LUMSA – International Commercial Law
COMPETITION LAW – GENERAL PRINCIPLES
Competition law is law that promotes or seeks to
maintain market competition by regulating anti-competitive
conduct by companies.
It is implemented through Public and Private Enforcement .
Competition law is known as antitrust law in the United
States and anti-monopoly law in China and Russia. In previous
years it has been known as trade practices law in the United
Kingdom and Australia.
LUMSA – International Commercial Law
COMPETITION LAW – GENERAL PRINCIPLES
European Union competition law arose out of the desire to
ensure that the efforts of government could not be distorted
by corporations abusing their market power. Hence under the
treaties are provisions to ensure that free competition
prevails, rather than cartels and monopolies sharing out
markets and fixing prices. Competition law in the European
Union has some similarities with the law in the United
States antitrust, though there are some key differences.
LUMSA – International Commercial Law
COMPETITION LAW – GENERAL PRINCIPLES
Four main policy areas include:
1. Cartels, or control of collusion and other anti-competitive
practices that affect the EU (or, since 1994, the European
Economic Area). This is covered under Articles 101 of the
Treaty on the Functioning of the European Union(TFEU).
LUMSA – International Commercial Law
COMPETITION LAW – GENERAL PRINCIPLES
Four main policy areas include:
2) Market Dominance, or preventing the abuse of firms'
dominant market positions. EU law can apply for "dominant"
market players with as little as 38% market share, compared
to the US where a market share of 60%+ is usually required
to trigger intervention. This is governed by Article 102 TFEU.
This article also gives rise to the Commission's authority
under the next area.
LUMSA – International Commercial Law
COMPETITION LAW – GENERAL PRINCIPLES
Four main policy areas include:
3) Mergers, control of proposed mergers, acquisitions and joint
ventures involving companies that have a certain, defined
amount of turnover in the EU/EEA.
This is governed by the Council Regulation 139/2004 EC (the
Merger Regulation);
LUMSA – International Commercial Law
COMPETITION LAW – GENERAL PRINCIPLES
Four main policy areas include:
4) State aid, control of direct and indirect aid given by Member
States of the European Union to companies. Covered under
Article 107 of the Treaty on the Functioning of the European
Union (TFEU), which now supersedes the Treaty Establishing
the European Community (TEC).
Article 107 of the TFEU is equivalent to Article 87 of the TEC.
LUMSA – International Commercial Law
COMPETITION LAW – STATE AID
This last point is a unique characteristic of the EU competition
law regime. As the EU is made up of independent member
states, both competition policy and the creation of the
European single market could be rendered ineffective were
states free to support national companies as they saw fit.
A 2013 report lists some of the artifices used by participants
to skirt the state aid rules on procurement. Primary authority
for applying EU competition law rests with European
Commission and its Directorate General for Competition,
although state aids in some sectors, such as transport, are
handled by other Directorates General.
LUMSA – International Commercial Law
COMPETITION LAW – STATE AID
The Directorates can mandate that improperly-given state aid
be repaid, as was the case in 2012 with Malev Hungarian
Airlines.
On 1 May 2004 a decentralised regime for antitrust came into
force to increase application of EU competition law by
national competition authorities and national courts.
LUMSA – International Commercial Law
ART. 101 OF TFEU
Under EU law cartels are banned by Article 101 TFEU.
Art. 101 TFEU makes clear who the targets of competition law
are in two stages with the term agreement "undertaking".
This is used to describe almost anyone engaged in an
economic activity, but excludes both employees, who are by
their very nature the opposite of the independent exercise of
an economic or commercial activity, and public services based
on solidarity for a social purpose.
LUMSA – International Commercial Law
ART. 101 OF TFEU
Undertakings must then have formed an agreement,
developed a "concerted practice", or, within an association,
taken a decision. Like US antitrust, this just means all the
same thing; any kind of dealing or contact, or a "meeting of
the minds" between parties. Covered therefore is a whole
range of behaviour from a strong handshaken, written or
verbal agreement to a supplier sending invoices with
directions not to export to its retailer who gives "tacit
acquiescence" to the conduct
LUMSA – International Commercial Law
COMPETITION LAW – GENERAL PRINCIPLES
Article 101 of TFEU
1. 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) 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;
LUMSA – International Commercial Law
COMPETITION LAW – GENERAL PRINCIPLES (Art. 101)
(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.
LUMSA – International Commercial Law
COMPETITION LAW – GENERAL PRINCIPLES (Art. 101)
2. Any agreements or decisions prohibited pursuant to this
Article shall be automatically void.
3. 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,
LUMSA – International Commercial Law
COMPETITION LAW– GENERAL PRINCIPLES (Art. 101)
• 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
LUMSA – International Commercial Law
COMPETITION LAW– GENERAL PRINCIPLES (Art. 101)
This includes both horizontal (e.g. between retailers) and
vertical (e.g. between retailers and suppliers) agreements,
effectively outlawing the operation of cartels within the EU.
Article 101 has been construed very widely to include both
informal agreements (gentlemen's agreements) and
concerted practices where firms tend to raise or lower prices
at the same time without having physically agreed to do so.
LUMSA – International Commercial Law
COMPETITION LAW– GENERAL PRINCIPLES (Art. 101)
However, a coincidental increase in prices will not in itself
prove a concerted practice, there must also be evidence that
the parties involved were aware that their behaviour may
prejudice the normal operation of the competition within the
common market.
This latter subjective requirement of knowledge is not, in
principle, necessary in respect of agreements
LUMSA – International Commercial Law
COMPETITION LAW– GENERAL PRINCIPLES (Art. 101)
As far as agreements are concerned the mere anticompetitive
effect is sufficient to make it illegal even if the parties were
unaware of it or did not intend such effect to take place.
Exemptions to Article 101 behaviour fall into three categories.
LUMSA – International Commercial Law
COMPETITION LAW– GENERAL PRINCIPLES (Art. 101)
Firstly, Article 101(3) creates an exemption for practices
beneficial to consumers, e.g., by facilitating technological
advances, but without restricting all competition in the area.
In practice the Commission gave very few official exemptions
and a new system for dealing with them is currently under
review.
LUMSA – International Commercial Law
COMPETITION LAW– GENERAL PRINCIPLES (Art. 101)
Secondly, the Commission agreed to exempt 'Agreements of
minor importance' (except those fixing sale prices) from
Article 101.
This exemption applies to small companies, together holding
no more than 10% of the relevant market. In this situation as
with Article 102 (see below), market definition is a crucial, but
often highly difficult, matter to resolve.
LUMSA – International Commercial Law
COMPETITION LAW– GENERAL PRINCIPLES (Art. 101)
Thirdly, the Commission has also introduced a collection of
block exemptions for different contract types.
These include a list of contract permitted terms and a list of
banned terms in these exemptions.
LUMSA – International Commercial Law
COMPETITION LAW – GENERAL PRINCIPLES (Art. 102)
Article 102
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 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;
LUMSA – International Commercial Law
COMPETITION LAW – GENERAL PRINCIPLES (Art. 102)
Article 102
(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.
LUMSA – International Commercial Law
COMPETITION LAW – GENERAL PRINCIPLES (Art. 102)
Article 102 of the TFEU is aimed at preventing undertakings who
hold a dominant position in a market from abusing that position.
Its core role is the regulation of monopolies, which restrict
competition in private industry and produce worse outcomes for
consumers and society.
LUMSA – International Commercial Law
COMPETITION LAW – GENERAL PRINCIPLES (Art. 102)
Dominance
First it is necessary to determine whether a firm is dominant, or
whether it behaves to an appreciable extent independently of its
competitors, customers and ultimately of its consumer.
Under EU law, very large market shares raise a presumption that
a firm is dominant, which may be rebuttable.
Where a firm has a dominant position, it has a special
responsibility not to allow its conduct to impair competition on
the common market.
LUMSA – International Commercial Law
COMPETITION LAW – GENERAL PRINCIPLES (Art. 102)
Market definition
Market shares are determined with reference to the "relevant
market" in which the firm and product in question is offered.
Market definition refers to the delineation of this relevant
market. It is an essential part of a competition case under Art.
102. If the market is defined too widely then it will contain more
firms and supposedly substitutable products, preventing a
finding of a dominant position. If the market is defined too
narrowly then there might be an incorrect presumption that the
company is dominant. There are various ways to define whether
a company is dominant.
LUMSA – International Commercial Law
COMPETITION LAW – GENERAL PRINCIPLES (Art. 102)
The product market
What other products or services might consumers switch to?
There is the 'hypothetical monopolist' test which is whether a
small but significant increase in price is likely be allowed by the
hypothetical monopolist company to profit from this. If
consumers can and would move away from the hypothetical
monopolist's product and onto other products then their market
is more widely defined.
There is also the 'intuitive approach', which focuses on brand
loyalty and the use of the products.
The Commission's Notice on the Definition of the Relevant Market
is a mixture of the two above approaches, with the hypothetical
monopolist having more importance.
LUMSA – International Commercial Law
COMPETITION LAW – GENERAL PRINCIPLES (Art. 102)
The geographical market
What other products or services might consumers switch to?
There is the 'hypothetical monopolist' test which is whether a
small but significant increase in price is likely be allowed by the
hypothetical monopolist company to profit from this. If
consumers can and would move away from the hypothetical
monopolist's product and onto other products then their market
is more widely defined.
There is also the 'intuitive approach', which focuses on brand
loyalty and the use of the products.
The Commission's Notice on the Definition of the Relevant Market
is a mixture of the two above approaches, with the hypothetical
monopolist having more importance.