SPEECH/00/466
Mario Monti
Commissioner responsible for Competition Policy
The
application
of
Community
competition law by the national courts
Conference at the Europäische Rechtsakademie - "Towards the
Application of Article 81(3) by National Courts"
Trier, 27 November 2000
Introduction
Mr President of the Court of First Instance, Mr Minister, President Vesterdorf,
honourable judges, ladies and gentlemen,
I am delighted to make the opening statement at this important conference, which
has brought together so many eminent judges from the Community Courts and the
national courts to discuss important issues of Community competition law.
We are here today because the winds of change are blowing across the European
landscape of competition law enforcement. Changes that – if the Commission has
its way – will enable the national courts to play a much greater role in the application
of Articles 81 and 82.
In our view the national courts should indeed play the same important role in the
application of the competition rules as they have done for a long time in virtually all
other areas of Community law. That is why the Commission has proposed to abolish
its monopoly over the exception rule of Article 81(3) and give to the national courts
the power to apply Article 81 as a whole. In other words, the Commission proposes
to eliminate the current division of competence whereby the national courts are
competent to apply Article 81(1) whereas the Commission has exclusive
competence to apply Article 81(3).
The present division of competence amounts to telling someone to play chess while
giving him only half the pieces. The result is clear: there has in the past been limited
application of Article 81(1) by national courts.
We are well aware that our proposal represents a fundamental change. It is
therefore only natural that questions are raised: is Article 81(3) suitable for
application by the national courts, how will they tackle economic evidence and how
do we ensure consistency when the rules are applied by potentially hundreds of
courts throughout the Community. These and other topics will be discussed today
by the three panels.
The function of the courts in the proposed new system
When designing the proposed reform our principal objective has been to strengthen
the enforcement of the Community competition rules.
The present system is essentially based on public enforcement by the Commission.
However, in a mature competition law system such as ours, private enforcement
should play an important role. Already in 1962 in the groundbreaking judgement in
Van Gend en Loos the Court of Justice recognised the importance of private
enforcement in the field of Community law by holding that Treaty provisions can
have direct effect and be invoked by private individuals before the courts. The time
has now come to make this possible for Article 81 as a whole. Courts complement
the activities of the competition authorities that have as their main task the
prosecution of violations of the competition rules. Moreover, private enforcement
can compensate for insufficient enforcement by the authorities.
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In the US private enforcement plays a substantial role. There are well over 1000
private antitrust suits per year far exceeding the number of cases brought by the
authorities1. The much discussed Kodak judgement of the Supreme Court was
rooted in a private action. The same is true of that court’s more recent judgement in
State Oil vs. Kahn that overruled the case law that had treated maximum resale
price maintenance as a per se violation of the Sherman Act.
I am not saying that we should strive to copy the US system. Far from it. They have
treble and punitive damages and other instruments that promote private litigation. In
Europe we do not. The US experience demonstrates, however, that private action
before the courts can play a significant role in the field of competition law
enforcement.
Courts have powers that the competition authorities have not. Only they can decide
on the enforceability of contracts and can award damages to parties that have been
injured by antitrust violations. Courts can also adopt interim measures more
speedily than the authorities.
From an enforcement point of view the power to grant damages is particularly
important because it raises the stakes for companies violating the competition rules.
It is therefore essential that national procedural and substantive rules applying to
actions for damages do not prevent or make claims for damages in competition
cases unduly difficult. This is an area that we may have to revisit in the future. I
would be very interested in hearing your views on the issue of damages in antitrust
cases and whether in your respective legal systems there are particular difficulties
and, if so, how they might be overcome.
The role of economics
Following our proposal to empower the national courts to apply Article 81 as a
whole, we often hear the argument, particularly from industry, that judges are ill
equipped to apply economic principles.
We disagree. Judges in the US can and do apply economics in competition cases.
In our view European judges are no less capable than their American counterparts.
The question is not whether judges can all do it today but whether they can learn to
do it. Of course they can. After all, national courts have for a long time been
applying Articles 82 and 86, which have direct effect and raise many complex
economic issues.
However, new skills will no doubts have to be acquired. It is essential that training
courses on competition law and economics be made available to judges. This is
offered even in the US, which has had a long tradition of private enforcement
through the courts.
Training courses for judges on Community law in general already exist in Europe. I
understand that each year a number of national judges are invited to the Court of
Justice to learn about recent developments in Community law. Member States also
provide such training, in some cases funded by the Schumann Programme.
1
See W.F. Shughart II, The Organisation of Industry, second edition, 1997, Dame Publications, p.
346.
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I believe that in this area the Member States should indeed take the lead in
developing the necessary programmes. However, in the new spirit of close
cooperation the Commission should be associated and I will certainly make my
services available for participation in any such training programmes.
In the field of competition law economics is an unavoidable companion. Competition
law is economic law. It regulates the conduct of economic operators in the markets.
Economics do and should play an important role in the application of the rules. The
use of economics greatly increases the likelihood of arriving at a result, which is
consistent with the aims of the competition rules. Their aims is not just to prohibit
certain categories of agreements and practices but to prohibit agreements and
practices that produce or are likely to produce negative economic effects for society
and consumers. The rules and their application must therefore be founded on
sound economic principles.
The fact remains, however, that economic principles have to be applied in a legal
framework. Economic law is still law.
The fact that there is a rich debate in economic theory does not mean that the law is
inherently unpredictable and that it changes very frequently. Competition law is like
a watch. Most people are quite happy with their watch and only consider changing it
if it ceases to tell the time accurately or a clearly superior watch is offered to them.
The same is true of competition law. New economic theories are only taken on
board when they have proven their case. Judges play a tempering role by ensuring
that the experts do not get carried away. There is much common sense involved in
the application of competition law, as in most other areas of the law, and judges
generally possess quite a lot of common sense.
Moreover, one should not exaggerate the complexity of basic antitrust economics.
As a former professor of economics I cannot resist the temptation of reminding us
all in a few words the very basic framework that has existed and been applied ever
since Adam Smith discovered that invisible hands were at work in the economy.
Competition law aims to protect competition. The underlying premise is that markets
in which there is effective competition will produce better products at lower prices
than markets in which there is no effective competition. Resources are allocated
and used more efficiently and consumers get more value for their money.
The price in an unregulated market is determined by the level of supply and
demand. If supply exceeds demand, the suppliers will reduce their price in order to
attract more consumers. If demand exceeds supply the opposite will happen. Prices
will rise thereby reducing the number of consumers willing to purchase the product
and/or the quantities they are willing to buy. If the suppliers voluntarily reduce their
output the market price increases.
Companies in competitive markets have no or little power to individually influence
the market price by altering their output. They are price takers and produce until the
costs of producing one more unit of output exceeds the price that they can get for it.
Firms respond to the law of supply and demand in the following way: when output
exceeds demand producers who do not cover their costs will reduce their output or
exit the market until the market is again in balance and until suppliers cover their
costs and obtain normal profits. When demand exceeds output, suppliers obtain
higher than normal profits. These higher profits encourage suppliers to produce
more. They also attract new suppliers into the market. This process will continue
until the market is again in balance.
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In the case of monopoly or dominant firms the situation is different. The monopolist
or dominant firm is not a price taker. Since it is the dominant supplier in the market
the level of output that it chooses has a direct impact on the price. The more it sells
the lower the price for all the products sold. A rational monopolist will normally want
to maximise its profits.
The quantity produced by the monopolist will be less than the output produced
under effective competition and herein lies the foundation of competition law.
Agreements and practices can enable firms to raise prices above the competitive
level by reducing output and supply. This ability is what normally is referred to as
market power.
Once this basic framework is grasped, it is in my view possible for lawyers to
understand and assess arguments on whether or not an agreement or practice is
apt to produce undesirable effects and for economists to explain in a
comprehensible way why that is so.
We should not forget the role of the judge in the context of private litigation. The
judge decides on disputes between normally two parties, which each have to make
their case before the judge. The party providing the best evidence and the best
arguments wins. The standard of proof is one of probabilities and not one of beyond
reasonable doubt. Moreover, we propose to maintain the current allocation of the
burden of proof according to which the party invoking the prohibition rule must prove
the conditions of Article 81 (1) and the party invoking the benefit of the exception
rule must prove that the conditions of Article 81(3) are fulfilled. Faced with these
realities the parties have a clear incentive to put forward all evidence and arguments
in their favour.
Normally, the judge will also have it in his power to require one or more experts to
give an opinion. Economic experts can play a role in competition cases in the same
way that engineers and other experts play a role in cases concerning sales of
defective machinery or real estate.
The basic framework exists and is suitable for application in competition cases.
Arguments according to which competition law is unique and unlike any other field
of law are misleading and exaggerated. They are generally made by experts who,
because they are experts on and devoted to competition law, are less proficient in
other areas. The advantage of judges is that they do not only apply competition law
but many other laws and therefore have a broader view of the world.
The content of Article 81(3)
Let me now turn briefly to the main topic of today’s conference namely Article 81(3).
In other words, the pieces of the chess game that so far have been reserved for the
Commission.
It is argued by some that due to its very nature Article 81(3) is unsuitable for
application by judges and should therefore be reserved if not for the Commission
then for competition authorities. As you know the Commission does not share this
view.
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Being rules of economic law Articles 81(1), 81(3) and 82 inevitably accord a certain
margin of appreciation, which is also found in other areas of Community law such
as the free movement of goods. This margin, however, is not discretion and does
certainly not imply that the rules are unsuitable for application by the courts.
However, in stead of making a full legal argument in support of this position, I would
like simply to outline the basic framework of Article 81(3). I am confident that it will
have a familiar ring to many of you, even if you have yet to apply it in practice.
Article 81(3) acknowledges that not all agreements restricting competition between
the parties or from third parties are bad for society and consumers. Some
agreements may produce benefits that fully compensate for their negative effects
on competition. These benefits can consist of lower costs, new products or services
or products or services of a better quality.
The basic idea is the same as in the field of free movement of goods. Some State
measures that restrict trade between Member States can be justified if they produce
benefits such as the protection of health or the environment.
It is clear that assessments of this nature are not an exact science. They imply a
certain amount of value judgement. However, value judgements are a fact of life in
many areas. Judge Spiritus-Dassesse, who is one of our panellists, stated very
pertinently at a recent conference that the role and function of the judge has
changed considerably over the years and that judges are ever more often faced
with complex economic realities. The best response to complexity is in my view
common sense and a sound methodology.
The important goal of promoting consumer welfare is reflected in the second
condition of Article 81(3), according to which consumers must receive a fair share of
the benefits that result from the agreement. If, for example, an agreement improves
the quality of goods and services these gains must be such as to compensate for
any increase in price caused by the agreement.
According to the third condition it must be assessed whether the restriction is
indispensable to achieve the perceived benefits or whether there are less restrictive
means to achieve the benefits. This is a proportionality test. National courts are
required to perform similar tests in many other areas of Community law. When
applying the free movement of goods rules, courts must also examine whether a
restriction is excessive and whether there are less restrictive means to achieve the
same benefits.
Under the fourth and last condition of the exception rule the agreement must not
afford the undertakings the possibility of eliminating competition. This condition
essentially implies a dominance test equivalent to that which national courts are
currently required to apply under Article 82. I do not need to remind you that Article
82 is directly applicable and has been applied by the national courts for a long time.
This fourth condition therefore adds nothing new to the existing responsibilities of
national courts.
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Consistent application in the new system
I would like to end my intervention this morning by saying a few words about the
issue of coherent application in the proposed new decentralised system.
The risk of inconsistent application emerged as one of the main concerns following
the publication of the White Paper. Being the guardian of the Treaty the
Commission quite naturally attaches great importance to the maintenance of
coherence and has included a number of instruments in the proposal that aim to
promote coherent application of Articles 81 and 82. They complement existing
instruments such as the preliminary reference procedure contained in Article 234 of
the Treaty and the Brussels Convention on Jurisdiction and the Enforcement of
Judgements in Civil and Commercial Matters. The Brussels Convention designates
a limited number of courts that are competent to hear a case thereby limiting the
scope for forum shopping. Here I will only mention that the parties to an agreement
can make an express choice of forum, which then has exclusive competence to
hear disputes between the parties.
Some of the instruments included by the Commission in its proposal concern the
national courts and their relationship with the Commission. I am here thinking in
particular of Article 15 of the Commission’s proposal. We intend to elaborate on
these instruments in a new communication on the cooperation between the national
courts and the Commission.
Article 15 first of all formalises the current practice of providing opinions to national
courts if they so request. We believe that this instrument will be very useful in the
new system and we want to strengthen it by setting out a deadline for reply in the
future new communication.
Let me be clear, however, this instrument is not conceived as a substitute for the
preliminary reference procedure of Article 234 of the Treaty. On questions of legal
interpretation national courts will and should continue to turn to the Court of Justice
or to the Court of First Instance if this Court is made competent for Article 234
questions in the field of competition. The preliminary reference procedure will play a
crucial role in maintaining coherent application throughout the Community as it has
done since the very beginning in all other areas of Community law.
As is currently the case, Commission assistance will take the form of information or
opinions concerning individual cases. National courts may want, in particular, to ask
questions on economic issues such as market definition or the application Article
81(1) or (3) to a particular set of facts.
In Article 15 the Commission has also proposed that it and the national competition
authorities should have the power to make written and oral submissions as amicus
curiae before national courts. In some Member States, (for instance in Germany),
the national competition authorities already have the power to make such
submissions before their courts.
In the case of the Commission this power would be limited to cases presenting a
Community public interest. Such an interest would in particular exist in cases raising
important issues of coherence as regards competition policy. The Commission
would not intervene on behalf of anyone of the parties but would present its opinion
in the interest of a coherent application of the law.
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Moreover, it is clear that any submission made by the Commission would not be
binding on national courts. We would hope, however, that in case of fundamental
disagreement the national court would consider making a reference to the Court of
Justice in order to obtain the view of the highest judicial authority in the Community.
Special considerations apply in cases where the Commission has adopted a formal
decision in the same case. In such event the national courts cannot just disregard
the Commission’s decision. Under the proposal they are obliged to use every effort
not to contradict it. The national courts can, of course, always comply with this
obligation by making a preliminary reference to the Court of Justice.
I fully realise that these issues are sensitive ones due to the independence of the
courts. I can assure you that we have no intention of or indeed interest in interfering
with this fundamental principle. I firmly believe, however, that our proposal fully
respects this principle. Indeed, as I have mentioned some national competition
authorities already have the power to make submissions before their courts and the
Commission itself makes submissions in all cases before the Community Courts.
Some of you might take the view that the Commission should stay in Brussels and
not leave its institutional framework. However, in my view this would be an
opportunity lost. The Commission’s reform proposal is based on the idea that there
should be more cooperation and interaction between all decision-makers applying
Articles 81 and 82. This is important to develop a truly common competition culture
in the Community.
Moreover, it is my personal conviction that it is essential for the general acceptance
of Community competition law that it be brought closer to the citizen. The main
instrument in this respect is obviously decentralised application of the competition
rules. However, it is also important that the central authority, which is and remains
competent to apply Articles 81 and 82 throughout the Community, is made more
visible at national level. Putting a face on the bureaucracy may facilitate future
contacts and encourage national judges to ask information from the Commission.
Access to the Commission should not be reserved to a limited number of Brussels
lawyers. We are here to make a new beginning and not just repeat the familiar
patterns of the past.
Conclusion
Honourable judges, ladies and gentlemen,
Let me now conclude: The full application of the Community competition rules by
the national courts constitutes an essential element of the Commission’s proposal
for reforming the current enforcement system. The time has come to eliminate the
limitation of competence for judges introduced by Regulation 17. As judge Lenaerts
rightly said at a recent conference, the system is ripe for change, what we need now
is to discuss what are the best solutions.
I am confident that today’s discussions will be very fruitful and bring us forward in
devising the best possible system for the years to come. We have a common
interest in ensuring a smooth transition and the maintenance of coherent application
of Articles 81 and 82 throughout the Community.
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