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EU Competition Law Overview. H. Stephen Harris, Jr. A LSTON & B IRD LLP ABA Antitrust Section Spring Meeting April 4, 2003. The EU Basics. Created and governed by the EC Treaty, as amended . Currently 15 members: Original Members: Belgium Germany France Italy Luxembourg Netherlands

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eu competition law overview

EU Competition Law Overview

H. Stephen Harris, Jr.


ABA Antitrust SectionSpring Meeting

April 4, 2003

the eu basics
The EU Basics
  • Created and governed by the EC Treaty, as amended
the eu basics3
Currently 15 members:

Original Members:Belgium Germany FranceItaly LuxembourgNetherlands

Additional Members:U.K. Denmark IrelandGreece Spain PortugalAustria Sweden Finland

The EU Basics
the eu basics4
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
the eu basics5
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
the eu basics6
The EU Basics
  • 380 million citizens
  • With 10 new members,
  • population of 445 million
  • Largest integrated market in the world
  • GDP of US$9.46 billion(cf. NAFTA GDP of $11.9 billion)
the eu basics7
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
the eu basics8
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
the eu basics9
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
the eu basics10
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
the eu basics11
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
the eu basics12
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
the eu basics13
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
the eu basics14
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 EC’s powers to issue interim measures (cf. preliminary injunctions) and related procedures
the eu basics15
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
the eu basics16
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
the eu basics17
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
the eu basics18
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
the eu basics19
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
policies underlying eu competition law
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)
principal sources of eu competition law
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]
article 81
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
article 81 undertakings
Article 81“Undertakings”
  • 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
article 81 undertakings24
Article 81“Undertakings”
  • Individuals
  • Corporations
  • Partnerships
  • Trade and other associations
  • Unincorporated groups
  • Public bodies
article 81 agreements arrangements concerted practices
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
article 81 agreements arrangements and concerted practices
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”
article 81 prevention restriction or distortion of competition
Article 81“Prevention, 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
article 81 prevention restriction or distortion of competition28
Article 81“Prevention, 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
article 81 prevention restriction or distortion of competition29
Article 81“Prevention, Restriction or Distortion of Competition”
  • “Appreciable” is decided on a case-by-case basis
article 81 prevention restriction or distortion of competition30
Article 81“Prevention, 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)
article 81 prevention restriction or distortion of competition31
Article 81“Prevention, 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)
article 81 effect on trade between member states
Article 81“Effect 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”
article 81 effect on trade between member states33
Article 81“Effect on Trade Between Member States”
  • ECJ downplays the importance of this element
  • ECJ held sufficient the impact on a company’s ability to establish itself in another Member State, holding that “trade” is not limited to movement of goods and services across borders
article 81 anticompetitive effect or objective
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.)
article 81 3 individual exemptions
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
article 81 3 block exemptions
Article 81(3)Block Exemptions
  • Apply to categories of agreements
  • No notification necessary
  • Examples:
    • certain R&D horizontal agreements
    • specialization horizontal agreements
    • certain IP licensing vertical agreements
article 81 3 horizontal guidelines
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
article 81 3 vertical exemptions
Article 81(3)Vertical Exemptions
  • Reg. 2790/99 creates blacklist, whitelist, and greylist
article 81 3 vertical exemptions39
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.
article 81 penalties
Article 81Penalties
  • Nullification of agreements
  • Declaratory relief ordering cessation of violation
  • Fines
    • EC’s 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
article 82
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
article 82 dominant position
Article 82“Dominant position”
  • Product and geographic market definitions are fundamental
article 82 relevant product market
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)
article 82 relevant product market44
Article 82Relevant Product Market
  • EC’s 1997 Market Definition Notice requires assessment of:
    • demand-side substitutability
    • supply-side substitutability
    • potential competition
article 82 relevant geographic market
Article 82Relevant Geographic Market
  • An area in which the conditions of competition applying to the product concerned are sufficiently homogeneous for all traders (ECJ)
article 82 relevant geographic market46
Article 82Relevant Geographic Market
  • The EC’s 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.”
article 82 relevant geographic market47
Article 82Relevant Geographic Market
  • Factors considered under the EC’s 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
article 82 relevant geographic market48
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
article 82 dominance
Article 82Dominance
  • 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. (ECJ)
article 82 dominance50
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
article 82 dominance51
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”
article 82 collective dominance
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
article 82 abuse
Article 82“Abuse”
  • Article 82 prohibits not dominance, but its abuse
article 82 abuse54
Article 82“Abuse”
  • 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
article 82 abuse55
Article 82“Abuse”
  • The EC, CFI and ECJ have found abuses in other circumstances, including:
    • refusals to supply
    • refusals to license
    • rebate schemes
    • exclusive dealing
    • predatory pricing
article 81 penalties56
Article 81Penalties
  • Declaratory relief ordering cessation of violation
    • Fines (same as Article 81)EC’s 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
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
the ecmr concentrations
The ECMRConcentrations
  • Includes mergers, acquisitions of control and creation of full-function joint ventures
  • Acquisition of control may be sole or joint
the ecmr community dimension
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
the ecmr community dimension60
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 . . .
the ecmr community dimension61
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
the ecmr community dimension62
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
the ecmr application to foreign entities
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
the ecmr notification procedure
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
the ecmr review procedure
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
the ecmr review procedure66
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
the ecmr substantive test
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
the ecmr substantive test68
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
the ecmr clearance
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
the ecmr fines
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
the ecmr the merger task force
The ECMRThe Merger Task Force
  • Separate group within EC to review mergers
  • Reviews on average about 300 notifications per year
the ecmr court review of merger decisions
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
  • 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)