LUMSA – International Commercial Law 30 October 2015 Prof. Avv. Roberto Pirozzi Email: [email protected] LUMSA – International Commercial Law COMPETITION LAW– GENERAL PRINCIPLES (Art. 101) 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 behavior 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 behavior 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) Defining the relevant market is essential for assessing dominance, because a dominant position can only exist on a particular market. Product market: the relevant product market is made of all products/services which the consumer considers to be a substitute for each other due to their characteristics, their prices and their intended use. Geographic market: the relevant geographic market is an area in which the conditions of competition for a given product are homogenous. LUMSA – International Commercial Law COMPETITION LAW – GENERAL PRINCIPLES (Art. 102) Market shares are a useful first indication of the importance of each firm on the market in comparison to the others. The Commission's view is that the higher the market share, and the longer the period of time over which it is held, the more likely it is to be a preliminary indication of dominance. If a company has a market share of less than 40%, it is unlikely to be dominant. LUMSA – International Commercial Law COMPETITION LAW – GENERAL PRINCIPLES (Art. 102) The Commission also takes other factors into account in its assessment of dominance, including the ease with which other companies can enter the market – whether there are any barriers to this; the existence of countervailing buyer power; the overall size and strength of the company and its resources and the extent to which it is present at several levels of the supply chain (vertical integration). LUMSA – International Commercial Law COMPETITION LAW – PROCEEDINGS RE Art. 101 Article 101 cases can originate in: 1) a complaint, 2) opening of an own–initiative investigation, or 3) a leniency application from one of the participants to a cartel. Under the Commission's Leniency programme, the first firm to submit evidence that is sufficient for the Commission to either launch an inspection or enable it to find an infringement receives full exemption from its fine (total immunity). Firms that approach the Commission later and that contribute a real added value to the investigation are eligible for a fine reduction, subject to the same on-going cooperation as for immunity applicants. LUMSA – International Commercial Law COMPETITION LAW – PROCEEDINGS RE Art. 101 The Commission is empowered, for example, 1) to send information requests to companies; In the context of an inspection: – enter the premises of companies; – examine the records related to the business; – take copies of those records; – seal the business premises and records during an inspection; – ask members of staff or company representatives questions relating to the subject-matter and purpose of the inspection and record the answers. LUMSA – International Commercial Law COMPETITION LAW – PROCEEDINGS RE Art. 101 At the end of the initial investigative phase, the Commission can take the decision to pursue the case as a matter of priority and to conduct an in-depth investigation, or to close it. In cartel cases, if the case is to be pursued, the Commission decides whether or not the case is suitable for the settlement procedure (see "Settlement" below). LUMSA – International Commercial Law COMPETITION LAW – PROCEEDINGS RE Art. 101 Statement of objections and prohibition decision If the in-depth investigation confirms the Commission's competition concerns, a statement of objections (SO) detailing the Commission's concerns is sent to the companies concerned. Rights of defence: They are entitled to have access to the file – this means they can see all non-confidential documents from the Commission's investigation. The parties may then reply to the SO in writing within a certain delay. They may also request an oral hearing, which is conducted by an independent Hearing Officer. After examining the parties' arguments, the Commission reviews and sometimes abandons (part of) its initial objections and may decide to close the case. LUMSA – International Commercial Law COMPETITION LAW – PROCEEDINGS RE Art. 101 If the Commission's concerns are not – or only partly dispelled – it drafts a decision prohibiting the identified infringement (according to Article 7 of the Antitrust Regulation). The draft is then submitted to the Advisory Committee composed of representatives of the Member States' competition authorities. This provides a final check of the draft decision. If fines are proposed in the draft decision, the Advisory Committee meets a second time to specifically discuss them. Finally, the draft is submitted to the College of Commissioners which adopts the decision. LUMSA – International Commercial Law COMPETITION LAW – PROCEEDINGS RE Art. 101 Article 9 commitment decisions Alternatively to a prohibition decision the Commission may take a commitment decision under Article 9 of Regulation 1/2003. This is a quick way of restoring effective competition to the market. Under commitment decisions, the Commission does not have to conclude on the existence of an infringement of the antitrust rules and imposes no fines. It voices its competition concerns and parties can come forward with commitments to address these concerns. If the Commission, after consulting market participants, finds these commitments sufficient, it takes a decision to make them legally binding. LUMSA – International Commercial Law COMPETITION LAW – PROCEEDINGS RE Art. 101 Fines A company that has participated in an anti-competitive agreement and so infringed competition law may have to pay a fine. The Commission's fining policy is aimed at punishment and deterrence. They are calculated according to the Guidelines last revised in 2006. • The starting point for the fine is the percentage of a company's annual sales of the product concerned in the infringement (up to 30%). This is then multiplied by the number of years and months the infringement lasted. Certain aggravating circumstances (e.g. repeat offender) or attenuating circumstances (e.g. limited involvement) may increase or decrease the fine. In cartel cases, the fine is increased by a one-time amount equivalent to 15-25% of the value of one year's sales as an additional deterrent. The maximum level of fine is capped at 10% of the overall annual turnover of a company. LUMSA – International Commercial Law COMPETITION LAW – PROCEEDINGS RE Art. 101 Right of appeal The addressees of a Commission decision have the right to appeal to the EU General Court, to amend or annul the decision. The Court can cancel, increase or reduce the fine imposed by the Commission. • Judgments of the General Court can be appealed before the European Court of Justice (ECJ) by the unsuccessful party (so the Commission can also be an appellant). However, these appeals to the ECJ are limited to questions of law only. LUMSA – International Commercial Law COMPETITION LAW – PROCEEDINGS RE Art. 101 Settlement In cartel cases, the Commission or the parties may propose a settlement. The Commission may reject the settlement route for cases that are not suitable. In settlement cases, the parties acknowledge upfront their participation in the cartel, resulting in a speedier procedure and an up to 10% reduction in the fines. The Commission presents parties with the evidence and notifies them of its conclusions as to duration, seriousness, liability and likely fine. The parties must make an oral or written submission acknowledging their liability and stating that they accept the Commission's statement of objections. The settlement procedure allows the Commission to adopt a faster, more streamlined decision and to allocate resources to other cases. LUMSA – International Commercial Law COMPETITION LAW – PROCEEDINGS RE Art. 101 Victims' claims for damages Any citizen or business which suffers harm as a result of a breach of the EU competition rules is entitled to claim compensation from the party who caused it. This means that the victims of competition law infringements can bring an action for damages before the national courts. If the Commission has taken a prohibition decision regarding the infringement, this decision can be used before national courts to prove that the behaviour took place and was illegal. LUMSA – International Commercial Law COMPETITION LAW – Compliance with competition rules Compliance means respecting the law. In the competition field, it means business proactively respecting competition rules. Why is it important? It is the prime responsibility of large, medium and small companies alike to comply with these rules. Companies need to be aware of the risks of infringing competition rules and how to develop a compliance strategy that best suits their needs. An effective compliance strategy enables a company to minimize the risk of involvement in competition law infringements, and the costs resulting from anti-competitive behaviour. LUMSA – International Commercial Law COMPETITION LAW – Compliance with competition rules The Commission welcomes and supports efforts by the business community to ensure compliance with EU competition rules. If an infringement is found, however, the mere existence of a compliance strategy will not be taken into consideration when setting the fine: the best reward for a good compliance strategy is not to infringe the law. This standing policy has been confirmed publicly (see speeches "Compliance and competition policy" and "Cartels: the priority in competition enforcement") LUMSA – International Commercial Law COMPETITION LAW – Victims claim for damages Towards more effective antitrust damages actions in Europe Infringements of the EU competition rules, such as price cartels and abuses of a dominant position in the market, are not only negative for the economy and consumers as a whole: they also cause direct harm to the infringer's customers and competitors (e.g. higher prices, lost profits). The European Court of Justice held that any citizen or business who suffers harm as a result of such breaches is entitled to compensation from the infringers. LUMSA – International Commercial Law COMPETITION LAW – Victims claim for damages However, most victims of antitrust infringements, particularly SMEs and consumers, rarely obtain reparation for the harm suffered. The exercise of the right to compensation is governed by national rules. These often make it costly and difficult to bring actions, so that compensation is not available for victims in all Member States. LUMSA – International Commercial Law COMPETITION LAW – Victims claim for damages That is why on 11 June 2013 the Commission proposed a Directive on antitrust damages actions to remove the main obstacles standing in the way of effective compensation, and guarantee a minimum protection for citizens and businesses, everywhere in the EU. On 17 April 2014, the European Parliament adopted a text the Directive which was agreed between the European Parliament and the Council during the ordinary legislative procedure. The agreed text of the Directive has been sent to the EU Council of Ministers for final approval. LUMSA – International Commercial Law COMPETITION LAW – Victims claim for damages The proposal follows up on earlier policy initiatives in this field, in particular a 2005 Green Paper and a 2008 White Paper. The Commission also took initiatives on two other issues relevant to antitrust damages actions: 1) A recommendation on collective redress which concerns all breaches of EU law, and thus is also relevant for harm suffered by victims of breaches of EU competition law, particularly victims who individually suffered low-value damage. 2) A Communication and a Practical Guide on the quantification of harm in antitrust infringements. LUMSA – International Commercial Law COMPETITION LAW – Victims claim for damages Aside from these specific policy initiatives, the Commission is committed to providing assistance to national courts in the application of Articles 101 and 102 TFEU. This includes a funding programme for training of national judges in EU competition law and judicial cooperation between national judges.