EU Competition Law Overview
H. Stephen Harris, Jr.
ALSTON&BIRDLLP
ABA Antitrust Section
Spring Meeting
April 4, 2003
The EU Basics
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Created and governed by the EC
Treaty, as amended
The EU Basics
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Currently 15 members:
Original Members:
Belgium
Germany
Italy
Luxembourg
Netherlands
Additional Members:
U.K.
Denmark
Greece
Spain
Austria
Sweden
France
Ireland
Portugal
Finland
The EU Basics
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10 new members to join May 1, 2004
Czech Republic
Hungary
Poland
Slovakia
Slovenia
Latvia
Estonia
Lithuania
Cyprus (Greek controlled portion)
Malta
The EU Basics
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Turkey to join “without delay” if it
meets criteria during December,
2004 review
Bulgaria and Romania “on track” to
join by 2006
The EU Basics
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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 Basics
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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
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The Council of European Communities
(the “Council”)
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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 Basics
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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
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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
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Structure of the Commission
President
 Secretariat-General
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Traditional Competition Concerns
Maximizing efficiency
 Protecting consumers from collusion
and other restraints on free competition
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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
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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
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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”
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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
“Undertakings”
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Individuals
Corporations
Partnerships
Trade and other associations
Unincorporated groups
Public bodies
Article 81
Agreements, Arrangements &
Concerted practices
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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
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“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”
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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”
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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 Competition”
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“Appreciable” is decided on a caseby-case basis
Article 81
“Prevention, Restriction or
Distortion of Competition”
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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”
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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”
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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 States”
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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
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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
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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
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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
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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
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Reg. 2790/99 creates blacklist,
whitelist, and greylist
Article 81(3)
Vertical Exemptions
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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 81
Penalties
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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
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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”
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Product and geographic market
definitions are fundamental
Article 82
Relevant Product Market
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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 Market
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EC’s 1997 Market Definition Notice
requires assessment of:
demand-side substitutability
 supply-side substitutability
 potential competition
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Article 82
Relevant Geographic Market
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An area in which the conditions of
competition applying to the product
concerned are sufficiently
homogeneous for all traders (ECJ)
Article 82
Relevant Geographic Market
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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 Market
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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 82
Relevant Geographic Market
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Relevant market must be the
common market or a substantial
portion of it
pattern and volume of production
considered
 territory of a single Member State
(or group of contiguous states) often
recognized as substantial part
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Article 82
Dominance
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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
Dominance
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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
Dominance
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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
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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”
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Article 82 prohibits not dominance,
but its abuse
Article 82
“Abuse”
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Article 82(3) provides a nonexhaustive 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”
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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 81
Penalties
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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
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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
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Includes mergers, acquisitions of
control and creation of full-function
joint ventures
Acquisition of control may be sole or
joint
The ECMR
Community Dimension
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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 ECMR
Community Dimension
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Test 2:
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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 Dimension
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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 ECMR
Community Dimension
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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
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The ECMR applies to all transactions
within the Community, regardless of
whether the companies concerned
are established in the Community
The ECMR
Notification Procedure
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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
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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 Procedure
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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
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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 Test
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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
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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 ECMR
Fines
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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
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Separate group within EC to review
mergers
Reviews on average about 300
notifications per year
The ECMR
Court Review of
Merger Decisions
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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
Conclusions
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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)
Thank You