Competition and Competition Law PDF

**Competition** and **Competition law** - **promotes rivalry between businesses** - addresses risks of anticompetitive behavior and safeguards consumer welfare. **Market power** = The ability to behave independently from competitors to an appreciable extent. Examined in the context of th...

**Competition** and **Competition law** - **promotes rivalry between businesses** - addresses risks of anticompetitive behavior and safeguards consumer welfare. **Market power** = The ability to behave independently from competitors to an appreciable extent. Examined in the context of the **relevant market**: 1. Product market (interchangeable products) Cola/Pepsi 2. Geographical market (homogenous conditions) 3. Temporal market **Indications of market power**: market share, barriers to entry, buying power **Competitive harms** - Joint market power after agreement that harms competition - Single dominant/monopolist firm that harms competition - Mergers of 2 or more firms that harm competition **Art.101(1) TFEU prohibition of anticompetitive agreements**: A. **[Undertaking]** = **entity engaged in an economic activity,** regardless of the legal status of the entity and the way in which it is financed *(Höfner)* - legitimate interest representative function - do not have to carry out economic activity for its decisions to fall under Art. 101(1) TFEU B. **3 types of prohibited collusion:** - **[Agreements ]** = **concurrence of wills** between at least two parties, the form in which it is manifested being unimportant so long as it **constitutes the faithful expression of the parties\' intention** (*Bayer AG)* - **Not necessarily legally binding** - **[Decisions ]** **= any measure taken by an association that reflects AU's desire to** **coordinate** members' actions *(Bellamy and Child)* - **[Concerted practices ]** **= less intense forms of cooperation** - **Practical cooperation** substituted for the risks of competition" *(Dyestuff)* - Must include: 1. Mental consensus 2. Contact between the undertakings 3. The substitution of competition by cooperation 4. Causal link between mental consensus and concerted practice **Art. 101(1) TFEU only applies if conduct has its object or effect the restriction of competition:** Restriction by object **OR** effect -- **alternative requirements** C. [**by object**:] - to be analyzed by looking at **objective aims** of agreement/concerted practice - Restrictive by object if it **at least has the potential to impede trade** between MSs for economic reasons or by hindering integration - Restrictive by object *per se*: **hardcore restrictions** - If no restriction by object (= the object cannot be found to be restrictive) → **[by effect]**: - thorough analysis of effects on competition factual + hypothetical restrictive effects on actual or potential competitors D. **[Effect on Trade ]** - **Trade** = not limited to traditional exchange of goods and services, it is a **wider concept**, **covering all cross-border economic activity, may include pure national agreements** - trade between MSs must be **affected in an appreciable way** to cause EU competition law to apply→ **they should have a minimum level of cross-border effects** ***Presumption of non-affectation* [ ]**(= agreements are not capable of appreciably affecting trade between MSs) if: - Aggregate mkt share less than 5% - Aggregate turnover less than 40M € - applies to ANY restriction (by object and by effect) - a. - Not all cooperations are outright illegal → Focus of enquiry: Presumably legitimate agreements but include some restrictions on competition that could give rise to **anti-competitive effects** (NOT anti-competitive by object) A. ***Horizontal agreements*** - **between competitors =** companies at the **same level** of manufacturing, distribution or retail - These agreements **may be commercially attractive and pro-competitive** if they concern **R&D (research and development), exchanges of know-how, standard setting etc.** - Horizontal cooperation agreements may have legit aims but **can have the effect of limiting competition**: e.g. ***agreement to exchange sensitive information*** - ***Commission Guidelines on Horizontal Co-Operation Agreements*** - Deemed more problematic: interest usually to raise consumer prices B. ***Vertical agreements*** - = between companies operating at **different levels of the production/distribution chain** - Generate fundamentally different market outcomes than horizontal agreements → **different incentives re price setting** function -\> producer interested in setting low price =\> **'self-policing' of vertical agreements =** natural alignment of interests between parties 1. **Exclusive distribution agreements** - Manufacturer gives a distributor exclusive rights to sell in a specific area. - Encourages investment in marketing and services but risks free-riding by others. - EU law allows restrictions but bans absolute territorial exclusivity; **passive sales** (unsolicited orders) must remain allowed. 2. **Most-Favoured-Nation (MFN) Clauses** - Distributor requires the supplier to offer equal or better prices/terms compared to others. - Helps prevent free-riding and ensures price fairness but may lead to harmful price uniformity. - Each case is analysed to ensure it doesn't harm competition. **Art. 101 (2) TFEU Consequences of anti-competitive agreements = NULLITY** - any agreement restricting competition which is caught by Art. 101(1) TFEU **AUTOMATICALLY VOID** unless it meets the requirements in Art. 101(3) TFEU (exceptions). - **applies directly and without notice** (*SA Brasserie de Haecht*) - A void agreement **has no legal effect** as between the contracting parties and establishes no rights or duties of third parties. (*Beguelin Import*) - Nullity **covers all past and future effects** of the agreement or decision as long as an infringement of the competition rules exists. (*SA Brasserie de Haecht*) - The **invalidity is absolute,** an agreement which is null and void by virtue of this provision has no effect as between the contracting parties and cannot be invoked against third parties. (*Manfredi)* - Nullity: **absolute in nature and binding** on all relevant courts (*Courage Ltd*) - Nullity sanction applies to the **provisions of the agreement that breach** Art. 101(1) TFEU. **The entire agreement** is void only if the void clauses cannot be severed or when the remaining provisions have no autonomous legal content (*Société Technique Minière)* **Art. 101 (3) TFEU The legal exception = 'Agreements that are allowed'** A. **[Block exemptions ]** - ***Horizontal block*** ***exemptions*** (HBER) - **R&D Agreements** - All parties have access to results of R&D/ to pre-existing know-how - Access to- and Joint exploitation of results - **Market share threshold:** Max. combined market share **25%** - safe harbor - **Specialization Agreements** - ***Vertical block exemptions*** (VBER) - **Market share cap**: **Double market share cap** (Art. 3) - the block exemption applies provided that: - Market share held by the supplier ≤ 30% and - Market share held by the buyer ≤ 30% B. **[Individual exemptions]** - ***Guidelines on the application of the Article 101 (3) TFEU*** - **4 criteria:** 1. ***efficiency gains of restrictive agreement*** - *cost efficiencies* - *qualitative efficiencies* 2. ***fair share for consumers*** - **Consumers**: "all direct and indirect users of the products covered by the agreement" - **Focus** should be on the overall impact on consumers of the particular product on the relevant market - **The benefit should be passed on to the consumers**, otherwise they will not be eligible for an individual exemption. Benefits must outweigh potential negative consequences. 3. ***indispensability of restrictions*** - **restrictions of competition are *reasonably necessary* to achieve the efficiencies**. The parties should try to attain their objective with as little harm to competition as possible. 4. ***no elimination of competition in a substantial part of the market*** - **protection of rivalry and the competitive process is given priority** over potentially pro-competitive efficiency gains which could result from restrictive agreements' - A combined market share of 70% is indicative of the elimination of competition **Art. 102 TFEU: Abuse of dominant position** - **Dominance alone not illegal -- only the abuse thereof** - Art. 102 TFEU addresses **unilateral conduct** **The elements of Art. 102 TFEU** A. **[Undertaking]** - **Single economic entity doctrine:** does not apply under Art.102 TFEU: a dominant undertaking may violate the competition rules by giving its subsidiaries preferential treatment in relation to 3rd parties. - **Exceptions:** 2. **revenue-producing monopoly** 3. have been **granted immunity** from Article 102 TFEU by the respective Member State. B. **[Dominant position on the market ]** - Test: 1. Defining relevant market 2. Market power, market share, barrier to entry - **Dominance** = **a position of economic strength which enables an undertaking to behave to an appreciable extent independently of its competitors.** (*United Brands v Commission)* - **Indicators of dominance:** i. **Market share - Presumption of dominance where market shares \> 50 % over time** (*AKZO v Commission)* ii. ***Barriers to entry -*** may reinforce market power by making market entry of rivals difficult iii. **Countervailing buyer power** - a dominant position may not be assumed as long as the customers are able to influence the terms and conditions on which they acquire goods from allegedly dominant undertakings. The **seller is unable to behave independently of its customers** - The concept of dominance does not require a company to be very large to be in a dominant position in terms of absolute turnover. On a small relevant market an undertaking with a relatively low turnover may possess a dominant position. The question is if such a market qualifies as a **substantial part of the IM** which is likely to be found where there is a strong cross-border element in the respective conduct. - **Collective dominance =** dominant position **jointly held by two or more independent economic undertakings** in relation to a specific market **-\> 3-stage test** *(Airtours):* C. **[Substantial part of the IM]** - Broadly interpreted → A relatively small market (e.g. airport) may qualify as a substantial part of the IM since it is of relevance for the performance of cross-border services and market integration. → A bigger market may not qualify as substantial if conduct on that market has no impact on cross-border competition. → a market covering the **territory of an entire MS will almost always amount to a substantial part of the internal market**. D. **[Abuse]** → behavior that impairs effective competition from smaller rivals. Dominant undertakings have an obligation not to eliminate rivals by means resulting from their market power; = **weakens competition** → conduct directed at customers that the dominant company could not afford under conditions of effective competition. = **detriment of consumers** - **mere existence of a dominant position [does not] amount to an abuse** → dominant undertaking has to **engage in an activity that negatively affects market structure and consumer welfare and thus is abusive.** - **Types of abuse**: **exploitative** and **exclusionary** (both have various forms) I. **[Exploitative abuses]** = Imposition of unfair conditions on consumers II. **[Exclusionary abuses]** = directed against the *smaller rivals* (competitors) E. **[Effects on trade between MS]** - The conduct does not necessarily have to affect consumers in the EU but an effect on trade between MSs may also consist in a **change of the market structure in the EU**, (for example by reducing the number of manufacturers of a certain product that is mainly exported to non-EU markets) - ***Guidelines on the effect on trade concept*** in Articles 101 and 102 - **General rule:** Unless an 'abuse is purely local in nature or involves only an insignificant share of the sales of the dominant undertaking', it is **very likely that the Commission and the courts will find trade between MSs to be affected**. **[Defences ]** 1. ***[Meeting competition defence]*** **=** A dominant undertaking is **free to compete on the merits** and to react to market action taken by its smaller rivals by appropriate means → dominant companies **do not have an obligation to protect inefficient competitors** 2. ***[Efficiency defence]*** **=** efficiency gains and losses of consumer welfare can be balanced = **efficiencies that outweigh its negative effects.** 3. ***[Objective justification ]*** **Control of Concentration = EU Merger Control** - **To prevent creation/strengthening of a market structure detrimental** to competition - **Pre-emptive (= preventive) regime** that can stop transactions - Prior notification necessary (***ex ante* appraisal**) if turnover exceeds thresholds - **Substantive assessment (analysis):** pro- and anticompetitive effects of planned merger (EC -- SIEC test) - **Mergers may impede effective competition**: changing market structure: firms more likely to coordinate and raise their prices reduction of firms' abilities to compete → raise prices → its implementation may be based solely on **predicting future effects on competition** in relevant market: economic simulations models applied to assess effect on competition - Governed by: ***EU Merger Regulation 139/2004* (EUMR) +** - Scope of EUMR : I. Concentration II. EU Dimension I. **Concentration** a. **[Mergers] = [ ]**A and B merge and form a new company AB - Reduction of the number of competitors - Risk: **collusion/coordinated effects, creating a dominant position** (unilateral effects) - Between different layers of supply chain (production and distribution) - Risk: barrier to entry - - **2 different, but** **related markets** (for example - wine and mineral water = producers) → **Competitive risk**: Both producers sell through the same market (cafes, hotels, restaurants), merged company has higher bargaining power → may foreclose competitors on one or both markets b. **[Acquisition of control]** - Company A and company B, company A acquires 100% of control over B - **change of control results from the acquisition of direct or indirect control of the whole or parts of one or more undertakings**. - Most common way: **acquisition of shares** - **CONTROL**: constituted by rights, contracts or other means which confer the possibility of **exercising decisive** **influence** c. **[Joint venture]** - A and B create a new firm C C is **controlled equally** by A and B, by holding 50% of the shares A and B have **joint control** - A has already an existing subsidiary C, controlled by 100% Following the transaction, A and B will each control 50% of C = joint venture II. **EU Dimension** **Relationship: EU & national merger control** **One-stop-shop principle** **= Concentrations that have an EU dimension are investigated by the EC and fall under the EUMR** → concentrations reviewed by the EC do not also need to gain clearance from EU MS NCAs. **Referral:** between EC and NCAs. Purpose: allocate authority best placed to review merger (eg. if a merger is notifiable in at least 3 MSs → referral to EC for consistent review./ If merger likely to have effects on the national market only → referral to NCA) **Exceptionally, protection of national interests may justify the application of national law** to transactions otherwise subject to review by EC: eg. safeguarding plurality of media -- requires review under MC law AND sector-specific national law. **Substantive appraisal** - will the proposed transaction create **a significant impediment to effective competition**? **creation or strengthening of dominant position** may give rise to such impediment. - **When appraising anticompetitive effects of a concentration**: Review pre- and post-merger market developments Assess counterfactual situation (situation in absence of merger) **Horizontal mergers**: ***Guidelines on the assessment of horizontal mergers*:** **Vertical mergers: *Guidelines on the assessment of non-horizontal mergers para. 17-19*** **Conglomerate mergers:** may result in foreclosure or portfolio effects: merged entity may be able to offer packages that rivals are unable to + entire portfolio of products from 1 source more attractive to consumers **EU merger procedure:** - [***Notification of EC***:] **After:** conclusion of agreement/announcement of public bid - ***[Suspension obligation]:*** requests parties not to close deals before merger clearance has been obtained. - ***[Appraisal by Commission]:* subject to time limits** → if expires without decision, clearance deemed to have been granted - - - - - - - - - - - **Parties may address competitive concerns** identified in the merger review process → offer **commitments** to EC → typically *aim at limiting the market position* of the merged entity through structural remedies → *Commitments become part of clearance decision* and take the form of conditions and obligations. - **Final decisions of EC on merger control subject to judicial review**. **Enforcement of EU Competition Law (public- and private enforcement)** - *Ex-post*, **reactive** **PUBLIC ENFORCEMENT system** - When **investigating**, the EC may require information and carry out unannounced inspections of business premises and private homes. - Main procedural rules in ***Council Reg 1/2003*** NOT in TFEU - **Parallel system of enforcement**: **Jurisdiction to apply Art. 101 and 102 TFEU**: EC, NCAs and national courts to make enforcement more efficient - **EC = key enforcer of EU competition law** - Actors of competition law enforcement must **cooperate (= principle of sincere cooperation)** due to the **decentralized** nature of enforcement - **Supremacy** of EU competition law **[Actors:]** - EC, NCAs, national courts, ECN, EJC (action for annulment art. 263 TFEU) - National authorities also entitled to apply EU competition law + National courts must observe EU competition law - **Coordination mechanism** necessary to avoid diverging decisions of EU and national institutions - **NCAs inform EC before taking formal investigative measures** re alleged violation of EU competition law - **If EC commences procedure**→ **NCA automatically loses competence** - **National courts may not hand down judgments counter to EC decision** → national courts inform each other. - Plurality of enforcement bodies → cooperation → **European Competition Network (ECN)** - **EU MSs - Obligation of national institutions not to frustrate any EU enforcement action** **[Enforcement procedure: ]** **Commission procedure** **The procedure before the EC consists of two successive stages**. In the first stage the facts are investigated. In the second stage the undertakings concerned are informed by the EC of its objections (the so-called 'statement of objections') and are given the opportunity to present their view and legal arguments **EC may launch a procedure:** →**on its own motion** or →following a **complaint lodged by a third party** **Per Reg 1/2003: EC has wide powers of investigation** It may ***require information*** (Art. 18 Cou Reg 1/2003) ***Conduct Interviews*** (Art.19) ***Conduct inspections*** (Art. 20-21) **General investigative principles:** - **Scope of legal professional privilege limited** - only documents created by an external lawyer escape review - **Under the privilege against self-incrimination**, parties have to provide to the EC any factual information it has requested but are under no obligation to explain the purpose of certain acts or qualify their behavior. - European courts hold that the ***ne bis in idem principle*** is not violated by the EC's fining policy in cases of cartel recidivism + each infringement constitutes a new set of facts even if a higher fine is imposed due to previous infringements. - **The general limitation period for cartel infringements is [5 years]**. An investigation by the EC or NCA interrupts the limitation period. However, an **absolute limitation period of 10 years** applies **[Commission decision: ]** - ordering **termination of infringements** (Art. 7 Cou Reg. 1/2003), - **interim measures** -- urgency due to risk of serious & irreparable damage (Art.8) - accepting **commitments** (Art. 9), - **finding of inapplicability** (Art. 10), - **fines** (Art. 23-24) - **EC's final decisions may be challenged in EU courts** **[Sanctions: ]** - **Primary instrument of prevention** of antitrust violations - **Legal basis**: Cou Reg 1/2003 (art. 23(2)) - Specifics laid out in **Fining Guidelines** - The **amount** depends on nr of factors: **Duration** **+ severity of infringement**: the role of the undertaking in the cartel (instigators and repeat offenders: higher fine) - **Basic amount** related to company's sales + economic importance of market - **Legal maximum 10%** of the total turnover in the preceding business year - A fine may be imposed only in cases of **negligent or intentional violation** of EU competition law. - There are **no criminal sanctions for individuals under EU competition** law **[Leniency program: ]** - **Leniency Notice**: gives cartel members incentive to disclose the existence of cartel + give evidence that enables the EC to initiate or continue the investigation of a cartel. - If a **cartel member is the first to cooperate with EC: it may obtain immunity** from fines subject to certain conditions: - **Cartel members that come in later** may obtain a **substantial reduction of the fine** if they provide the EC with additional information and fulfil a number of additional requirements. - To shorten process the EC may invite cartel members to enter into a **settlement agreement** to reduce the EC's procedural obligations by swiftly terminating the procedure. Cartel members can get a **fine reduction of an additional 10%** as an incentive for entering into a settlement **[Private enforcement:]** - actions by private litigants for cartel damages → **compensation** - CJEU's 2001 *Courage* judgment starting point of Europeanisation of antitrust litigation. - ***Directive 2014/104 on Damages*** harmonized key features of private enforcement actions in the EU - Clear limitation periods (5 y.) - Easier access to evidence - Similarly to the effects of a final infringement decision of the EC, **a final infringement decision of an NCA** constitutes **full proof** of the infringement **before the civil courts in the same MS**. - Rebuttable presumption that cartels cause harm - Receiving full compensation - Joint and several liability of infringers