLithuaniaLithuania , officially the Republic of Lithuania is a country in Northern Europe, the biggest of the three Baltic states. It is situated along the southeastern shore of the Baltic Sea, whereby to the west lie Sweden and Denmark...
: Konkurencijos taryba. - PolandPolandPoland , officially the Republic of Poland , is a country in Central Europe bordered by Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east; and the Baltic Sea and Kaliningrad Oblast, a Russian exclave, to the north...
: Urząd Ochrony Konkurencji i Konsumentów. - PortugalPortugalPortugal , officially the Portuguese Republic is a country situated in southwestern Europe on the Iberian Peninsula. Portugal is the westernmost country of Europe, and is bordered by the Atlantic Ocean to the West and South and by Spain to the North and East. The Atlantic archipelagos of the...
: Autoridade da Concorrência. - SloveniaSloveniaSlovenia , officially the Republic of Slovenia , is a country in Central and Southeastern Europe touching the Alps and bordering the Mediterranean. Slovenia borders Italy to the west, Croatia to the south and east, Hungary to the northeast, and Austria to the north, and also has a small portion of...
: Urad Republike Slovenije za varstvo konkurence. - SpainSpainSpain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
: Comision Nacional de la Competencia - SwedenSwedenSweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....
: Konkurrensverket.
See also
- Competition policy
- European Commissioner for Competition
- Irish Competition lawIrish Competition LawIrish Competition Law is the Irish body of legal rules designed to ensure fairness and freedom in the marketplace. The key provisions of Irish competition law: usually outlaw anti-competitive arrangements between businesses and economic operators ; always outlaw the abuse of dominance by...
- Relevant marketRelevant marketIn competition law the Relevant market defines the market in which one or more goods compete. Therefore, the Relevant market defines whether two or more products can be considered substitute goods and whether they constitute a particular and separate market for competition analysis.The relevant...
- SSNIP
Rulings
- 2001, July. The European Commission prohibits a merger of General ElectricGeneral ElectricGeneral Electric Company , or GE, is an American multinational conglomerate corporation incorporated in Schenectady, New York and headquartered in Fairfield, Connecticut, United States...
and HoneywellHoneywellHoneywell International, Inc. is a major conglomerate company that produces a variety of consumer products, engineering services, and aerospace systems for a wide variety of customers, from private consumers to major corporations and governments....
. - 2004, December. The European Commission prohibits a merger of Energias de Portugal SA and Gas de Portugal SA.
- 2004, March. The European Commission forces MicrosoftMicrosoftMicrosoft Corporation is an American public multinational corporation headquartered in Redmond, Washington, USA that develops, manufactures, licenses, and supports a wide range of products and services predominantly related to computing through its various product divisions...
to offer a Microsoft WindowsMicrosoft WindowsMicrosoft Windows is a series of operating systems produced by Microsoft.Microsoft introduced an operating environment named Windows on November 20, 1985 as an add-on to MS-DOS in response to the growing interest in graphical user interfaces . Microsoft Windows came to dominate the world's personal...
version without the Windows Media PlayerWindows Media PlayerWindows Media Player is a media player and media library application developed by Microsoft that is used for playing audio, video and viewing images on personal computers running the Microsoft Windows operating system, as well as on Pocket PC and Windows Mobile-based devices...
preinstalled within the European UnionEuropean UnionThe European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
. See: European Union Microsoft antitrust caseEuropean Union Microsoft antitrust caseThe European Union Microsoft competition case is a case brought by the European Commission of the European Union against Microsoft for abuse of its dominant position in the market...
. - 2006, July. The Court of First Instance annuls the Commission's clearance decision of the merger of Sony Music EntertainmentSony Music EntertainmentSony Music Entertainment ' is the second-largest global recorded music company of the "big four" record companies and is controlled by Sony Corporation of America, the United States subsidiary of Japan's Sony Corporation....
and Bertelsmann Music GroupBMGBertelsmann Music Group, , was a division of Bertelsmann before its completion of sale of the majority of its assets to Japan's Sony Corporation of America on October 1, 2008. It was established in 1987 to combine the music label activities of Bertelsmann...
to form Sony BMG forcing the Commission to re-assess the merger.