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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

H. Stephen Harris, Jr.

ALSTON&BIRDLLP

ABA Antitrust SectionSpring Meeting

April 4, 2003


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The EU Basics

  • Created and governed by the EC Treaty, as amended


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Currently 15 members:

Original Members:Belgium Germany FranceItaly LuxembourgNetherlands

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

The EU Basics


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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


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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


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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)


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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


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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


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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


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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


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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


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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


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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


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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


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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


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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


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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


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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


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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


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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)


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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]


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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


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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


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Article 81“Undertakings”

  • Individuals

  • Corporations

  • Partnerships

  • Trade and other associations

  • Unincorporated groups

  • Public bodies


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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


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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”


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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


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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


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Article 81“Prevention, Restriction or Distortion of Competition”

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


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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)


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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)


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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”


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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


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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.)


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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


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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


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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


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Article 81(3)Vertical Exemptions

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


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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.


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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


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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


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Article 82“Dominant position”

  • Product and geographic market definitions are fundamental


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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)


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Article 82Relevant Product Market

  • EC’s 1997 Market Definition Notice requires assessment of:

    • demand-side substitutability

    • supply-side substitutability

    • potential competition


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Article 82Relevant Geographic Market

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


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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.”


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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


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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


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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)


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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


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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”


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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


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Article 82“Abuse”

  • Article 82 prohibits not dominance, but its abuse


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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


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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


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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


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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


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The ECMRConcentrations

  • Includes mergers, acquisitions of control and creation of full-function joint ventures

  • Acquisition of control may be sole or joint


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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


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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 . . .


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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


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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


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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


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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


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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


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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


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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


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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


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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


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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


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The ECMRThe Merger Task Force

  • Separate group within EC to review mergers

  • Reviews on average about 300 notifications per year


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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


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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)