EU Competition Law Overview

1
EU Competition Law Overview

• H. Stephen Harris, Jr.
• ALSTONBIRDLLP
• ABA Antitrust SectionSpring Meeting
• April 4, 2003

2
The EU Basics

• Created and governed by the EC Treaty, as amended
  

3
The EU Basics

• Currently 15 members
• Original MembersBelgium Germany FranceItaly
  LuxembourgNetherlands
• Additional MembersU.K. Denmark IrelandGreece
  Spain PortugalAustria Sweden Finland

4
The EU Basics

• 10 new members to join May 1, 2004
• Czech Republic
• Hungary
• Poland
• Slovakia
• Slovenia
• Latvia
• Estonia
• Lithuania
• Cyprus (Greek controlled portion)
• Malta

5
The EU Basics

• Turkey to join without delay if it meets
  criteria during December, 2004 review
• Bulgaria and Romania on track to join by 2006

6
The EU Basics

• 380 million citizens
• With 10 new members,
• population of 445 million
• Largest integrated market in the world
• GDP of US9.46 billion(cf. NAFTA GDP of 11.9
  billion)

7
The EU Basics

• The European Parliament
• Members (MEPs) directly elected in Member State
  elections held every five years
• Currently 626 MEPs
• Sit in party political groups, not national
  delegations
• In some areas, Parliament jointly legislates with
  the Council

8
The EU Basics

• The Council of European Communities(the
  Council)
• 1 member from each Member State
• Presidency rotates every 6 months among the
  Member States
• Primary legislative body of the EC
• Primary policymaker of the EC
• Implements policy through Regulations and
  Directives proposed by the Commission

9
The EU Basics

• The European Commission (EC)
• Independent of the Council
• 20 members, nominated by Member States
• executes EC law
• staff of approximately 15,000
• renders decisions

10
The EU Basics

• The Commission is the primary enforcer of EU
  competition law
• Decides cases
• Issues Directives
• Proposes Regulations
• Issues Guidelines (Notices)
• Directs policy debate (White Papers and Green
  Papers)
• Participates in shaping of legislation

11
The EU Basics

• Structure of the Commission
• President
• Secretariat-General
• Legal Service
• 36 Directorate Generals (1 Commissioner in
  charge of each)
• Competition Directorate (DG Comp)Commissioner
  Mario Monti

12
The EU Basics

• Commission Procedures
• Since 1962, governed by Reg. 17/62 the
  implementing regulation)
• Recently adopted Reg. 01/03 restructures the
  system of competition enforcement for the first
  time in 40 years

13
The EU Basics

• Reg. 01/03
• Abolishes notification of individual exemptions
  under Article 81(3)
• Creates European Competition Network in which
  all member states must empower their national
  competition agencies to apply EU competition law
  

14
The EU Basics

• Reg. 01/03
• Redefines relationship between EU and national
  substantive competition law, generally affirming
  primacy of EU law
• Confirms power of EC to order structural as well
  as behavioral remedies
• Codifies ECs powers to issue interim measures
  (cf. preliminary injunctions) and related
  procedures

15
The EU Basics

• Reg. 01/03
• Creates new procedure for settlement of cases by
  giving order to cease infringing conduct (cf.
  cease and desist orders)
• Expands investigatory powers of EC empowers EC
  to question company employees about factual
  matters, and to search homes of employees

16
The EU Basics

• Reg. 01/03
• Substantially increases level of fines which EC
  may impose re procedural matters (obstruction of
  investigations, providing false information,
  failing to comply with EC orders)
• Applies to all economic sectors with very limited
  exceptions special regulations for certain
  sectors, such as transport

17
The EU Basics

• The European Court of Justice (ECJ)
• 1 judge from each Member State
• 8 Advocates General
• Hears appeals from the Court of First Instance
• Considers issues of law, not fact
• Gives preliminary rulings on EC law to national
  courts

18
The EU Basics

• The European Court of First Instance
• 15 judges, one from each Member State
• hears initial appeals of EC decisions
• unlike ECJ, reviews issues of fact and law

19
The EU Basics

• Concurrent Jurisdiction with National Laws
• National courts must apply national law (and EC
  law) in a manner that does not hamper uniform
  application of EC law within the 15 Member States

20
Policies Underlying EU Competition Law

• Traditional Competition Concerns
• Maximizing efficiency
• Protecting consumers from collusion and other
  restraints on free competition
• Protecting small and medium-sized
  entities(SMEs)
• Integrating the European economy(increasingly
  important in light of 10 new members)

21
Principal Sources of EU Competition Law

• EC Treaty Section 81 (formerly 85)Cf. Sherman
  Act 1
• EC Treaty Section 82 (formerly 86)Cf. Sherman
  Act 2
• European Community Merger Regulation(ECMR)Cf.
  Hart-Scott-Rodino Act

22
Article 81

• Prohibits and automatically voids all
• agreements, arrangements and concerted practices
• between undertakings
• that affect trade between Member States
• that have as their object or effect
• the prevention, restriction or distortion of
  competition within the EU

23
Article 81Undertakings

• Not defined in Treaty or other formal document
• Construed very broadly
• Includes any collection of resources for the
  purpose of performing an economic or commercial
  activity, regardless of legal status

24
Article 81Undertakings

• Individuals
• Corporations
• Partnerships
• Trade and other associations
• Unincorporated groups
• Public bodies

25
Article 81Agreements, Arrangements Concerted
practices

• Not restricted to formal contracts
• only requires a joint intention of the parties,
  without there being any need for them to express
  their consent formally
• consent may arise implicitly from clear and
  unequivocal conduct
• sufficient if one party limits its freedom of
  action with regard to another

26
Article 81Agreements, arrangements and concerted
practices

• Concerted practices are 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

27
Article 81Prevention, Restriction or Distortion
of Competition

• Article 81(1) provides non-exhaustive list of
  examples
• fixing purchase or selling prices or other terms
  of trade
• sharing markets or sources of supply
• discriminatory practices
• tying arrangements

28
Article 81Prevention, Restriction or Distortion
of Competition

• Includes, in principle, any form of coordinated
  bilateral or multilateral behavior that has, or
  is intended to have, an appreciable negative
  effect on competition, without limitation as to
  the form of the restraint

29
Article 81Prevention, Restriction or Distortion
of Competition

• Appreciable is decided on a case-by-case basis

30
Article 81Prevention, Restriction or Distortion
of Competition

• EC Guidance on what is appreciable
• 1968 Notice on Cooperation Agreements
  (encouraging some cooperation among SMEs)
• 1997 De Minimis Notice(e.g., horiz. agreements
  for production of goods not covered by Art. 81 if
  less than 5 of goods affected)

31
Article 81Prevention, Restriction or Distortion
of Competition

• Includes horizontal agreements(agreements
  between companies at the same level in the
  production or distribution chain e.g., between
  two manufacturers)
• Includes vertical agreements(agreements between
  companies at different levels e.g. between
  manufacturer and distributor)

32
Article 81Effect on Trade Between Member States

• Article 81 requires that an agreement or practice
  may affect trade between Member States
• 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

33
Article 81Effect on Trade Between Member States

• ECJ downplays the importance of this element
• ECJ held sufficient the impact on a companys
  ability to establish itself in another Member
  State, holding that trade is not limited to
  movement of goods and services across borders

34
Article 81Anticompetitive Effect or Objective

• Immaterial whether practice has an actual
  anticompetitive effect or only an intended
  anticompetitive effect
• No need to examine the effect of agreement the
  clear object of which prevents, restricts or
  distorts competition (price-fixing, e.g.)
• Detailed economic analysis still needed for
  agreements not designed to restrict competition
  (distribution agreements, e.g.)

35
Article 81(3)Individual Exemptions

• Previously, notification to the Commission was
  required under Form A/B
• Under new Reg. 01/03, notification system
  abolished
• Competition authorities of member states and
  courts will apply Article 81(3) without need for
  prior notification

36
Article 81(3)Block Exemptions

• Apply to categories of agreements
• No notification necessary
• Examples
• certain RD horizontal agreements
• specialization horizontal agreements
• certain IP licensing vertical agreements

37
Article 81(3)Horizontal Guidelines

• Guidelines on the Applicability of Article 81 to
  Horizontal Cooperation
• flexible blacklist approach
• requires analysis of market power, and
  procompetitive benefits of the agreement or
  practice

38
Article 81(3)Vertical Exemptions

• Reg. 2790/99 creates blacklist, whitelist, and
  greylist

39
Article 81(3)Vertical Exemptions

• Reg. 2790/99 black list excludes from the
  exemption (prohibits)
• price-fixing (including minimum RPM)
• customer and territorial market allocation
• restriction on members of a selective
  distribution system (SDS) to sell to end users
• prohibition on component supplier selling to
  independent service orgs.

40
Article 81Penalties

• Nullification of agreements
• Declaratory relief ordering cessation of
  violation
• Fines
• ECs 1998 Guidelines on the Method of Setting
  Fines
• Individual firm may be fined up to 20 million,
  or 10 of its turnover in the prior year,
  whichever is greater

41
Article 82

• Prohibits any abuse
• by one or more undertakings
• of a dominant position
• within the common market or in a substantial part
  thereof, to the extent that it may affect trade
  between member states

42
Article 82Dominant position

• Product and geographic market definitions are
  fundamental

43
Article 82Relevant Product Market

• Comprises products that are particularly
  suitable for satisfying constant needs and are
  only to a limited extent interchangeable or
  substitutable with other products (ECJ)
• Reasonably interchangeable products will be
  considered part of the same relevant product
  market if they are apt to meet the same consumer
  need. (ECJ)

44
Article 82Relevant Product Market

• ECs 1997 Market Definition Notice requires
  assessment of
• demand-side substitutability
• supply-side substitutability
• potential competition

45
Article 82Relevant Geographic Market

• An area in which the conditions of competition
  applying to the product concerned are
  sufficiently homogeneous for all traders (ECJ)

46
Article 82Relevant Geographic Market

• The ECs Market Definition Notice defines it as
  the area in which the undertakings concerned are
  involved in the supply and demand of products or
  services, in which the conditions of competition
  are sufficiently homogeneous, and that can be
  distinguished from neighboring areas because the
  conditions of competition are appreciably
  different in those areas.

47
Article 82Relevant Geographic Market

• Factors considered under the ECs Market
  Definition Notice
• supply-side considerations
• demand-side substitution (whether customers would
  switch to suppliers located elsewhere in response
  to a hypothetical small (5 to 10) but permanent
  price increase

48
Article 82Relevant Geographic Market

• Relevant market must be the common market or a
  substantial portion of it
• pattern and volume of productionconsidered
• territory of a single Member State (or group of
  contiguous states) often recognized as
  substantial part

49
Article 82Dominance

• Dominance is assessed in the relevant market
• A dominant position is demonstrated by an
  undertakings ability to operate to an
  appreciable extent independently of its
  competitors, its customers, and ultimately the
  consumers in a relevant market. (ECJ)

50
Article 82Dominance

• Market power is usually demonstrated through high
  market shares
• Countervailing considerations such as ease of
  entry, buyer power and other specific conditions
  of a market may rebut a finding of market power
  despite a high market share

51
Article 82Dominance

• Market shares over 70 generally per se evidence
  of dominance
• Over 50 may support finding of per se dominance
  (AKZO)
• Between 40 and 50 raises presumption of
  dominance
• Between 30 and 40 usually insufficient without
  other circumstances
• Below 30 unlikely, but no safe harbor

52
Article 82Collective Dominance

• Two or more undertakings may collectively hold a
  dominant position
• Only recently recognized by CFI and ECJ
• Based on idea that, in concentrated markets,
  usually of homogenous products, greater risk
  exists of explicit or tacit collusion
• High evidentiary threshold to prove that the
  undertakings will collude

53
Article 82Abuse

• Article 82 prohibits not dominance, but its abuse

54
Article 82Abuse

• Article 82(3) provides a non-exhaustive list of
  examples of abuses
• imposing unfair purchase or selling prices or
  other unfair conditions
• limiting production, marketing or technical
  development
• discrimination
• tying

55
Article 82Abuse

• The EC, CFI and ECJ have found abuses in other
  circumstances, including
• refusals to supply
• refusals to license
• rebate schemes
• exclusive dealing
• predatory pricing

56
Article 81Penalties

• Declaratory relief ordering cessation of
  violation
• Fines (same as Article 81)ECs 1998 Guidelines
  on the Method of Setting Fines
• Individual firm may be fined up to 20 million,
  or 10 of its turnover in the prior year,
  whichever is greater

57
The ECMR

• The EC Merger Regulation (ECMR) confers exclusive
  jurisdiction on the EC to review certain
  concentrations -- those having Community
  dimension
• The EC distinguishes concentrations (subject to
  the ECMR) and the acquisition of a noncontrolling
  shareholder, which may be subject to Article 81

58
The ECMRConcentrations

• Includes mergers, acquisitions of control and
  creation of full-function joint ventures
• Acquisition of control may be sole or joint

59
The ECMRCommunity Dimension

• Test 1
• Combined aggregate worldwide turnover of all
  undertakings is more than 5 billion and
• the aggregate Community-wide turnover of at least
  two of the undertakings is more than 250
  million, unless each of the undertakings achieves
  more than 2/3 of its aggregate Community-wide
  turnover in one and the same Member State

60
The ECMRCommunity Dimension

• Test 2
• Combined aggregate worldwide turnover of all
  undertakings is more than 2.5 billion and
• Combined aggregate worldwide turnover of all
  undertakings in each of at least 3 Member States
  is more than 100 million and
• In each of at least 3 Member States, at least 2
  of the undertakings have a turnover of more than
  25 million and . . .

61
The ECMRCommunity Dimension

• Test 2 (continued)
• the aggregate Community-wide turnover of each of
  at least 2 of the undertakings is more than 100
  million
• UNLESS each of the undertakings concerned
  achieves more than 2/3 of its aggregate
  Community-wide turnover within one and the same
  Member State

62
The ECMRCommunity Dimension

• Calculation of turnover includes the undertaking
  involved and its group of companies (subsidiaries
  and affiliates)
• Where only part of a company is bought, only the
  turnover of the parts is considered, rather than
  the turnover of the seller and the group of
  companies to which it belongs

63
The ECMRApplication to Foreign Entities

• The ECMR applies to all transactions within the
  Community, regardless of whether the companies
  concerned are established in the Community

64
The ECMRNotification Procedure

• Notification must be made on Form CO
• Within 1 week of conclusion of the agreement,
  announcement of public bid, or acquisition of
  controlling interest
• Concentration may not be effected before EC
  clearance

65
The ECMRReview Procedure

• EC publishes concentration in the Official
  Journal, inviting comments from third parties
• EC must make decision within one month whether a
  concentration raises serious doubts as to its
  compatibility with the common market
• May be extended to 6 weeks

66
The ECMRReview Procedure

• If the Commission determines that a concentration
  raises serious doubts, it must initiate second
  stage proceedings
• Final decision required within four months after
  opening of second stage

67
The ECMRSubstantive Test

• Concentrations with a Community dimension are
  incompatible with the common market if they
  create or strengthen a dominant position that
  significantly impedes effective competition in
  the Community or a substantial part thereof
• Article 82 market definition concepts apply

68
The ECMRSubstantive Test

• The EC has considered long-range and indirect
  effects of proposed mergers, notably, so-called
  portfolio effects
• The EC appears sometimes to have focused more on
  impact on competitors than on consumers

69
The ECMRClearance

• Clearance may be
• Unconditional
• subject to remedies, such as divestiture,
  termination of exclusive agreements, or granting
  third parties access to infrastructure or
  technology

70
The ECMRFines

• Failure to notify may result in fines of up to
  50,000
• In addition, fines of up to 10 of the turnover
  of the undertakings may be imposed if a
  concentration is implemented without clearance --
  in addition to divestitures ordered to restore
  competition

71
The ECMRThe Merger Task Force

• Separate group within EC to review mergers
• Reviews on average about 300 notifications per
  year

72
The ECMRCourt Review of Merger Decisions

• Theoretically ECMR decisions are subject to
  review by the CFI and ECJ
• In reality, such cases take about 2 to 3 years,
  so court review is regarded generally as
  unavailable from a practical standpoint
• Cf. U.S. preliminary injunction decisions within
  months of H-S-R decisions

73
Conclusions

• Broad concepts and goals of EU competition law
  similar to U.S. antitrust laws
• Significant differences in procedures and
  emphases on certain policy concerns (integration
  of markets, injury to competitors)
• Efforts to seek soft convergence of U.S. and EU
  law underway but difficult (ICN)

74
Thank You
75
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