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Introduction to EU Competition Law Universidad de Murcia, 20.2.2015

Dr. Volker Soyez. Introduction to EU Competition Law Universidad de Murcia, 20.2.2015. EU Competition Law. Agenda. Introduction to EU competition law The cartel prohibition (art. 101 (1) TFEU) Exemptions from the cartel prohibition (art. 101 (3) TFEU) Abuse of dominance (art. 102 TFEU)

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Introduction to EU Competition Law Universidad de Murcia, 20.2.2015

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

  2. EU Competition Law Agenda • Introduction to EU competition law • The cartel prohibition (art. 101 (1) TFEU) • Exemptions from the cartel prohibition (art. 101 (3) TFEU) • Abuse of dominance (art. 102 TFEU) • EU competition law procedure (reg. 1/2003) • Private enforcement of EU competition law / damages actions • EU merger control (reg. 139/2004) • Work and life as a competition lawyer (in Brussels) Dr. Volker Soyez 2

  3. EU Competition Law Regulatory goal of the competition laws • „Competition is a situation in a market in which firms or sellers independently strive for the buyers patronage in order to achieve a particular business objective eg. profits, sales or market shares“ WorldBank,1999 • The existence of a free and effective competition is one of the key components of the free market economy • Free competition promotes economic growth, innovation, tecnological progress, and the search for the most efficient production methods • Consumers benefit from free competition in that they can choose from a great variety of products and services which best serve their needs and they receive the best price-quality ratio • Therefore: competition law is set of legal rules which are aimed at protecting the competitive process with the ultimate goal of maximising consumer welfare Dr. Volker Soyez 3

  4. EU Competition Law Pillars of EU competition law • In order to safeguard free competition EU competition law: • Prohibits agreements between companies which restrict competition (art. 101 TFEU) • Prohibits abuses of dominance (art. 102 TFEU) • Imposes a merger control system (reg. 139/2004) • Imposes a state aid control system (art. 107 et seq. TFEU) • EU competition law constrains and complements but does not generally replace national competition law Dr. Volker Soyez 4

  5. EU Competition Law Institutional Framework • Free Trade Area covering 27 markets: “The Common Market” (plus 3 associated states in the EEA) • Treaty based; souvereign powers in certain areas (principle of subsidiarity), e.g. EU competition law enforcement • European Commission: executive body (with legislative role) • European Courts (ECJ / General Court): judicial bodies • European Council and European Parliament: legislative roles • Hearing Officer at EU Commission Dr. Volker Soyez 5

  6. EU Competition Law Sources of EU competition law • Primary law (Treaty): art. 101 and 102 TFEU • Secondary law: reg. 1/2003 (cartel regulation), reg. 139/2004 (merger control regulation); Block Exemption Regulations • Supplementary law: Communications / Guidelines / Decisions of the EU Commission • http://ec.europa.eu/competition/antitrust/legislation/legislation.html • Caselaw of the European Courts in Luxemburg (www.curia.europa.eu) Dr. Volker Soyez 6

  7. EU Competition Law Cartel prohibition, Art. 101 (1) TFEU • „The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which: • (a) directly or indirectly fix purchase or selling prices or any other trading conditions; • (b) limit or control production, markets, technical development, or investment; • (c) share markets or sources of supply; • (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; • (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.“ Dr. Volker Soyez 7

  8. EU Competition Law Cartel prohibition, Art. 101 (1) TFEU ctd. • Agreements between undertakings […] and concerted practices • Under the Community courts’ case-law, an agreement encompasses anything which encapsulates the „faithfulexpression of the joint intention of the parties“, irrespective of its form • Concept of „concerted practice“: „A form of coordination between undertakings which, without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation between them for the risks of competition“ • The ECJ and the Commission have promoted an extensive interpretation of the concepts referred to in art. 101 TFEU • In practice: virtually any type of coordination is caught Dr. Volker Soyez 8

  9. EU Competition Law Cartel prohibition, Art. 101 (1) TFEU ctd. • Key case „Dansk Rorindustri“ • Cartel meeting organised by large competitors; small competitors participated but remained silent and did not implement the anti-competitive agreements. • „It is sufficient for the Commission to show that an undertaking participated in meetings at which anti-competitive agreements were concluded, without manifestly opposing them, to prove to the requisite standard that the undertaking participated in the cartel. Where participation in such meetings has been established, it is for that undertaking to put forward evidence to establish that its participation in those meetings was without any anti-competitive intention by demonstrating that it had indicated to its competitors that it was participating in those meetings in a spirit that was different from theirs. In that regard, a party which tacitly approves of an unlawful initiative, without publicly distancing itself from its content or reporting it to the administrative authorities, effectively encourages the continuation of the infringement and compromises its discovery. That complicity constitutes a passive mode of participation in the infringement which is therefore capable of rendering the undertaking liable in the context of a single agreement.“ Dr. Volker Soyez 9

  10. EU Competition Law Cartel prohibition, Art. 101 (1) TFEU ctd. • Between (independent) undertakings • “The concept of an undertaking encompasses every entity engaged in an economic activity regardless of the legal status of the entity and the way in which it is financed” (ECJ Case 41/90, Höfner and Elsner v Macrotron, para 21) • The involvement of at least two (independent) undertakings, acting in concert, is thus required • According to the EU Courts, a contract between a mother company and its subsidary – which are two legally separate entities – may fall short of art. 101 TFEU • According to the EU Courts, „true“ or „genuine“ agency agreements fall short of art. 101 TFEU Dr. Volker Soyez 10

  11. EU Competition Law Cartel prohibition, Art. 101 (1) TFEU ctd. • Object or effect of restricting competition • Restriction by “Object“: it is not necessary that competition is effectively restricted / that anti-competitive practice has been implemented • Restriction by “Effect”: it is not necessary that the parties intended a restriction of competition • ”restriction of competition” not definable • In practice: non-conclusive catalogue of standard restrictions Dr. Volker Soyez 11

  12. EU Competition Law The most relevant restrictions of competition Dr. Volker Soyez 12

  13. EU Competition Law Cartel prohibition, Art. 101 (1) TFEU ctd. • Restriction of competition must be „appreciable“ • On competition (filter for de facto irrelevant cases) • Commission Notice on Agreements of Minor Importance (“de minimis”) • Market shares: 10% (horizontal) / 15% (vertical) • “hardcore”-restrictions are always appreciable • On trade between Member States (jurisdictional filter) • Sufficient if practice is “capable of constituting a threat, either direct or indirect, actual or potential, to freedom of trade between Member States in a manner which might harm the attainment of the objectives of a single market” • Commission Notice on “Effect on Trade” Dr. Volker Soyez 13

  14. EU Competition Law Exemptions, Art. 101 (3) TFEU • „The provisions of paragraph 1 may, however, be declared inapplicable in the case of any agreement or category of agreements between undertakings,any decision or category of decisions by associations of undertakings,any concerted practice or category of concerted practices, which • contributes to improving the production or distribution of goods or to promoting technical or economic progress, • while allowing consumers a fair share of the resulting benefit, • and which does not: • (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; • (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.“ Dr. Volker Soyez 14

  15. EU Competition Law Exemptions, Art. 101.3 TFEU • Individual exemptions for agreements, which • contribute to improving the production or distribution of goods or to promoting technical or economic progress, • allow consumers a fair share of the resulting benefits, • do not impose restrictions which are not indispensable to the attainment of these objectives, • do not afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products concerned. • Conditions are cumulative; balancing process between pro-competitive and anti-competitive effects; hardcore restrictions unlikely to be exempted; burden of proof lies with the party claiming exemption • Guidelines on the application of art. 101 (3) TFEU Dr. Volker Soyez 15

  16. EU Competition Law Exemptions, Art. 101 (3) TFEU ctd. • Block exemptions: • Art. 101 (3): applies also to categories of agreements = block exemption regulations (BERs) • Block Exemption Regulations (BER) provide “safe harbours” • Definition of agreements in class (e.g. vertical agreements / technology transfer agreements) • Market share thresholds (20-30%) • “Black lists” of prohibited hardcore terms Dr. Volker Soyez 16

  17. EU Competition Law Abuse of Dominance, Art. 102 TFEU • Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States.Such abuse may, in particular, consist in: • (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; • (b) limiting production, markets or technical development to the prejudice of consumers; • (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; • (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. Dr. Volker Soyez 17

  18. EU Competition Law Abuse of Dominance, Art. 102 TFEU • Art 102 prohibits not dominance, but its abuse • Dominance is assessed in the relevant market: “a dominant position is demonstrated by an undertaking’s ability to operate to an appreciable extent independently of its competitors, its customers, and ultimately the consumers in a relevant market.” • Indicators for dominance: • High market shares (>40% = presumption of dominance) • Low market shares of competitors • Financial capacities • Vertical integration • Barriers for market entry Dr. Volker Soyez 18

  19. EU Competition Law Abuse of Dominance, Art. 102 TFEU ctd. • Art. 102 TFEU prohibits • any abuse • within the common market or in a substantial part thereof, to the extent that it may affect trade between Member States • Art. 102 TFEU provides a non-exhaustive list of examples of abuses; EU Commission, CFI and ECJ have found abuses in other circumstances • Examples: • Excessive pricing • Tying / bundling • Predatory pricing Dr. Volker Soyez 19

  20. EU Competition Law Abuse of Dominance, Art. 102 TFEU ctd. • Key case: “Microsoft” – Tying • Microsoft has a near monopoly in PC operating systems (OS). It sells Windows OS to OEM manufactures with “built-in” Microsoft media player. Other customers get Windows without Microsoft media player. Microsoft previously sold Windows to OEMs bundled with a third party media player. Media players are generally offered as a separate software in the market. • Legal test: • two separate products • supplier is dominant in one • sales of two products are tied together • the tie significantly weakens effective competition • there is no objective justification for the tie • Outcome: $ 600 million fine Dr. Volker Soyez 20

  21. EU Competition Law Abuse of Dominance, Art. 102 TFEU ctd. • Key case: “Wanadoo” – Predatory Pricing • On 16 July 2003, the European Commission found that Wanadoo Interactive SA (Wanadoo) had pursued a predatory pricing policy in relation to its Pack eXtense and Wanadoo ADSL services, as part of a plan to exclude competitors in the high speed internet access market. It sold its products below costs. • EU Commission imposes fines of € 10.35 Million. Wanadoo appeals. • The ECJ’s judgment is significant in confirming that, for a finding that a dominant undertaking has breached art. 102 TFEU by pursuing predatory pricing: • (i) it does not need to be demonstrated that the undertaking could recoup its losses • (ii) a dominant undertaking does not have an absolute right to align its prices with those of its competitors Dr. Volker Soyez 21

  22. EU Competition Law Market Definition • Market definition – determines the factual framework for the analysis of market power • Important starting point: Commission Notice on the definition of the relevant market for the purposes of Community competition law (1997) • Relevant product market: • all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of the products‘ characteristics, their prices and their intended use • Method relies on demand substitutability but also supply-side substitutability can be taken into account • Relevant geographical market Dr. Volker Soyez 22

  23. EU Competition Law Art. 101 / 102 TFEU - Procedure • Procedural phases: • Initiation of proceedings • Investigation • Statement of Objections • Access to File • Oral Hearing • Decision / fines • Appeals • “Long and slow” – generally many years Dr. Volker Soyez 23

  24. EU Competition Law Initiation of proceedings - complaints • By customers, competitors, suppliers, or consumer • Art. 7 (2) reg. 1/2003, “Form C”, Commission Notice on the handling of complaints (OJ C 101, 27.04.2004, p. 65-77) • Indicative time frame for preliminary assessment of 4 months; but: right of prioritisation • Additional procedural rights for complainants • Partly access to (non-confidential) version of file • Participation in oral hearing • Right to appeal rejection of complaint Dr. Volker Soyez 24

  25. EU Competition Law Initiation of proceedings – leniency applications • Commission Notice on Immunity from fines and reduction of fines in cartel cases (OJ C 298, 8.12.2006, p. 17–22) • Current source of most decisions • Only applicable to cartels, not applicable to vertical restraints or abuses of dominance • Leniency application: strict formal requirements • Rebate system depending on time of application and value of input: • 100% reduction in fines for first past post • Up to 50% for “significant added value” Dr. Volker Soyez 25

  26. EU Competition Law Investigative powers of the EU Commission • Requests for information (art. 18 reg. 1/2003) • Power to take statements (art. 19 reg. 1/2003) • Inspections / “dawn raids” (art. 20 reg. 1/2003) • enter any premises, land and means of transport • examine the books and other records related to the business, irrespective of the medium on which they are stored • take or obtain in any form copies of or extracts from such books or records; • seal any business premises and books or records for the period and to the extent necessary Dr. Volker Soyez 26

  27. EU Competition Law Investigative powers of the EU Commission • Key case: “E.on” • May 2006: inspection by the EU Commission of E.on's commercial premises in Munich • Documents selected for closer examination were stored in a room. The door of the room was locked and an official Commission seal affixed • When Commission inspectors later returned to the room, they found the seal had been broken • The Commission imposed a fine of € 38 Million (Art. 23 (1) reg. 1/2003) • E.on appeals to GC and finally to ECJ: (i) undue reversal of burden of proof, (ii) disproportionality of fine • The Court of Justice finds: (i) no undue reversal of the burden of proof. Since the Commission had determined that there had been a breach of seal based on a body of evidence, it was for E.on to adduce evidence challenging that finding, (ii) 0.14% of turnover is not disproportionate Dr. Volker Soyez 27

  28. EU Competition Law Investigative powers of the EU Commission • Key case: “Orkem” – Privilege against self-incrimination • EU Commission asked Orkem to provide information about the purpose of certain meetings • ECJ: The Community law imposes certain limitations on the Commission’s powers of investigation: • Certain questions are permitted (“factual questions”) • Certain questions are not permitted (“incriminating questions”), as for instance questions relating to the purpose of the actions taken and the objectives pursued Dr. Volker Soyez 28

  29. EU Competition Law “Fair trial” safeguards • Legal basis: Art. 6 ECHR: “Everyone charged with a criminal offence has the following minimum rights: (a) to be informed promptly, in a language which he understands and in detail, of the nature and cause of the accusation against him; (b) to have adequate time and facilities for the preparation of his defence; (c) to defend himself in person or through legal assistance of his own choosing; [...]” • Statement of Objections (art. 10 reg. 773/2004) • Access to the file (art. 15 reg. 773/2004) • Oral Hearing (art. 12 reg. 773/2004) Dr. Volker Soyez 29

  30. EU Competition Law Decisions, sanctions & settlements • Informal closing of procedure • Finding of inapplicability (art. 10 reg. 1/2003) / informal guidance • Commitment decisions (art. 9 reg. 1/2003) • Prohibition decisions / imposition of behavioural or structural remedies (art. 7 reg. 1/2003) • Imposition of fines on undertakings (art. 23 (2) reg. 1/2003); EU Commission has no competence to impose fines on natural persons (NCAs can) • Settlements (reg. 622/2008) / „Settlement Notice“ (OJ C 167, 2.7.2008, p. 1–6) Dr. Volker Soyez 30

  31. EU Competition Law Calculation of fines • Commission guidelines on the method of setting fines imposed pursuant to art 23(2)(a) of reg. 1/2003(OJ C 210, 1.9.2006, p. 2–5): • Determination of „affected sales“ • Basic amount of the fine based on „gravity” and “duration” of the infringement; possible “entry fee” for hardcore-cartels • Adjustment of the basic amount (aggravating circumstances / mitigating circumstances) • Increase for deterrence / Inability to pay • 10%-rule (art. 23 (2) reg. 1/2003) • Leniency notice Dr. Volker Soyez 31

  32. EU Competition Law Calculation of fines – example • Competitors A and B enter into a price fixing agreement. A initiated the cartel and coerced B to participate. 5 years later the cartel is exposed and the Commission plans to impose sanctions. What amounts will it come up with? • A has annual sales of € 1 billion (€ 50 million with the cartelised product), B of € 10 million (only cartelised product). A was found guilty of a similar cartel offence a couple of years ago. B stopped its participation in the cartel immediately when the Commission investigation started and admitted its involvement to the Commission. Dr. Volker Soyez 32

  33. EU Competition Law Appeals against Commission Decisions • Art. 263 (4) TFEU: “Any natural or legal person may, under the conditions laid down in the first and second paragraphs, institute proceedings against an act addressed to that person or which is of direct and individual concern to them, and against a regulatory act which is of direct concern to them and does not entail implementing measures.” • General Court (former Court of First Instance): art. 257 (1) 1 TFEU • 2 months deadline for filing the appeal: art. 263 (5) TFEU • judicial review only (except fines): art. 31 reg. 1/2003 • Appeals: European Court of Justice (ECJ): art. 257 (1) 2 TFEU • on points of law only Dr. Volker Soyez 33

  34. EU Competition Law Private enforcement of EU competition law • Victims of anti-competitive practices have a right to claim damages; key cases Courage Crehan (ECJ, case C-453/99) / Manfredi (ECJ, case C-295/04) • Stand alone actions vs. follow-on actions • Binding effect of Commission decisions (art. 16.1 reg. 1/2003) and – as the case may be – of decisions by national competition authorities (e.g. section 33 (4) German Act against Restraints on Competition) • Instrumentalisation of complaints • Indirect purchaser standing and passing-on defence • Access to the file / interaction with leniency programs (Pfleiderer, ECJ case – C-360/09) • Directive 2014/104/EU of 26 November 2014 Dr. Volker Soyez 34

  35. EU Competition Law Private enforcement of EU competition law • Collective redress; no “class actions” available throughout the EU; “CDC Model” • Obligation to claim damages for corporations and public bodies • Interaction with public procurement • Compensation as mitigating factor when calculating fines • Limitation periods • Quantification of damages: counterfactual, legal presumptions Dr. Volker Soyez 35

  36. EU Competition Law Private enforcement of EU competition law • Choice of Forum – Brussels I Reg. 1215/2012 • Art. 4 – place of residence / incorporation • Art. 7(2) – place where harmful event occurred • Art. 8(1) – place of any of multiple defendants • Applicable law – Rome II Reg. 864/2007 • Art. 6(3) (a) – the law applicable to a non-contractual obligation arising out of a restriction of competition shall be the law of the country where the market is, or is likely to be, affected • Art. 6(3) b) – when the market is affected in more than one country, the person seeking compensation for damage who sues in the court of the domicile of the defendant, may instead choose to base his or her claim on the law of the court seized Dr. Volker Soyez 36

  37. EU Competition Law EU Merger Control • Concept of merger control • Complexity: (27 +1) merger control regimes throughout the EU (plus international merger control regimes) • Reg. 139/2004 of 20 January 2004 on the control of concentrations between undertakings (EU Merger Regulation / EUMR) • If the EUMR applies, the national rules do not („one-stop-shop“) Dr. Volker Soyez 37

  38. EU Competition Law EU Merger Control - Applicability • Certain turnover based thresholds must be met • worldwide turnover of all parties combined > €5 billion; and each of two or more parties have EU-wide turnover > €250 million, or • worldwide turnover of all parties combined > €2.5 billion; and each of two or more parties have EU-wide turnover of > €100 million; and each of two or more parties have national turnover of > €25 million in at least three EU states • Referrals to the EU Commission may occur if a concentration triggers national merger control rules in 3+ EU Member States Dr. Volker Soyez 38

  39. EU Competition Law EU Merger Control - Procedure • Mandatory notification (Art. 4 EUMR) • Implementation prohibited pending clearance; “gun jumping” • Notification is information heavy (“front loaded”) • mandatory form: Form CO • detailed requirements • pre-filing contact (‘ping-pong’) with EU Commission usual • some ‘short form’ exceptions Dr. Volker Soyez 39

  40. EU Competition Law EU Merger Control – Procedure ctd. • Binding deadlines apply for Commission review (automatic clearance if deadlines not met) (Art. 10 EUMR) • Phase I • 25 working day deadline (in principle) • clearance unless “serious doubts” (~96%) • Phase II • further 90 working day deadline (in principle) • around 25% of Phase II cases cleared unconditionally; around 60% cleared with remedies (see Commission Notice on remedies, Official Journal C 267, 22.10.2008, p. 1-27) • Judicial review (competitors have standing / parties can recover damages (Schneider), “Fast Track” process) Dr. Volker Soyez 40

  41. EU Competition Law EU Merger Control – substantial test • Will a concentration • “significantly impede effective competition” in the EU “SIEC-Test” • in particular by creating or strengthening a dominant position • In practice • analysis generally less economically detailed • greater focus on structural analysis, in particular market shares • more weight given to competitor complaints / concerns • Commission horizontal and non-horizontal guidelines Dr. Volker Soyez 41

  42. EU Competition Law Work & Life as a competition lawyer • Types of assignment • Compliance consulting • Transactional work • Public investigations / defense work • Private antitrust litigation / damages actions • Working hours / holidays / salaries • “Prácticas en Bruselas” Dr. Volker Soyez 42

  43. EU Competition Law Questions / Answers Dr. Volker Soyez 43

  44. EU Competition Law Dr. Volker Soyez • Partner. Admitted to the Cologne (2002) and Brussels (2003) bar • Universities of Frankfurt/Main, Fribourg (CH) and Madrid; PhD 2002 • Founder and Member of the Editorial Board of „Global Competition Litigation Review“ (Sweet & Maxwell / Thompson Publishing, London) • Chair of the working group „Competition Law Compliance“ within the German Association for Corporate Compliance • Owner of state-approved mediation body for competition law disputes • Practice areas: European and German competition law (cartels, merger control, distribution, abuses of dominance, litigation), corporate compliance regarding competition law and EU regulatory law (trade, institutional, regulatory) vs@haver-mailaender.de www.haver-mailaender.de Dr. Volker Soyez

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