EU Competition Law PDF

06.11.2024 Multiple Choice with several possible Answer Short Answer Questions 5 Sentences Short Essay 1,5 h Exam sections-Multiple choice with multiple right or wrong answers, short answer questions (5-6 sentences) , open questions half to one A4 long) Read: R. Wish Competition Law Competit...

06.11.2024 Multiple Choice with several possible Answer Short Answer Questions 5 Sentences Short Essay 1,5 h Exam sections-Multiple choice with multiple right or wrong answers, short answer questions (5-6 sentences) , open questions half to one A4 long) Read: R. Wish Competition Law Competition policy - Overview of EU competition law- Practicalities In EU Prosecutor is the European Commission Intra Union relevance - has an international aspect within the EU We enforce EU Law by applying National Law There is National Level and EU Level. There are Bodies that Regulate Competition Law in Every country Bodies have to make sure that every company is independent enough to do business and also consumer welfare. Antitrust Law is in the US, Competition Law is in the EU. But it does not mean they are identical. Prohibition of competition restricting contracts: a long road and the gas station along it - change of prices. The customers are affected - consumer welfare. Public enforcement - national competition authorities, courts, prosec inforce comp law Private enforcement - companies sue each other for the breach of law 14.11.2024 I Introduction to EU competition law Competition (law): what and why Competition law: rules that are intended to protect the process of competition on the markets in order to maximise consumer welfare Central concern of competition policy: a company or companies with market power able to harm consumer welfare. How, for instance? Independence. Bodies have to make sure that every company is independent enough to do business and also consumer welfare. Reducing output, producing products of bad quality, not innovating, depriving consumers of choice, raising prices (!)... Evaluation of the situations competition law / competition policy interferes in: – Market power as a central concept -> economic evaluation (percentage) – Also other economic concepts (monopoly, oligopoly (compete or collude?), supply, demand...) essential. – Competition law: Co-operation of law and economics. Legislator Today, rather strong consensus prevails: free markets deliver better outcomes than state-led markets EC has an exclusive competence to propose regulations and amendments, make adjustments to regulations and prosecute. (like in Apple case) Competition = continuous process of rivalry between companies: – To get more customers, – To increase the market share, – To receive more income. To make competition law the legislator must evaluate the effect which competition can have on economic performance + how this effect is eliminated. Companies must struggle and ‘fight’ if the state of competition prevails, if not, the companies may ‘live comfortably’. Perfect competition as an ideological model. (??) Understanding the benefits of competition, even if not ‘perfect’, on a market. PERFECT COMPETITION (actually not perfect because depending on circumstances it can bo different ways) – Neo-classical economic theory: social welfare is maximised. (steady growth in a given market based on customer choice(demand), capital, technology). Concept of competitive advantage. = the combined effect of allocative (?) and productive efficiency(?) -> society’s total wealth Maximised. Productive efficiency is concerned with producing goods and services with the optimal combination of inputs to produce maximum output for the minimum cost. – Products are better, produced with greater efficiency than otherwise; prices are lower; customers have lots of choice. – Companies innovate in order to get customers and keep them (dynamic efficiency) – The results may vary – Invisible hand theory In economics, dynamic efficiency is achieved when an economy invests less than the return to capital. It pushes forward the market growth to prevent stagnation. STATE OF MONOPOLY (compared to perfect competition): – Assumption: the monopolist wishes to maximise the profits, – The monopolist is the only company (undertaking - ettevõte, natural person can also undertake an economic activity or trust if these unions exercise their potential to buy stuff) (effectiveness/functional approach) that supplies a certain product: responsible for all the output. Any economic activity can qualify as an undertaking depending on the circumstances. – The monopolist may strongly affect the market price: not price-taker but ‘price-setter’. The monopolist may raise the prices by reducing the amount of production (customers willing to pay more to get the few products).  The monopolist may reduce the amount of sales by increasing price (not everyone who wanted the product with a lower price will want it anymore with the higher price). Less effort? The monopolist will understand that he should not produce as much as he can but that he should set a price that is higher than the price under the state of perfect competition would be: – Some customers who would have wanted the product with a competitive price are not able to get the product (deadweight loss or allocative inefficiency or social welfare cost of monopoly), – Low productive efficiency (company is X-inefficient), ?? RESULT: Wealth transferred from customers / consumers to the monopolist. In Finland you cannot sell strong alcohol anywhere else but one store. This actually helps the public interest. Comparing perfect competition to perfect monopoly may be questionable as a starting point for policy and legislation – Why? Because “perfect” is theoretical. There are only in between situations. Perfect competition and perfect monopoly do not exist ‘in real life’ - > only in-between situations – Preconditions of perfect competition are not normally completely fulfilled » lots of suppliers of the same product, » customers / consumers have perfect information regarding the product, » no customer loyalty = raising price will make the customers to immediately change suppliers, » no barriers to enter, no barriers to exit, always to some extent; » potential competition. – characteristics of a perfect monopoly are also rare in their purest form: » only one supplier that supplies the product, » no potential competition, always more monopolistic attempts then one. – + how a perfect monopoly functions (what the monopolist wants to do) may be based on false assumptions: » does the monopolist just want to maximise their profits? » does he know how? Also: comparing perfect competition and perfect monopoly a questionable starting point for policy and legislation because: – if the extremes do not really exist, can we base legislation on what we learn by comparing the extremes? – Is it misguided to strive for something that is not perfect competition but almost (‘second best solution’), do we know how this ‘almost’ should look like? – Is productive efficiency at its best in the state of perfect competition: what if the directors of the companies do not want to maximise profits but get some profit and some calm life and rest?  One could also ask whether one should be more concerned about issues that are not taken into account when striving for as perfect competition as possible: – Externalities like pollution, injured employees... – But: maybe such issues should be tackled via different legislation: affecting competition in order to change these issues may be beyond possible.. However, today’s competition law is based on the idea (and on the relevant economic research) that suggests we should – avoid and fight against certain situations of limited competition caused by the undertakings or the state: – and strive for the free competition on the markets. - > today’s competition law Broad definition of competition law – Competition law prohibitions (Art. 101 and 102 TFEU) – Merger Control – State Aid law – Public Procurement – Regulated Markets (“particular” competition law or sector-specific regulation) Public procurement refers to the process by which public authorities, such as government departments or local authorities, purchase work, goods or services from companies. – Prohibitions against competition restricting contracts (Art. 101(1) TFEU) and against the abuse of a dominant market position (Art. 102 TFEU), – Enforcement regimes with regard to these prohibitions, possible private law effects of the prohibitions (e.g. Art. 101(2) TFEU), – Merger control In the Europe The Treaty of Rome 1957 (EEC Treaty - > 1992: EC Treaty) – The goal of establishing a common market (later: internal market) – Competition provisions (to be read in the light of the goals of the EEC /EC Treaty) Later, the Article numbers of the competition law provisions, including the main prohibitions against competition restricting contracts and the abuse of a dominant market position, have changed several times due to revisions of the Treaty (Treaties). The main prohibitions are now Art. 101(1) and Art. 102 of the Treaty on the Functioning of the European Union, TFEU: – A parallel Treaty is TEU: Treaty on European Union, – This parallel TEU now sets out the goals of the Union, – The goal of the competitive and functioning internal market is now found in the Protocol 27 (Annex to the TFEU and TEU) on internal market and competition. The role of competition law in the European integration Protocol 27 (Annex to the TFEU and TEU): “THE HIGH CONTRACTING PARTIES, CONSIDERING that the internal market as set out in Article 3 of the Treaty on European Union includes a system ensuring that competition is not distorted, HAVE AGREED that: To this end, the Union shall, if necessary, take action under the provisions of the Treaties...” Similar statement on goals was previously in Art. 3(1)(g) of the EC Treaty Also note Art. 4(3) TEU: “... The Member States shall take any appropriate measure, general or particular, to ensure fulfilment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union. The Member States shall facilitate the achievement of the Union’s tasks and refrain from any measure which could jeopardise the attainment of the Union’s objectives.” Goals of EU competition law Protecting – the competitive process – consumers – independence factor Basics of prohibition against competition restricting contracts: (Art. 101 TFEU) The first of the main prohibitions. Prohibits competition restrictions that are created by 2 or more undertakings or by associations of undertakings (I) - EU competition law prohibitions Prohibition of competition-infringing contracts (Article 101(1) TFEU) “Article 101- (ex Article 81 TEC): 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 (intent or result) the prevention, restriction or distortion of competition within the internal market, and in particular those which: (a) directly or indirectly 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; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (selling to different companies same stuff for different prices) (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations...” Even if it wasn’t on purpose, it is illegal. The company is responsible for the research and making sure that there is no breach. It can be both intentional and unintentional. Note that some arrangements included in the above-mentioned list may be exempted according to Article 101(3)TFEU – further information on the applicability of the exemption is found in several secondary legislation and soft law documents  it must contribute to improving the production or distribution of goods or to promoting technical or economic progress; consumers must receive a fair share of the resulting benefits; the restrictions must be essential to achieving these objectives (principle of proportionality); and the agreement must not give the parties any possibility of eliminating competition in respect of substantial elements of the products in question. Dawn raid - an attempt to acquire a substantial portion of a company’s shares at the start of a day's trading, typically as a preliminary to a takeover bid. Basics of prohibition against the abuse of a dominant market position (Art. 102 TFEU) The other main prohibition Prohibits unilateral practices by an undertaking that has (lots of) market power. Prohibition of abuse of a dominant market position “Article 102 (ex Article 82 TEC): 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 internal 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; (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. “ Enforcing EU competition law Public enforcement Private enforcement Regulation 1/2003 (the ‘Enforcement Regulation’) regulates the enforcement of EU competition law by the European Commission, by the national competition authorities and by national courts (in the context of private disputes). Regulation also includes provisions on how EU competition law and national law may and must be applied in the Member States (in parallel, EU competition law prevailing...) 15.11.2024 II Prohibition of Competition Restricting Contracts Article 101 TFEU and the theory behind it: Competing undertakings or undertakings acting on the same market level do not normally have knowledge about the other undertakings' market behaviour or the plans relating to it - Market behaviour: which products to sell, for what price, what factors is the price based on, whether to come up with a new product, to whom to offer to sell... (also: how much they sold last month, which product sells best...) -Not knowing pressure to compete, try harder - Consumer welfare increases: benefits of the competition situation -> consumers (/ other customers) - Note the concept of consumer in EU competition law = consumer = 'anyone who consumes' v. consumer in consumer law By contracts or other common understandings the undertakings may remedy their ignorance of the other companies' actions -> no pressure to try harder, consumer/customer point-of-view: no benefits of competition Art. 101(1) TFEU: prohibits competition restricting/distorting (hereinafter: restricting) agreements, concerted practices and decisions by associations of undertakings 'Article 101 (ex Article 81 TEC) Agreement and Concerted Practice - Agreement: interpreted broadly - Means any consensus or common understanding of the parties Thus, no requirements for, e.g., an agreement in writing However, some 'expression' is required. - Merely acting in accordance with the common understanding may count Note: Article 101 TFEU also prohibits concerted practices and decisions by associations of undertakings. This is to avoid the possibility of escaping the prohibition by organising 'a cartel without any agreements - Concerted practice: characteristics of broadly interpreted agreement not fulfilled but still some level of mutual cooperation - Agreement and concerted practice conceptually different, but no sense in trying to distinguish them completely and in a detailed manner: both are prohibited, the distinction is not relevant in that sense - The major difference is evidentiary: circumstantial evidence point to cooperation. To find concerted practice, subsequent, affected market conduct must be present. The EU Courts and the Commission have avoided a formalistic approach to the concepts (agreement/concerted practice): what is relevant is that 'any contact between competitors that touches upon business behaviour such as pricing, markets, customers and volume is risky' (Whish, p. 102) Why are both the EU Commission and Court mentioned? EU Commissionт has exclusive competences and they both have the same competences. Eu transport matters, for instance Investigation may result in the fine, so appeal has to be done in EU court Com - 1st level court Court - further Enforcement is on the EU Commission AND EU courts In case of EU-level competition cases, the Commission investigates the matter and issues a “judgment” and a sanction (basically doing a job of a first-instance court) If the undertaking doesn’t agree, which they almost never do, they bring an appeal against the Commission's decision to any relevant court which deals with market/competition cases. NOT TO THE COMMISSION ITSELF because it would not make sense to appeal to the same body The case may reach the CJEU which won’t touch upon the merits of the case, just the law-related issues - Early case-law: finding an agreement required free consent by the parties 1995-: freely consenting not a requirement anymore (but fines may be reduced if the relevant undertaking was coerced to take part) - private Coercion - Note, however: State compulsion doctrine: if the State compels, possible that sanctionable competition infringement not found (101 or 102: prohibition does not apply) - if the State contributes to the infringement a bit less: a potential mitigating factor when setting fines - Difficult issue: apparently unilateral action as an agreement/concerted practice?? Apparently unilateral actions not necessarily excluded (101) In the EU-level case-law: - Close examination of the parties' actions - If the context of 'unilateral action' is a contractual relationship, the seemingly unilaterally imposed 'terms' may be considered to have become a part of the contract Unilateral vs bilateral contract An undertaking that wants to be a CEO of his company has to create an entity and sing a contract with it as a natural person. Prohibited HORIZONTAL CONTRACTS Contracts between undertakings that are on the same level of production / distribution chain ( ≈ competitors)...that ” (a) directly or indirectly 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; (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...” Horizontal competition-infringing (price-fixing, market sharing, production-limiting) contracts between competitors are generally called cartels Horizontal contracts between competitors are mostly aimed at reducing or eliminating competition → secret → … but when detected: obvious prohibited competition restrictions (Easily recognized as 'null and void', 101(2) most likely in their entirety) Every contract that has been signed by the companies that turned out to be a cartel becomes null and void. Bid rigging - a form of coordination between firms that may adversely affect the outcome of any sale or purchasing process in which bids are submitted. Such processes often, though not exclusively, relate to public procurement. - Exception: possibly acceptable horizontal information sharing, market statistics, industry association etc. cooperation of which aims are not competition-restricting but other For instance, collecting statistics of sold products of the whole branch of the industry WITHOUT being able to separate company specific information AND information is available for all the companies that are interested AND the statistics are more than 12 months old before they are processed SO if you share with one company, you shall share with others as well. If you share with the government, you do not have to share with other companies. Or, for instance, commenting a legislation draft dealing with the relevant field of industry in cooperation with competitors Contracts between competitors that relate to these issues may be completely in accordance with competition law: legally in force. Prohibited VERTICAL CONTRACTS Contracts between undertakings that are on different levels of production/distribution where the primary purpose of the agreement is to purchase, sell or resell goods or services. (e.g. manufacturer - retailer ingredient or component provider - manufacturer) - The prohibited contracts (/terms) include, e.g., binding imposition of the sale price of the product (maximum price and recommended price ok), restricting the area of which customers the seller may serve Relevant law on vertical contracts to a great extent law on application of the exception (101(3)) from the prohibition Ceteris paribus - lat. “other things equal”, helps isolate multiple independent variables affecting a dependent variable. Note: regulation of allowed and prohibited vertical contracts / terms is very complicated and comes from several secondary law sources in addition to the Art 101 TFEU - More specific information in block exemptions for vertical agreements and guidelines for applying EU competition law, see, e.g., Commission Regulation 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices. UNDERTAKING - Any actor engaged in economic activity Form, legal status, public/private, model of financing → IRRELEVANT Economic activity = any activity that consists of offering goods and/or services on a market - Merely buying does not necessarily count (Case C-205/03 P FENIN v. Commission (2006)) 2 OR MORE: - Purely unilateral actions are excluded - No contract with yourself: Primarily, the following are considered to belong to the same undertaking (one economic entity): Employees Agents Companies that together form one economic entity - Regardless of having a separate legal personality, parent and subsidiary companies may be counted as one, for instance: if the parent company owns 100% of the shares of the subsidiary - The decisive factor is whether the subsidiaries have 'a will of their own' - If a subsidiary does not enjoy real autonomy in determining their course of action in the market → the parent and the subsidiary form one economic entity It would also mean the companies would likely make mergers and acquisitions. Then they wouldn’t fall under the article as it has to include 2 or more companies.  Employees and employers: agreement between an undertaking and an employee not an agreement in the sense of 101(1) - an employee a resource, 'human capital of the employer' - an employee does not normally enjoy freedom as a separate entity - merely part of the economic entity of the employer -However, if the employee pursues economic activity on his own, some agreement with the employer could fall under Art. 101(1) - Examples? If the undertaking works for one company, the will probably not be considered a separate entity unless taking some risks. 18.11.2024 Agents and principals: 'genuine' agency agreements not agreements meant in Art. 101 – Like ’intra-group’ agreements – Agency agreement in general: the agent has the right to negotiate and conclude agreements on the principal’s behalf the agent does not buy products from supplier but merely acts on the supplier’s behalf (selling agent, also buying possible = negotiates purchase contracts) – Evaluating whether there is a genuine agency agreement the agent acting as if it formed a single economic entity with the principal compensated as agreed between the principal and the agent in the agency agreement – Evaluating whether there is a genuine agency agreement Again: the agent acting as if it formed a single economic entity with the principal compensated as agreed between the principal and the agent in the agency agreement the agent does not assume commercial or financial risk of its own (if assumes: a reason to believe that is separate from the principal) In case-law, agents that assumed, (the following all are Not Genuine Agents !!!) e.g., risks on transport costs advertisement costs maintenance of stock provision of warranties or service liability -> 3rd parties liability -> principal (when the customer does not perform = pay) – Evaluating whether there is a genuine agency agreement » + in case-law, ’multiple agency’ situations = the ‘agent’ acts on behalf of several principals » to be a genuine agent, the agent must be an auxiliary organisation that forms an integral part of the principal’s undertaking » to be a genuine agent, and for the agency agreement to fall outside the scope of Art 101(1), the agent must exclusively work for the principal » (case C-217/05 CEPSA (2006), p. 43) – Evaluating whether there is a genuine agency agreement » Note! In case-law, it has also become clear that some clauses in the agency agreement, even though agents considered genuine, may fall under Art. 101(1) Prohibition Only contractual clauses that regard the (genuine) agent’s relationships to customers are regarded ’immunized’ from the application of Art. 101 » (case C-217/05 CEPSA (2006), p. 62) http://curia.europa.eu/juris/liste.jsf?language=en&num=C-217/05-> check the link for accuracy ‘Object or Effect’ of Restricting Competition Relatively few types of agreements are considered to restrict competition by their object (also note the concept of hard core competition restrictions) ‘object or effect’ – alternatives – when object not obvious, effect of restricting competition must be evaluated (and proved by the competition authority / private party suing for damages etc.) – restriction of competition is an economic concept = economic analysis on the possible effects of an agreement – defining the market is needed ‘object’: not subjective intention of the parties but the objective purpose of the agreement in the relevant economic context When it comes to an agreement that clearly has as its object the restriction of competition (like price-fixing agreements): the parties cannot effectively argue that the actions did not de facto restrict competition – No need to prove effect on competition Note, however: that there is a rule that a restriction must be appreciable = not only minimal (Effect on trade between the Member States = EU competition law applicable = when potential of having an appreciable effect on trade between the Member States) – However, the possibility of stating an arrangement illegal because of its object: a policy choice relieving the competition authorities’ burden of proof basing on the idea that there are arrangements of undertakings that are so likely to harm consumer welfare that there is no need to investigate on a case-by-case basis whether this happens ‘effect’ – economic evaluation taking into account the context of the suspected restriction (agreement), the economic context in which the undertakings operate, the products covered by the arrangement, structure of the market concerned... (joined cases T-374/94 etc. European Night Services v Commission (1998) ROUGHLY ‘object’ and ‘effect’ examples (Whish p. 118, 120) OBJECT – Horizontal agreements price-fixing exchanging current or future price information market sharing limiting output limiting sales agreements about collective exclusive dealing – Vertical agreements minimum resale prices export bans EFFECT Other than the ones in the object box, such as – Horizontal agreements Exchanging historical information, co-operation in order to prepare statistics – Vertical agreements Imposing other terms to be used in re-selling contracts Requiring a retailer to buy a certain amount of the product from the supplier in question (allowing to buy only a limited amount or nothing from other suppliers) Article 101(2) TFEU (Part of the provision on competition-restricting contracts – TFEU 101(1) is the prohibition of competition infringing contracts) “Any agreements or decisions prohibited pursuant to this Article shall be automatically void” “Automatically void” = no prior decision or investigation required. Why the need to Nullify? – (In theory, – In practice it might well be necessary that a party claims nullity. In principle, national courts should take up the issue of nullity - due to the direct effect of the EU competition law prohibitions - if, according to the national law, they are able to take up similar issues on their own initiative. See, for instance, Joined Cases C-430/93 and C-431/93 Van Schijndel , para. 15. – For example, in Finland it is somewhat established that courts may take up competition law issues on their own initiative → thus, they must also take up issues of EU competition law, such as the nullity effect, on their own initiative) – National courts (or competition authorities) are in any case entitled to assess whether an agreement is void pursuant to Article 101(2) TFEU when a party has argued so The same applies to an arrangement (contract / term) that infringes Article 102 TFEU. However, because nullity of arrangements that do not infringe Article 101 TFEU but only Article 102 TFEU, is based on analogy and case-law, the national court may have to submit the issue for a preliminary ruling to the Court of Justice of the European Union (if the issue of nullity or its details at the case at hand is objectively unclear in the current stage of EU law) Article 101(3) TFEU exempts certain arrangements from the prohibition of Article 101(1) TFEU → the exempted agreements / terms / other arrangements are not void. (It may be complicated to conclude whether the exemption applies and thus, whether the nullity effect comes into play or not.) But if it applies: Only the competition-infringing provisions or terms of an agreement are null and void – The whole agreement may be null and void if it is entirely contrary to EU competition law or if a significant and essential part of it is. The detailed effects of the nullity are dictated by the applicable national law if EU law is silent on the matter: See case 319/82 Société de Vente de Ciments et Betons d l’ Est v. Kerpen & Kerpen 319/82 In addition to the above-mentioned issues, EU law already prescribes that “According to settled case-law, the principle of invalidity can be relied on by anyone, - - - - invalidity referred to in Article [81(2) EC] 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. Moreover, it is capable of having a bearing on all the effects, either past or future, of the agreement or decision concerned” (Joined cases C-295/04 to C-298/04 Manfredi , para. 57 – references to previous case-law have been omitted here) Exception in Art. 101(3) Art. 101(3) TFEU states that “The provisions of paragraph 1 (the prohibition) 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, 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.” Who Evaluates if 101(3) is applicable? Previously only the Commission was entitled to make an authoritative evaluation on whether the conditions for the 101(3) exception were Fulfilled  Now: decentralised enforcement (Reg. 1/2003) (Coming up later!)– any competition authority or national court may apply Art. 101(3) + the undertakings themselves have the responsibility to take care of fulfilling the conditions of Art. 101(3) if they make an arrangement that could fall under the 101(1) prohibition The burden of proof on the applicability of the exemption is on the party that claims that the exception applies Both single contracts / arrangements and groups or types of them may fulfil the conditions for the exception Groups or types (categories) of agreements or arrangements are declared to principally be in the scope of the exception by Block Exemptions – Block exemptions are regulations that regulate what kind of parties (normally small- and medium-sized companies / companies that have minor market share) can make what kind of agreements within a certain category of agreements (research and development, standardisation, certain transport sectors etc.) so that the assumption is that the 101(3) exception applies 20.11.2024 III Prohibition of abuse of a dominant market position (Article 102 TFEU) Other Competition Law Provisions “Article 102 (ex Article 82 TEC) 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 internal market in so far as may affect trade between Member States. Such abuse may, in particular, consist in…” Abuse by several undertakings is a collective dominance. But it is not always an abuse. What does “substantial” mean? “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; (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.” Art. 102 TFEU "dominant position within the Internal Market or in a substantial part of it -A Member State or a bigger part of the EU area fulfils this requirement - A part of a Member State: could be, especially if companies coming from other Member States have difficulties to access (enter) the market because of the alleged abusive behaviour Relevant markets (necessary to determine in order to see whether there could be an undertaking with a dominant position) - Product Markets - Geographic Markets Product Markets: which products form one market/which products substitute each other (traditionally evaluated assessing the intended use and characteristics of the products) + the SSNIP test Small but Significant and non-transitory increase in price - The case-law also includes some interesting findings such as, roughly, "banana is not a fruit" Case 27/76 United Brands (1978): the market for bananas is a separate market from other fruits market(s) If Apple increases the price for laptops and clients do not go anywhere and still buy them, it shows the dominance on the market. It is an SSNIP test. Geographic Markets: which is the area the market covers?-"The area on which the conditions for competition are similar + the SSNIP test Commission Notice on Market definition 1997, case-law) SSNIP: small but significant, non-transitory increase in price - an economic test on what the customers would do Geographic Market: from which areas would they buy Product Market: which products would they buy The Market defined by combining the results of product market and geographic market definition = the relevant market - Defining the relevant market is always relevant for applying Art. 102 TFEU - It may also be relevant for applying Art. 101, eg, when applying secondary law / soft law on vertical agreements and the market shares of the participating companies are relevant After defining the relevant market, the existence of dominance/dominant position must be evaluated - once the relevant market is defined, the case-law typically relies on market shares on the relevant market - An undertaking (or group of undertakings collectively) with a 50% market share: presumption of dominance You do not necessarily have to have 50% to be dominant. No official limit for "not being dominant - Barriers to entry (and market expansion) are also taken into account: high and significant barriers: dominance is found more easily (no significant threat in the form of potential competition) Collective Dominance “one or more undertakings” / the prohibition’s focus on unilateral practices?  What is collective dominance? - more than one acting as one (also infringing the prohibition of competition restricting contracts (101) possible at the same time) - structural or other links between the companies - from the point of a customer/consumer one entity Independence - if companies have will on their own. If the company has the majority of shares (100%), then it can not say that it is a separate entity. If it has 95%, there is some defence possible to say that it is a separate entity. Abuse forms Exclusion Exploitation (Certain forms of price exploitation) Exclusive Abuse Forms Refusal to Supply … Exploitation: Excessive Pricing & Other Unfair Contract Terms … - Excessive pricing - the issue: should competition law intervene when prices are excessive? Yardstick method - an approach in which the company or business entities use in estimating the new operation challenges or damages, mainly through performance comparable guidelines for example the damages experienced in an agreement breaching. As Art. 101 and 102 are now clear, let's look at Art. 106 that regulates applicability of EU competition law to public or comparable undertakings Art. 106 Art. 106 regulates applicability of EU competition law to public or comparable undertakings Art 106(1) TFEU “In the case of public undertakings and undertakings to which Member States grant special or exclusive rights, Member States shall neither enact nor maintain in force any measure contrary to the rules contained in the Treaties, in particular to those rules provided for in Article 18 and Articles 101 to 109.” State Monopoly - the case when a State can grant exclusive rights to the company (alcohol, tobacco etc.) Art. 106(2) TFEU: “Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in the Treaties, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Union.” If a company that provides train services in Estonia and has exclusive rights in the future start creating smaller services for moving from one small town to another, it can be subject to Art. 106(2) TFEU. 106, in particular 106(2): contemporary approach by the Court of justice illustrated by case C-320/91 Corbeau and case-law following it – P. 15-21 “15 As regards the services at issue in the main proceedings, it cannot be disputed that the Régie des Postes is entrusted with a service of general economic interest consisting in the obligation to collect, carry and distribute mail on behalf of all users throughout the territory of the Member State concerned, at uniform tariffs and on similar quality conditions, irrespective of the specific situations or the degree of economic profitability of each individual operation. 16 The question which falls to be considered is therefore the extent to which a restriction on competition or even the exclusion of all competition from other economic operators is necessary in order to allow the holder of the exclusive right to perform its task of general interest and in particular to have the benefit of economically acceptable conditions.” “18 Indeed, to authorize individual undertakings to compete with the holder of the exclusive rights in the sectors of their choice corresponding to those rights would make it possible for them to concentrate on the economically profitable operations and to offer more advantageous tariffs than those adopted by the holders of the exclusive rights since, unlike the latter, they are not bound for economic reasons to offset losses in the unprofitable sectors against profits in the more profitable sectors. 19 However, the exclusion of competition is not justified as regards specific services dissociable [= that can be separated] from the service of general interest which meet special needs of economic operators and which call for certain additional services not offered by the traditional postal service - -. 20 It is for the national court to consider whether the services at issue in the dispute before it meet those criteria.” 15 = Exclusion of private competition must be restricted to the services where this is necessary and may not extend to services that are not strictly included in the service of general interest = and that may be operated by other actors without preventing the provider of service of general economic interest from benefiting of ‘economically acceptable conditions’ IV Enforcing EU Competition Law & Relationship between The EU Competition Law and National Law Enforcing EU Competition Law Public enforcement - Commission & NCAs Private enforcement - National Courts & Arbitration Tribunals Authorities that investigate competition law Infringements Appeal: at the EU level: the General Court (previously C of First instance) + the Court of Justice of the EU “Administrative procedure” Appeal: at the national level: the (specialised) courts that deal with appeals on the relevant NCA’s decisions (The size of the “portions” publ / pri are not these!) Authorities that investigate competition law infringements Appeal: at the EU level: the General Court (previously C of First instance) + the Court of Justice of the EU EU Enforcement in private disputes: relying on EU competition law because of the wished outcomes - (nullity of a contract / term, damages etc.) Regulation 1/2003 (the 'Enforcement Regulation') regulates the enforcement of EU competition law by the European Commission, by the national competition authorities and by national courts (in the context of private disputes) Regulation also includes provisions on how EU competition law and national law may and must be applied in the Member States (in parallel, EU competition law prevailing…) Regulation 1/2003 - Key Points In force: 1 May 2004- →(before that case law many of the main principles of EU competition law enforcement already existed before the Regulation) Regulates the division of cases between the Commission and Member State Competition Authorities (NCAs) Regulates the powers and interrelations of different institutions Regulates the investigative powers of the Commission Regulates the different types of the Commission decisions Regulates how the NCAs may apply EU competition law and national competition law (interrelations between the levels) Regulates how national courts may apply EU competition law and national competition law It is recommendable to read the Regulation in its entirety Article 3 of Regulation 1/2003: This article aims to establish the limits of EU competition law in relation to national competition and other laws. It requires national competition authorities and courts to apply EU competition law when dealing with anti-competitive agreements and unilateral practices that affect trade between Member States. Private Enforcement Damages Actions: cases: – Courage C-453/99 (2001) – Manfredi C-295/04 – C-298/04 (2006) – Later cases: City Motors Groep C-421/05 (2007) Pfleiderer C-360/09 (2011) Otis C-199/11 (2012) Other later cases Directive 2014/104/EU (implemented by 27 Dec 2016) harmonizes certain aspects of damages actions Already before damages claims case law: preliminary rulings on the nullity effect (101(2) + nullity in the context of 102) Applicable law (damages actions + contractual claims etc.): a combination of EU and national law (to a great extent national remedies + procedure) CASE Servizio Elettrico Nationale SpA… CASE Qualcomm v. European Commission 12.12.2024 https://ec.europa.eu/commission/presscorner/detail/en/ip_24_6262 https://www.konkurentsiamet.ee/en/news/competition-authority-initiated-supervisory-proceed ings-concerning-owner-auto24ee-portal V Merger control If we prohibit competition restricting agreements between undertakings (101 TFEU), we should not allow them to circumvent the prohibition by merging into one abusive unit Compare, however, to the prohibition against the abuse of a dominant market position (102 TFEU): that prohibition only prohibits abuse, not just being dominant Merger Regulation 139/2004 Implementing Regulation 802/2004 + other material: Guidelines and Notices Merger = Concentration Merger Regulation 139/2004, Art. 2 = The Commission shall evaluate whether concentrations meant in the Regulation are compatible with the internal market. Decisive control In order for 2 companies to merge, they have to at first be 2 separate entities + Of being 1 entity - you are covered by the entire company, so blame won’t be on you, you decrease your chance of possibly being suited (it can help the merger) + Companies tend to notice commission knowing they are mergers and they know EC will decline, but then they can refer to national competition law, so that is why private enforcement is needed Lasting basis reference New entity being merged from 2 entities, has the full control of those previous entities – Art. 2(2): “A concentration which would not significantly impede effective competition in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position, shall be declared compatible with the common market.” If it is not a significant impact on the market, it shall be fine. Some effect is expected, but it shall not stop others from doing business. – 2(3): “A concentration which would significantly impede effective competition, in the common market or in a substantial part of it - - shall be declared incompatible with the common market.” Lasting basis - ling period, a change of contract for goods/system Art. 3(1): “A concentration shall be deemed to arise where a change of control on a lasting basis results from: – (a) the merger of two or more previously independent undertakings or parts of undertakings, or – (b) the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings.” Art. 1 of the Merger Regulation 139/2004 states that the Regulation applies to mergers having a community dimension Community dimension (intra community impact) - it triggers when the substantial part of EU market is included It can be member state or a community dimension or NO community dimension Art 3(1) not only transfer of shares, but also of securities Art. 1(2) on Community dimension: “2. A concentration has a Community dimension where: (a) the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 5 000 million; and (b) the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 250 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.” Or; 1.a worldwide turnover of all the merging firms over €2 500 million, and 2.a combined turnover of all the merging firms over € 100 million in each of at least three Member States, 3.a turnover of over €25 million for each of at least two of the firms in each of the three Member States included under ii, and 4.(EU-wide turnover of each of at least two firms of more than €100 million. In both alternatives, an EU dimension is not met if each of the firms archives more than two thirds of its EU-wide turnover within one and the same Member State. Purpose of the thresholds – reflect overall size of the relevant undertakings – establish that level of activity within the EU is relatively high – establish that the question is not about of a purely domestic merger Documents on applying the Merger Regulation give more information on, e.g., how the relevant calculations should be made and what should be included Meeting the thresholds: Commission must be notified about the merger Thresholds not met: national merger control may apply (but if met, national merger control law excluded) Control = decisive influence Special rights attached to the shares:  to raise funds in a short time, investors can be given some specific rights - what the budget is etc. Change of control must be Lasting changes Minor changes in equity do not matter if there is no change in the quality of control Internal recruiting is not caught Full Function Market vs Relevate market difference Stand Alone Cases vs … How to reject a merger? Notifying the Commission: the Form – what needs to be notified: http://ec.europa.eu/competition/mergers/legislation/co_en.html (National merger control uses rather similar forms) Merger Reg 139/2004, art. 7: concentrations of Community dimension are automatically suspended until they are declared compatible with the Common market = Putting the merger / concentration into effect before approval of the Commission not allowed Commission’s evaluation in two Phases (I and II) Phase II (in-depth investigation) begins if the concentration raises serious concerns from the point of view of competition As a main rule, Phase I decisions must be made in 25 working days, Phase II decisions in 90 working days. Revision of Regulation 139/2004 09.07.2014 White Paper "Towards more effective EU merger Control" CASE Vantaan kaupunki v. … 16.12.2024 VI Comprehensive assignments basing on all the course topics / Presentations A runs a gas station. A cannot stand the insecurity about his competitors' prices, so 1. Every day in the morning he drives from his end of the road-the gas station is located at the end of a road between two towns-to the other end. On his way, he notes down the gas prices of his competitors. When he returns to his own station, he sets his price for that day so that it is 2 cents less than the lowest price he saw. He also calls his colleagues at the other gas stations of the same chain and suggests they do the same in the areas surrounding their gas stations. Thus, the system covers an entire Member State. What is your evaluation of the situation under EU competition law? 2. How about if A is tired of driving and phones all the competitors at that same road and agrees the price for each day together with them so that the price is always exactly the same at all the stations at that road? This is something A's is not willing to share with his colleagues from the other same chain stations, so the arrangement only applies on this particular road. Issue 1: Is it legal to have different prices for a gas in the same chain? If he has the chain, geographical. Franchises under the same name are considered separate entities as they have different prices. If they have independence to make their own decisions and even if they are the same francese, they are separate undertakings (price). Art 101 (prohibition of restricting contracts). The impact on the market - agreeing on the price is a restricting contract. It is a matter of national competition authority, but if several countries are closely related, it can trigger EC. But companies can complain to the EC straightforwardly, knowing it would not start the case, but the national authority can still check the situation because of the 2003 Regulation. It can be a cartel case, because there are separate undertakings even if they did not have this goal from the start. Art 102 - abuse of a dominant position - if MS controls the system, maybe there is a scheme Issue 2: If the price is the same, does it guarantee that customers will choose his station? “Share” means that A has to share information with everyone and other undertakings may use this information to maximize consumer welfare. Art 101 Art 102 - abuse of a dominant position CASE Illumina and Grail v. EC Why are notification thresholds important? It gives some certainty, but the EU commission is suspecting something. The answer depends on whatever is prioritised. Intervention can kill welfare CASE Google Antitrust Case Abuses - exploitative (tying and bundling) and exclusionary CASE Google Shopping