Competition Law Quiz PDF

COMPETITION LAW: Introduction: What is competition law? Why is it important? Competition law is the part of the law that aims to secure a fair competition in the market by preventing corporations from engaging in practices such as forming monopolies, price-ﬁxing, or creating cartels. The goal is to ensure that consumers have access to a variety of goods and services at fair prices. When there’s a monopoly you don’t have more than one option to choose regarding one type of product. Back in the 80’s, consumers didn’t have many options. Now the situation has changed, and we have plenty of other companies competing in the retail market. Competition is important or necessary because from a general perspective, the more competition (undertakings) there is in the given market, the merrier. That is because, it pushes companies to invest on themselves and do their best. Therefore, one of the consequences lowers the prices and many other good consequences that turn out for the consumers and economic welfare. However, in some cases, competition law it would be better if it was more ﬂexible, that they were less companies doing the same. For instance, train transportation market. Underlying economic rationale Competition law is concerned with ensuring that undertakings (usually companies) operating in the free-market economy do not restrict or distort competition in a way that prevents the market from functioning optimally. The belief that competition amongst undertakings produces the best outcomes for society is based on an underlying economic theory that employs models of perfect competition (ﬁrst graph) and monopoly (second graph), and concepts of welfare and eLiciency. Therefore, the 2 graphs illustrate 2 types of economic perspectives. The ﬁrst one shows perfect competition, what competition laws want to look forward to. There isn’t any market that works perfectly currently. In a perfect competitive market, a supplier is able to sell their products, and every consumer is able to buy it (perfect competitive price). The second graph shows a monopoly which is what competition laws try to avoid (in most cases). Main ﬁelds of EU Competition Law (or threats to e=ective competition) Ensuring or fostering eLective competition with certain controls and laws regarding the avoidance of distortions. Agreements (including cartels): As a principle, agreements that have as their object or eLect the restriction of competition are unlawful unless they comply with particular conditions (basically, they produce economic eLiciencies for the sake of consumers). Cartels are the most serious infringements and the priority of European Commission. Abuses of dominant position: Abusive behavior by a ﬁrm with substantial market power can also be prohibited by competition law. Some procedural aspects. There are some cases that companies win cases not on the basis of substantive assessment, but because of procedural errors. So, there is important as well to know the procedural aspects. Control of concentration (a.k.a. “merger control”): Competition authorities are enabled to investigate concentrations that could be harmful to the competitive process, subject them to conditions, or ultimately prohibit them. All of the transactions that become a threat to competition law. We must take into account that infringement of merger control can result into ﬁnes. At EU level (as in many other legal systems), concentrations cannot be completed until cleared by the competition authority. State aid and foreign subsidies: Control (and reactive measures) of aid/subsidies that public bodies grant to undertakings and which cause distortions in the market. Nevertheless, in certain cases, after assessment by the Commission, public intervention may be allowed/justiﬁed. HIERARCHY OF NORMS IN THE EU: Primary law: - Treaty on the Functioning of the European Union (TFEU), articles 101 to 109. The drafting has remained essentially identical since 1958, in spite of radical changes in the way competition rules are interpreted / implemented (ref. so- called “modernization”). - In conjunction with article 3(3) of the Treaty of the European Union (one of the EU’s objectives is to establish a highly competitive social market economy) and Protocol 27 (the EU is to establish an internal market, which is to include a system ensuring that competition is not distorted). Secondary law: (anything that is not the treaty) - Regulations: direct application/direct eLect (e.g. Regulation 1/2003, Regulation 139/2004). - Directives: need transposition/exceptional direct eLect. - Decisions: individual cases. - “Soft law”: Recommendations, notices and guidelines; non-binding eLect. INSTITUTIONS: EU level: - Law-making: European Parliament: consultative role in the competition ﬁeld. Council of the EU or Council of Ministers o Legislative arm o Composed of Ministers of the MS) European Commission (EC): o Proposes legislation and enforces competition legal framework. o Investigative and sanctioning powers, sectorial investigations. o Directorate General for Competition (DG COMP), including a Commissioner, two Hearing OAicers, a Director-General, three Deputy Directors General, a Chief Competition Economist and 11 administrative units. - Court of Justice: The ﬁrst instance is the General Court. 54 judges (2 per MS). The second instance is the Court of Justice and the last level of judiciary review within the EU. 11 advocates general. National level: each MS has each own competition law authority - National Competition Authorities (NCA) Public enforcement European Competition Network (ECN); “best placed authority”. The national authorities cooperate with the ECN. The idea is to allocate the case to the best place, sometimes it is the national, and sometimes it is the European authorities. The ECN ensures that each national court applies the same criteria regarding EU legislation National courts o have the option to ask for interpretation about EU legislation regarding competition law to the CJ when there is no previous case law about it through what it is called preliminary rulings. Therefore, we can say there is a cooperation between national authorities or courts to the European ones. - Other relevant organisms: International Competition Network. All the competition authorities gather and work together each year. OECD WTO BASIC CONCEPTS OF COMPETITION LAW: Undertaking: (...) in the context of competition law, (...) the concept of an undertaking encompasses every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is ﬁnanced (...). (Case Höfner and Elser, C- 41/90) (judgement of CJ). (...) It is the activity consisting in oAering goods and services on a given market that is the characteristic feature of an economic activity. (Case FENIN, T-319/99). (judgement of General Court). - The undertaking determines the personal (subjective) scope of application of competition law. The 95% of the cases the concept of undertaking means companies or enterprises, however, the concept of undertaking goes further, the purpose of the concept is to subject laws or regulation of competition of every single source of the legal market. And since the market in most of the cases references to companies, that is why most of the cases an undertaking is a company. But, as we mentioned, the concept goes beyond, every entity engaged in an economic activity (being a company or not). An example of not a corporation is the state (public administration when they are performing an economic activity). - Autonomous concept of EU competition law. Therefore, for competition law we have our own notion of undertaking. Within the context of competition law is such. For that we need to clarify what is an economic activity (deﬁnition of general court). - Functional approach: focus on the (economic or non-economic) activity, not the entity. We are not interested about the legal form or status of the entity in question, we are interested in what is that such entity does and whether it performs the economic activity for the purposes of competition law (again most cases are corporations). But, Activities connected with the exercise of the powers of a public authority are not economic (Case FENIN, T-319/99). There was a discussion whether a public authority is purchasing goods or services for the purposes of public administration is performing economic activity or not, the answer by the court of justice was that it is not an economic activity. Ex: acquiring material for public hospitals. - The legal status or form is immaterial, as it is the ﬁnancing. Pursue of an economic aim ≠ proﬁt-motive (not necessary). Procurement that is ancillary to a non-economic activity is not economic. To have an undertaking with an economic activity does not mean that they have to have aim for proﬁt, ONG’s can be undertakings as well. Ex: Red Cross, La Once, etc. If an entity does not qualify the concept of undertaking, we cannot apply competition laws. Association of undertakings (are also encompassed by the concept of undertaking). - Decisions of a trade association - Public status does not preclude application of art. 101 TFEU - An association can be caught by art.101 TFEU for some tasks but not for others. Market deﬁnition: The relevant product market comprises all those products [or services] that customers regard as interchangeable or substitutable to the product(s) of the undertaking(s) involved, based on the products’ characteristics, their prices and their intended use (...). The relevant geographic market comprises the geographic area in which the undertakings involved supply or demand relevant products, in which the conditions of competition are suJiciently homogeneous (...) and which can be distinguished from other geographic areas, in particular because [such conditions] are appreciably diLerent (...). Except from very few isolated cases, competition law applies to all markets, all sectors of economic activities. - Market deﬁnition serves diLerent purposes in relation to agreements, abuses of dominance position and concentrations (Lombard Club T-295/02; MasterCard T- 111/08). - Assessment essentially (but not only) based on demand-side substitutability (price elasticity); and, to a lesser extent, on supply-side substitutability (is also considered but in few cases into a lesser extent, therefore is not so much taken into account). - Evidence: recent past, customers and competitors, consumer preferences, marketing studies, pattern of purchases, trade ﬂows, etc. the geographic market can be very local or national or international, it can vary depending on the product, customers, competitors, etc. - How do we (competition lawyers) deﬁne markets in our daily practice? Types of competition covered (protected) by the EU competition laws: (2 distinctions that we ﬁnd in the decisions of the CJ): 1. Inter-brand vs. Intra-brand competition: (Guidelines on Vertical Restraints, par. 21). a) Inter brand is the competition is the one between a supplier and its competitors. The competition that we may ﬁnd between competing companies (ex: apple and Samsung) which target the same market and costumers. b) Intra brand competition is the one between distributors of the goods or services of the same suppliers (horizontal). Ex: The vendor of lithium to Apple vs. Samsung. 2. Actual vs. Potential competition: (Guidelines on the applicability of art. 101 TFEU to horizontal cooperation agreements, par. 16; Guidelines on Vertical Restraints, par. 90). This is a more abstract distinction. a. Actual competition is the actual competitors in the same market currently, what is currently happening in the given market. Therefore, is regarding two undertakings which are treated as actual competitors if they are active on the same relevant (product and geographic) market. b. Potential competition is what could potentially happen in a certain market in a short period of time, it is thinking about the future, and there are certain types of rules that are directed to potential competition. That is because certain conducts in a given market may aLect not only the actual competitors in such market but also potential competitors that might be entering soon the market in question. In other words, an undertaking is treated as a potential competitor of another undertaking if, in the absence of the agreement, it is likely that the former, within a short period of time, would undertake the necessary additional investments or other necessary switching costs to enter the relevant market in which the latter is active. EJect on trade between MS (or “appreciable eJect”): Scope of application of EU competition law vs. national competition law: The EU Commission will intervene when the competition is aLected, and it is not only national wise. Trade between MS: (Very) Wide concept. Covers cross-border exchanges of products / services, but also cross-border economic activity, including establishment. May be aLected even where relevant market is national. ELect: It must be possible to foresee with a suLicient degree of probability of a direct or indirect, actual or potential, inﬂuence on trade between MMSS. Conducts that do not create negative eLects on trade between MS, or such eLects are negligible, are not relevant. (not all cases will be relevant for the purposes of competition law). In principle, no appreciable eLect if: (a) parties’ combined share < 5%; and (b) total annual turnover of the parties at EU level < €40 million. SESSION 2 – AGREEMENTS (I): Introduction: Competition is a basic mechanism of the market economy which drives towards innovation and efficiency, which ultimately leads to more competitive prices (=lower prices), better quality and/or more variety in the provision of goods and services. Structure of art. 101 TFEU: Default rule: General prohibition of collusive practices. Article 101(1) TFUE prohibits all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market (the list therein is non-exhaustive) … unless they comply with certain conditions (Article 101(3) TFEU) à exemption from the prohibition. Establishes conditions for an exemption. Those are cases that may lead to a positive outcome. We need to balance the psotive and negative effects. Example: Several small car manufacturers in the EU agree to jointly develop a new, eco- friendly engine to meet stringent environmental regulations. The agreement includes sharing research, technology, and production costs, which helps them innovate more quickly and compete against larger global manufacturers. Prohibited agreements are null and void (Article 101(2) TFEU). The natural consequence of paragraph 1 is that such conduct would be null and void. Consider the following scenarios concerning VCV Group (I) 1. VCV Procurement NV has subscribed several agreements with suppliers of the raw materials, other than cocoa (e.g., sugar, milk), necessary for the manufacturing of VCV’s products. 2. VCV Procurement has subscribed, respectively, agreements with all other VCV’s Subsidiaries for the supply of cocoa and other raw materials necessary for the manufacturing of VCV’s products. If VCV Procurement NV and the subsidiaries are part of a single economic entity (i.e., not independent competitors), their agreements are generally not subject to Article 101(1) TFEU. Intra-group agreements are internal and do not restrict external competition. However, if they operate independently, these agreements could raise concerns under Article 101(1), such as: - Limiting competition by preventing subsidiaries from sourcing from or selling to others. - Price coordination that could distort the market. Exemption under Article 101(3) might apply if the agreements result in significant efficiencies (e.g., optimized supply chain) and benefit consumers (e.g., lower prices or better products). 3. VCV Procurement NV is a member of BesteKoop Centraal, an in charge of pooling the purchasing needs of its members, thus achieving better supply prices and purchasing conditions. Several other undertakings, including VCV’s competitors, are also members of BesteKoop. 4. VCV Retail is negotiating with JJS, a real estate company, a commercial lease contract to open a new flagship store in a high-end shopping center. One of the clauses in the contract reads as follows “JJS shall obtain prior written approval from VCV Retail before subscribing any contract to lease available rental space to other tenants”. The clause in which JJS (the landlord) must seek VCV Retail's approval before leasing space to other tenants could raise concerns under Article 101(1) TFEU if it restricts competition. This clause might: - Restrict competition by limiting other businesses from entering the shopping center, potentially preventing competitors from accessing prime retail locations. - Exclusivity or control over tenant selection may distort the market by reducing consumer choice and hindering competition in the area. Such a clause might only be allowed if it meets the criteria for an exemption under Article 101(3), such as demonstrating that it provides efficiencies (e.g., enhancing the shopping experience) that benefit consumers without excessively restricting competition. Otherwise, it could be seen as anti-competitive. 5. Ms. Dahl, CEO of VCV, has received an email from Mr. Aknow, CEO of MDA Choco, with the following content: “Dora, VCV is recruiting from MDA Choco. Your HR Department has hired one person already and is calling lots more. I have a standing policy with our recruiters that we don’t recruit from VCV. It seems you have a different policy. One of us must change its policy. Please let me know who. Best, Guillaume”. (It can be seen as a concerted practice). The email from the CEO of MDA Choco to the CEO of VCV suggests a potential no- poaching agreement, where the two companies would agree not to recruit employees from each other. This type of agreement could raise serious competition law concerns under Article 101(1) TFEU. A no-poaching agreement restricts competition in the labor market by limiting employees' mobility and reducing wage competition between firms. Such agreements are typically seen as anti-competitive because they prevent workers from receiving better job offers and hinder competition for talent. If VCV were to agree to this proposal, it could be viewed as an illegal restriction of competition. There are generally no grounds for exemption under Article 101(3) for such agreements, as they do not provide consumer benefits or efficiencies that could outweigh the negative impact on the labor market. 6. VCV Retail regularly exchanges information with its retailers in Spain and in Portugal (both own and independent) to improve the sale of VCV’s products in the Iberian Peninsula. The exchange includes data on prices, discounts and volumes. This exchange covers both information from the past (usually actual information from the last month) and forecast on future sales, promotions and campaigns. The regular exchange of information between VCV Retail and its retailers in Spain and Portugal could raise concerns under Article 101(1) TFEU if it leads to anti-competitive behavior. This exchange includes sensitive information such as prices, discounts, volumes, and future sales forecasts. Sharing such data could facilitate collusion among retailers, potentially leading to: - Price-fixing, where retailers might align their pricing strategies based on shared data. - Coordination of discounts and promotions, which could undermine competition by standardizing practices across the market. However, if the information exchanged is historical and aggregated, and does not significantly impact competition, it may not violate competition law. Additionally, if the exchange is aimed at improving efficiency and consumer benefits without harming competition, it might be considered acceptable. For compliance, it is crucial that VCV Retail ensures the information exchanged does not facilitate anti-competitive practices and that any data sharing adheres to guidelines set out by competition authorities. 7. VCV is a member of the Association of Belgian Chocolates (“ABC”, I) 7.1. Every Monday afternoon, Ms. van Beauregard, VCV’s Commercial Director and VCV’s representative in the Commercial Committee within ABC, receives a weekly report from ABC, which includes information on wholesale and retail prices applied the previous week by ABC members. 7.2. The Steering Committee of ABC, where Ms. Dahl is vice-president, has drafted a communication addressed to EU institutions requesting an urgent intervention to, in relation to products marketed in the EU, (i) increase the general minimum percentages of cocoa required by EU legislation to allow edible products to be labelled as “chocolate”, and (ii) introduce an amendment in applicable legislation to introduce a new category, “dark chocolate”, requiring that it includes a minimum of 72% of total dry cocoa solids. The Steering Committee of ABC, where Ms. Dahl (VCV's CEO) serves as vice-president, has drafted a communication to the EU institutions requesting legislative changes regarding cocoa content in products labeled as "chocolate" and introducing a new category, "dark chocolate." While this request might seem focused on improving standards, it could raise concerns under Article 101(1) TFEU depending on the potential market impact. - Raising Barriers to Entry: Increasing the minimum cocoa content for products labeled as "chocolate" and creating a stricter "dark chocolate" category may raise barriers to entry for smaller producers or competitors who may not meet the new standards, potentially limiting competition. - Market Manipulation: If the proposal leads to higher costs or restricts certain producers from marketing their products as "chocolate," it could be seen as an attempt to manipulate the market in favor of ABC members, reducing consumer choice and harming competition. 7. VCV is a member of the Association of Belgian Chocolates (“ABC”, II) 7.3. ABC, through its ESG Committee, participates in a project named “Chocolate for Tomorrow”, an industry-wide initiative comprising companies operating along the cocoa and chocolate supply chain, to improve the standards of cocoa growing. Among others, the parties to the initiative have agreed on: (i) establishing minimum requirements in the growing process of the cocoa that later will be used to manufacture cocoa-based products (e.g., use of natural products only in the growing of cocoa; minimum growing and maturity time of cocoa); (ii) not using any cocoa in the manufacturing process, nor marketing any cocoa-based products, not meeting the abovementioned requirements. ABC, through its ESG Committee, is part of the "Chocolate for Tomorrow" project, aimed at improving cocoa growing standards. The initiative includes two key agreements: 1. Minimum standards for cocoa growing: The parties agree to speciﬁc requirements, such as using only natural products in cultivation and enforcing a minimum growing and maturity time for cocoa. 2. Exclusion of non-compliant cocoa: The parties commit not to use or market cocoa that doesn't meet these standards in the production of cocoa-based products. Potential Competition Law Concerns (Article 101(1) TFEU): While the initiative seeks to promote sustainability and higher quality in the cocoa supply chain, the agreements could have anti-competitive eJects if they: a) Restrict supply: By setting stringent standards, the agreement might reduce the amount of cocoa available in the market, particularly from smaller or less advanced producers who cannot meet these requirements. This could lead to higher prices or reduced availability of cocoa. b) Exclusionary eJects: Producers unable to meet the new standards would be eLectively excluded from the market, which could limit competition, especially if those standards are unnecessarily strict or not related to product safety or quality. c) Market distortion: If only larger, well-established companies can comply with the standards, it may distort competition by giving them an advantage over smaller, newer producers, thus reducing consumer choice. Exemption under Article 101(3) TFEU: For this agreement to be exempted, the project must demonstrate that: a) The beneﬁts (e.g., environmental sustainability, improved product quality) outweigh the restrictive eLects on competition. b) Consumers receive a fair share of the beneﬁts, such as access to higher- quality, sustainably sourced products. c) The restrictions on competition are proportionate and indispensable to achieving these beneﬁts. In essence, while the project promotes positive environmental and ethical goals, care must be taken to ensure that it does not unduly harm competition by restricting market access or supply in a way that cannot be justiﬁed by the beneﬁts. 7. VCV is a member of the Association of Belgian Chocolates (“ABC”, III) 7.4. The ESG Committee of ABC has drafted a communication addressed to EU institutions requesting an urgent intervention to ban the use of any type of plastics in the food industry for the purposes of primary packaging (i.e., the one in contact with the final product). While the previous request to enact legislation at EU level is in process, the ESG Committee of ABC has adopted a strict policy according to which no member of ABC shall use any type of plastics in the primary packaging of their products, and shall terminate any existing agreements with third parties providing such packaging services, or amend such agreements to exclude the use of plastics. Failure to comply with this policy within a three-month term upon its entry into force will imply the imposition of periodic penalties. Potential Competition Law Concerns (Article 101(1) TFEU): This policy could raise competition concerns, as it involves: a) Market exclusion: The forced termination or amendment of agreements with plastic packaging suppliers could exclude certain suppliers from the market, which may reduce competition among packaging providers. b) Coordinated behavior: Requiring all ABC members to adopt the same packaging standards could be viewed as anti-competitive coordination, particularly if it limits the ability of members to choose more cost-eLective or innovative packaging solutions, thus reducing competition among members themselves. c) Restrictive impact: The penalties for non-compliance could compel members to adhere to the policy, restricting their individual commercial freedom and potentially harming their ability to compete eLectively. Article 101(3) Exemption: For the policy to be exempt under Article 101(3) TFEU, it must: a) Show that the environmental beneﬁts (e.g., sustainability) outweigh the restrictive eLects on competition. b) Ensure that consumers and the market as a whole beneﬁt from these changes (e.g., through improved environmental standards without signiﬁcant price increases). While the environmental goals are positive, the policy must be designed carefully to avoid disproportionately restricting competition or excluding suppliers without a clear, justiﬁable beneﬁt. ARTICLE 101(1) TFEU: BASIC CONCEPTS Þ Agreement – The concept “centers around the existence of a 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”. – Examples: a) contract / contractual terms and conditions b) gentleman’s agreement c) compromise or protocol d) invoice e) guidelines or instructions issued by one undertaking and adhered by another f) exchange of correspondence – Tacit agreement / Acquiescence is also caught; adherence must be proven – Horizontal and vertical agreements are caught. a) Horizontal Agreements: These are agreements between companies that are at the same level in the market, usually direct competitors. For example, if two chocolate manufacturers decide to set the same price for their products or agree to divide up markets, that’s a horizontal agreement. Since they are in direct competition, such agreements can limit competition and harm consumers. b) Vertical Agreements: These agreements occur between companies that are at diJerent levels of the supply chain. For instance, if a chocolate manufacturer makes an agreement with a retailer about how to sell their products or sets speciﬁc conditions for distribution, that’s a vertical agreement. – Concept of agreement does not apply to companies belonging to the same single economic unit à in order to consider an agreement: we need two or more independent undertakings – The burden of proof lies on the EC (Regulation 1/2003). Þ Deﬁnition of Concerted Practice: A concerted practice refers to a type of coordination between companies that does not reach the formal stage of an agreement but still results in cooperation that reduces competition. Essentially, it's when companies work together in a way that limits their competitive behaviors without having a formal agreement in place. Key Aspects: 1. Coordination Without Formal Agreement: In a concerted practice, companies may coordinate their actions or strategies, but they haven’t signed a formal agreement. For instance, two companies might agree to follow similar pricing strategies based on their understanding of each other's behaviors, even if there’s no written contract. 2. Practical Cooperation: The idea here is that the companies are eLectively cooperating in a way that replaces the natural competition that would normally exist between them. This means they might avoid competing aggressively against each other, which could harm consumers through higher prices or less choice. 3. Legal Qualiﬁcation: The European Commission is not required to categorize the cooperation as either an “agreement” or a “concerted practice.” Both forms of coordination are treated similarly under Article 101 TFEU, which prohibits anti-competitive behaviors regardless of their legal classiﬁcation. 4. Economic EJects: The focus of competition law, as highlighted in the case of Quinn Barlo v. EC, is on the economic eJects of these practices rather than their legal formalities. This means that whether it’s called an agreement or a concerted practice, the main concern is how it aLects competition and the market. 5. Burden of Proof: Under Regulation 1/2003, the burden of proof lies with the European Commission. This means that if the EC suspects that companies are engaging in concerted practices, it must provide evidence to demonstrate that these practices are reducing competition in the market. Þ Decisions by an association of undertakings: a) Coordination Within Associations: Companies can coordinate their actions through an association, even if the association itself is not considered a business (or "undertaking"). This means that if members of an association work together or align their strategies, it can still raise competition concerns. b) Wide Interpretation of Terms: The concept of an “association” and what constitutes a “decision” within that association is interpreted broadly. This means that even informal recommendations or suggestions made by the association can be scrutinized under competition law. Each situation is analyzed on a case-by-case basis to determine whether it has an anti- competitive eLect. c) Membership Implications: Simply being a member of an association is often enough to imply participation in any anti-competitive coordination that occurs within it. If a member does not explicitly oppose or distance itself from a decision or recommendation, it can be assumed to be participating in that behavior. d) Burden of Proof: Similar to other aspects of competition law, the burden of proof lies with the European Commission (EC) as per Regulation 1/2003. This means that if the EC alleges anti- competitive behavior involving an association, it must provide evidence to support its claims against the member companies. Þ Prevention, restriction or distortion of competition: All the practices mentioned must have a negative impact on competition and this impact must be appreciable or signiﬁcant > the de minimis doctrine: - “[An agreement falls outside the prohibition in Article [101(1) TFEU] where it has only an insigniﬁcant e=ect on the market, taking into account the weak position which the persons concerned on the market of the product in question” (Völk v Vervaecke, C-5/69). - EC Notice (2014): a) Market shares - Safe harbor (no presumption): Safe Harbor refers to a legal provision that provides protection from liability under speciﬁc conditions. In the context of competition law, it oLers a threshold below which certain agreements are presumed not to have anti-competitive eLects, allowing companies to engage in cooperation without fear of violating competition rules. Key Points: 1. Thresholds for Market Shares: o Horizontal Agreements: If the aggregate market share of the companies involved is less than 10%, these agreements are typically considered safe and are not presumed to restrict competition. o Non-Horizontal Agreements: For agreements that involve diLerent levels of the supply chain (e.g., supplier and retailer), the aggregate market share must be less than 15% to fall under the safe harbor protection. b) Restrictions by object are excluded, regardless of market share of the parties (Expedia, C-226/11). Restrictions by object are agreements or practices that are clearly aimed at limiting competition. Examples include price-ﬁxing, market sharing, and output limitation. These practices are viewed as harmful because they directly undermine the competitive process. Negative eJects are presumed (but admit rebuttal). The intention of the parties is not essential, but it can play a role. Object or eLect: alternative requirements, not cumulative. If a conduct is not restrictive by object (or it is doubtful), it is necessary to consider if it has restrictive eJects (much more onerous task). ELects on actual and potential competition must be considered. The burden of proof lies on the EC (Regulation 1/2003). c) Not binding on NCAs or National Courts. à Warning: national competition law may still be applicable. Þ Trade between Member States: a) Scope of EU Law: The concept of trade between EU Member States deﬁnes when EU competition law applies. If a practice or agreement aLects trade across borders, it falls under EU rules. b) "May AJect" Standard: For an agreement or practice to be considered under EU law, it must be able to aLect trade between countries. This means: - There should be a reasonable chance (based on objective facts or laws) that the agreement could inﬂuence trade patterns. - It can be a direct eLect, indirect eLect, actual eLect, or potential eLect. c) Intent Doesn't Matter: It is not necessary to prove that the parties involved intended to aLect trade. What matters is whether the agreement or practice could potentially impact trade, regardless of their intentions. ARTICLE 101(3) TFEU a) Agreements fulﬁlling the conditions set out in article 101(3) TFEU are individually exempted from the prohibition of Article 101(1) TFEU and therefore compatible with EU law. b) Conditions under art. 101(3) TFEU are cumulative. c) There are no anti-competitive agreements which, as a matter of law, could never satisfy the conditions set out in article 101(3) TFEU (Hachette, T-17/93) à even hardcore restrictions (e.g., cartels), though, in practice, it will be highly unlikely. d) The burden of proof lies on the undertaking(s) seeking to defend an agreement. e) EC Notice on Article 101(3) TFEU. Conditions (I): a) ELiciencies (improvement in the production/distribution of goods or services, or improvement of technical/economic progress): a. Purpose: to identify objective economic beneﬁts resulting from the agreement. b. Two broad categories: cost eLiciencies (lower prices; increased output) or qualitative eLiciencies (new products/services, higher quality; innovation). c. Obligation to substantiate and quantify. Direct casual link; time and manner. b) Indispensability: – Restrictions are reasonably necessary to generate the eLiciencies? – Could the parties achieve the (same or comparable) eLiciencies through less restrictive means? Conditions (and II): a) Consumer pass-on (fair share for consumers): a. Do the parties have the incentive to pass-on a fair share of the beneﬁts to consumers? b. The more limited is the (restrictive) agreement, the greater the beneﬁts for consumers. b) No elimination of competition: a. Situation pre-agreement vs. situation post-agreement b. Absence of competitive constraints between undertakings? SESSION 3: Agreements II Introduction: If an agreement falls within article 101(1) TFEU, it can be exempted: – Individually: the undertaking(s) must prove that all four conditions of article 101(3) TFEU are met. – Under a Block Exemption Regulation (BER): there are certain categories or certain blocks of agreements that have been consistently considered to be in compliance with art. 101 section 3 if they fulﬁl certain conditions. For certain types of agreements, the European Commission has issued the conditions to fulﬁl to beneﬁt from the exemption, majority vertical agreements in fact there is a shortcut to get to the same objective with the exemption instead of going through art. 101 (3) we look at BER. – If conditions and limits set by the BER are met à presumption that conditions of article 101(3) TFEU are fulﬁlled. – Largely based on market shares à thresholds for applicability. It is not the same, that an agreement between 2 undertakings each of them with market shares 25%, it has not the same eLect if there is an agreement with 2 undertakings that each of them has 5% of shares. – Hardcore restrictions (“black list”) / other excluded restrictions (“grey list”). Depending on the level of seriousness have higher consequences. – Consequences of non-compliance with the BER? The EC issued guidelines how the UE would interpret the BER’s and consequences. – Usually, BERs + Guidelines by the EC Outside BER: What happens if the conditions of BER aren’t met? There is NOT presumption of illegality, that is because the BER is just a shortcut to reach the exemption, the main way are the conditions of the individual assessment of art. 101 (3), and this is always possible, consequence of non-compliance with the BER does not apply and the consequence is not that the agreement is illegal, we will opt for the individual assessment, we will take into consideration the legal and economic context. Therefore, if outside BER: – No presumption of illegality: application of Article 101(1) and 101(3) TFEU. – Analysis of the agreement in its legal and economic context: – parties’ market power; – legal environment (e.g., regulated market?); – Anti-competitive eLects of the agreement (e.g., foreclosure of suppliers or buyers, reduction of inter-brand competition, reduction of intra-brand competition, creation of obstacles to market integration). – Assessment of eLiciencies. CONSEQUENCES OF INFRINGEMENT Main consequence: Agreements are null and void: article 101(2) TFEU. Infringement à imposition of ﬁnes. EC Guidelines on the method of setting ﬁnes (2006). Damages claims: (with an increasing importance)à from consumers/ victims. – Courage case. – Directive 2014/104/EU on antitrust damages actions. HORIZONTAL COOPERATION AGREEMENTS Horizontal agreements = agreements between two or more undertakings operating at the same level in the market. For these types of agreements between competitors, there are 2 categories of agreements for which the European Commission has issued block exemption regulations: Current Horizontal BERs (HBERs): – Regulation (EU) 2023/1066 à R&D Agreements. – Regulation (EU) 2023/1067 à Specialization Agreements. This situation explained would be a specialization agreement, that category of cooperation we would look at the block exemption regulation (art. 101 (3)) that regulates how specialization agreement would take place in competition law. In addition, EC Guidelines for the assessment of horizontal cooperation agreements: these guidelines cover both, horizontal BER’s but also covers the assessment that the EC plans to apply to other types of agreements that aren’t covered by the block exemption under art.101(3), however, they can beneﬁt from the exemption. o R&D Agreements and Specialization Agreements o Joint production. o Joint purchasing. o Joint commercialization. o Exchanges of information o Standard setting and/or terms. o Sustainability agreements These are the types of contents that would be horizontal agreements. Horizontal BERs. Safe harbors. Parties hold a combined market share below: (one of the conditions that competing parties participating in an agreement, is one of the conditions for the exemption to apply to such agreement). If the market shares are above those limitsà art. 101(3) TFEU. – 25% for R&D; – 20% for production and specialization; – Irrespective of the market shares, HBERs do NOT apply if the agreement contains hardcore restrictions: (cannot be exempted in any way because of the nature of the agreement): are the following: Agreements that have as their object a restriction of competition by means of: a) price ﬁxing, b) limiting output or sales, or presumption of negative eLects c) sharing of markets or customers. (Joint) Purchasing and commercialization à unlikely to have negative eLects if combined market share < 15%. The parties would have to check if there would be negative eLects. Exchanges of information between/among competitors: – NOT a per se restriction; may be pro-competitive. However, the exchange of particular information such as actual and future data, can be a problem and be punished in competition law. – Main concern: Situations where undertakings exchange information that artiﬁcially increases transparency in the market and allows coordination. In normal circumstances, no undertaking would have information would plan to make an investment, or open a new oLice, or the prices for the next term. If it does, it raises concerns to the Commission and European competition law. They can do recommendations, or can predict but if they know due to an exchange of information that could be damaging for competition law purposes. – Direct and indirect (hub & spoke) exchanges are captured. The most complicated and interest to follow is the indirect: we have manufacturer 1, and instead of exchanging the information directly about prices, they used the common suppliers that they had in the markets to exchange such information. In this case, the national competition authority of Portugal became aware of such scheme and put sanctions to this competition cartel. There are some factors that we need to pay attention to in order to be aware of all that. The guidelines of the EC say that: – Information exchanges of individualized data relating to future conduct (particularly prices) à highly likely to be considered a restriction by object – Assessment based on several factors, e.g.: individual/aggregated data; historic / recent / actual / future data; secret / publicly available data; frequency of the exchange. It is more important is about the future data, because it has not happened yet, so if the information is about future information, the more problematic for competition markets it is. VERTICAL AGREEMENTS Are more relevant because they normally are more usual in an economic market. Vertical agreements = agreements between undertakings operating at diJerent levels of production or distribution chain + concern conditions of purchase, sale or resale of goods or services. (we need both characteristics in order to be a vertical agreement for purposes of competition law). Applicable rules: – Regulation (EU) 2022/720 (Vertical Block Exemption Regulation, or VBER). – Guidelines on Vertical Restraints. Most important / common types of vertical agreements: – Exclusive distribution (territory/customer allocation). – Selective distribution. – Franchising. Agency agreements (genuine agents) do not fall within the scope of article 101(1) TFEU. Decisive element: allocation of risks. Safe harbor. Conditions: – Each party holds a share below 30% in their respective relevant market. – VBER does not apply if agreement contains hardcore restrictions. Hardcore restrictions (article 4 VBER): if a vertical agreement has a hardcore restriction, none of the clauses of the agreement cannot beneﬁt from a block exemption. But if there is a particular clause with a hardcore restriction, only that particular clause would not beneﬁt from the exemption, not aLecting the rest of the agreement. – Resale price maintenance (RPM), particularly resale prices and minimum prices. Maximum and recommended prices are allowed. Price monitoring? It should be a general recommendation, should be non-mandatory or non-binding to the buying, otherwise would be thought to be against competition law. – Certain resale restrictions (territory / customer) in distribution systems (see next slide). – Restrictions in the use of internet to sell the contract goods/services; certain limitations are admissible. This has been quite a change to the block chain regulation in 2022 (since there was a need to update to the use of the internet for sale). What actually amount to hardcore restrictions is to ban totally the use of internet to sell. But certain limitations are admissible. For instance: they do not amount to an absolute ban to use the internet to sell or advertise are considered admissible sometimes. Ex: allowed to sell at a minimum price. – To restrict a supplier of components from selling these as spare parts to end- users or independent repairers. This restriction was particularly included in the block exemption regulation. The usual practice: you have the manufacturer of some spare parts, and you have the manufacturer of vehicle, and the usual practice was that the manufacturer of vehicles had more power than the other, and consequently, it was sort of prohibited to sell independent parts or repairs. This hardcore restriction allows that the vehicle manufacturer cannot prohibit to the spare parts manufacturer sells independent parts or does independent reparations. Resale restrictions in exclusive / selective distribution: – Exclusive distribution vs. Selective distribution. o Exclusive distributionàThe purpose of the suppliers is to form groups of suppliers to a group of distributors. The suppliers commit to not supply the products to any other distributor in such territory. In Article 4(b), the possibility of shared exclusivity is introduced, allowing a supplier to appoint up to a maximum of 5 distributors per exclusive territory or customer group. The new Vertical Guidelines explain that above this maximum there is a risk that the exclusive distributors will free-ride on each other’s investments, thereby eliminating the incentive of each distributor to invest and thus the efficiency that exclusive distribution is intended to achieve. Another change regarding exclusive distribution concerns the possibility for the supplier to oblige its distributors to pass on restrictions of active sales to their customers. The new VBER and new Vertical Guidelines clarify that the block exemption also applies where a supplier requires its distributors to ‘pass on’ to their immediate customers restrictions on making active sales into territories or customer groups exclusively allocated to other distributors. However, such pass-on is not block- exempted further down the distribution chain. o Selective distributionà The end goal is quite similar. But the way of doing it is quite diLerent. There is no particular reason that a supplier appoints to a particular distributor. The rational for a particular distribution is to ensure that the network of distributors is a closed one and meets certain criteria in relation to presales and post sales. Usually in a selective distribution it says that if you want to become a distributor in my selective suppliers you must meet certain conditions. Ex: at least sell 10.000 euros each term, etc. If they do not meet such criteria they cannot become their distributor and can’t be part of the network of selective distributor. Is to ensure that certain goods receive certain attention in presales and post sales for the products. Ex: someone who sells expensive watches, not everyone can sell them. Article 4(c) of the new VBER grants selective distribution systems enhanced protection: suppliers may now prohibit buyers and their customers from selling to unauthorized distributors located in a territory where the supplier operates a selective distribution system, regardless of whether those buyers and customers are themselves located inside or outside that territory. - Active sales vs. Passive sales: o Active salesà Means actively targeting customers by visits, letters, emails, calls or other means of direct communication or through targeted advertising and promotion, oLline or online, for instance by means of print or digital media, including online media, price comparison services or advertising on search engines targeting customers in particular territories, or oLering on a website languages that are commonly used in particular territories, where such languages are diLerent from the ones commonly used in the territory in which the buyer is established. o Passive salesà Means sales made in response to unsolicited requests from individual customers, including delivery of goods or services to the customer, without the sale of having been initiated by actively targeting the particular customer, customer group or territory, and including sales resulting from participating in public procurement or responding to private invitations to tender. - Main (not all) restrictions admitted in distribution systems: – Restriction of active sales to territories / customers allocated exclusively. It is allowed for the supplier to restrict active sale to the other territory but not restriction to passively sale. Is to provide the incentives to the producers to a certain territory but allowing some sort of competition. – Restriction of active and passive sales to unauthorized distributors in territories where the supplier operates a selective distribution system. Ex: in general, online sales are passive. In such system, the supplier can prohibit to actively and passively sales in the territory where there is a selective distributor. – The new Vertical Guidelines make clear that suppliers may set different wholesale prices for online and offline sales by the same distributor, as this may incentivize or reward an appropriate level of investments. While the difference in the wholesale prices must be reasonably related to differences in costs or investments between the online and offline sales channels, the parties are not required to carry out complex cost calculations or share detailed cost information in order to demonstrate this. The block exemption of dual pricing is also subject to certain safeguards. Namely, the difference in the wholesale price for online and offline sales should not have the object of restricting cross-border sales or of preventing the effective use of the internet by the buyer. Also, while the parties are free to set up a system that allows them to implement dual pricing effectively (for example, monitoring which items are actually sold online or offline for the purpose of ex post billing), any such system should not limit the number of products the buyer can sell online. Other excluded restrictions (article 5 VBER): - Non-compete obligations for more than 5 years (unless agreement is implemented in the supplier’s premises); It can be possible for automatic renewal under certain conditions. - Post-termination non-compete obligations (are stricter because there is no more a legal relation. DiLerent from non-compete obligations during a legal relation), except where they are: ▪ Limited to 1 year maximum; ▪ Limited to premises where the agreement was implemented. Which are the implications of these? Quite a lot. This condition has been interpreted very strictly by the tribunal. That is because if the party moves just after termination of the agreement, the non-compete is no longer enforceable; and ▪ Indispensable to protect know-how transferred to buyer. If there is no transfer of know-how, because the distributor knows enough and does not need the know-how, this condition won’t apply and there won’t be non- compete obligations. It is for the supplier to provide the evidence that has transferred the know-how and that it needs to be protected, otherwise this won’t be enforceable. - “Most-favored nation” or parity clauses across online platforms; “wide” vs “narrow” parity clauses. This clause implies the conditions that one party on an agreement conceded to a third party can be applicable to the contractual counterpart. In the agreement between two guys, if there is that clause any conditions that supplier applies to buyer which are more favorable will apply t another? EU Commission interpretation says that those party clauses that are considered to be wide party clause are excluded, and the ones that are narrow, will be considered generally admissible. Example: booking.com. Booking was requiring hotels that any condition that the hotel would apply to its own website or to a third party platforms that were in better conditions that those agreed with booking, were transferred to the agreement with booking. If you agree better conditions to another party, those conditions should apply to me as well. That raised concerns because this practice was pushing out of the market other platforms similar to booking because booking was much bigger. Therefore, wide party clauses are forbidden (the one that booking was requesting). Narrow parity clauses are NOT forbidden, and therefore, admissible. Example: the platform request business partner to apply those conditions to the platform itself, any conditions of own website should be as beneﬁcial and those applied for booking, the online platform. If we have an agreement with 15 clauses, there is one with hard core restriction not other clause can beneﬁt from exemption, if there are 15 clauses and one with excluded restriction the ban to beneﬁt from BER will only be regarding that speciﬁc clause. SESSION 4: CARTELS Introduction: It is considered the most serious infringement in the competition market. Evolution of approach to cartels: DG COMP’s (and NCA’s) main concern. Most serious infringement, causes most serious damage to consumers. Statistics on the activity of the Commission (as of December 7, 2023): https://competition-policy.ec.europa.eu/document/download/b19175c3-c693-410b- b669- 27d4360d359c_en?ﬁlename=cartels_cases_statistics.pdf 24 cartel decisions concerning 73 undertakings in the period 2019-2023. €3,796,756,000: ﬁnes-imposed period 2019-2023 (adjusted as a result of Court judgments) €3,807,022,000 (Trucks 2016/2017): highest cartel ﬁne per case. €1,008,776,000 (Trucks / 2016): highest individual ﬁne to an undertaking. Substance: Concept: We don’t have a closed deﬁnition of what should be a cartel, there is no regulation that deﬁnes a cartel. We have some deﬁnitions of the OECD and EC. The essence is the element of coordination (artiﬁcial coordination), and another element is the secrecy of such agreements, however there is a cartel that has been ongoing for 10 years and it is public: the OPEC (petrol), and nobody can address it, but all the other cartels have not survived and follow the same pattern (secrecy, coordination, long duration 7-8 years which can create signiﬁcant harm to consumers). It is a very dynamic concept, and the notion of cartels have evolved from the 70’s until today. OECD: “An anti-competitive agreement, anti-competitive concerted practice, or anti- competitive arrangement by competitors to ﬁx prices, make rigged bids (collusive tenders), establish output restrictions or quotas, or share or divide markets by allocating customers, suppliers, territories, or lines of commerce” (Recommendation of the Council concerning EAective Action against Hard Core Cartels). European Commission: “agreements and/or concerted practices between two or more competitors aimed at coordinating their competitive behaviour on the market and/or inﬂuencing the relevant parameters of competition through practices such as the ﬁxing of purchase or selling prices or other trading conditions, the allocation of production or sales quotas, the sharing of markets including bid rigging, restrictions of imports or exports and/or anti- competitive actions against other competitors” (Leniency notice). Conducts typically considered as cartels (non-exhaustive list): Price ﬁxing (either selling prices or purchasing pricesà equally problematic) Production / Output restrictions. Ex: automatic batteries. Market sharing or market allocation (geographic / customers) Bid riggingà name to identify those conducts where companies should be providing their best oLers to their benders, instead of that they coordinate their oLers so the winner of public or private tender is already decided beforehand. Boycottsà not many cases until now. Forcing someone to do something which infringes competition law. Pressure or threat. Ex: cartel for the insulated pipes. Where the commission ﬁned 10 companies in that industry for bid riggings and boycotts. Boycott is turning against a single company. Way of forcing the one that was not participating in the bid rigging to join. (Certain types of) Information exchanges Cartels are usually agreements (conduct), rather than a constructive practice. Restriction of competition by object. Why is that? Because according to the experience that has been growing for the past decade, something intrinsic is that there is nothing good coming from a cartel, it is not necessary for the authorities to prove the eLects of that conduct in order to come to the conclusion that there is an infringement, that is why it is a restriction by object and not subject. The main struggle of competition authorities is the evidence. The evidence is harder to obtain the longer the duration of the cartel. To somehow help the competition authorities in general, we have this legal ﬁgure of: - Single and continuous infringement. Example: if we have a cartel that goes for 10 years and the commission has evidence in all the 10 yards, they can consider that there is one single infringement that goes throughout all the duration periods. Complex practices adopted by various parties in pursuit of a single anticompetitive economic aim (“overall plan”, Trelleborg Industrie case). Allows the EC to prove a single infringement instead of identifying several separate infringements. Each undertaking is liable for the infringement as a whole (Requirements: duration, parties join the whole cartel not only an agreement in one particular year, and that the parties are aware of the whole cartel). As opposed to single and repeated infringementsà repeated cartels, cannot assume that they go on for the entire 8 years for instance, they have gaps, and such gaps are not included in the infringement): (they tend to have a long durationà 7 or 8 years. Therefore, competition authorities cannot use the presumption of single and continuous infringements on the single and repeated ones. - Participants in anti-competitive meetings will be taken to have participated in the cartel unless they prove that they have actively distanced from the conduct. - The role of facilitatorsà usually the undertakings in the cartels are the ones active in the cartel, the ones that want to beneﬁt from the cartel. But there are some undertakings that aren’t beneﬁting on the cartel, aren’t part of it, but help it happen. So, the competition authorities, are considering making liable also these facilitators even though, technically aren’t part of the cartel. Ex: Treuhand (consultancy company providing advice and hosting meeting, taking care of the minutes of the meetings for the group of companies in a cartel). The EU Commission considered the consultant company liable, and the European Court upheld the decision. DETECTION AND EVIDENCE How the competition authorities detect the cartels: reactive methods and proactive methods. Investigation powers (Regulation 1/2003): Requests of information: By simple request or by decision (the latter may be challenged before courts). The diLerence between those 2 is that the simple request is not legally binding, whereas the decision is legally binding. The undertaking cannot avoid the decision. The request must includeà Indication of legal basis, purpose, exact information requested, time limit and penalties (if not fulﬁlling the request). The relevant NCA must receive a copy of the request. Statements: Interview a natural or legal person in relation with an investigation. There is no possibility for the EC to oblige someone to give a statement. Right not to incriminate oneself. If it takes place in the premises of an undertaking, the relevant NCA must be informed of it and, if so requested, has the right to attend. Inspections: (the most successful way to get evidence) Also known as “dawn raids”à go to the premises of the undertakings that are under investigation and inspect, they can do it without previous warnings. They appear by surprise. Authorization vs Decisionà Written authorization by EC including purpose and subject-matter of inspection and penalties. If by decision (subject to appeal), the undertakings must submit to the inspection. The diLerence is that the inspection order it is not compulsory when it comes from an authorization, whereas it is compulsory if it comes from a decision. The most common ones are the decisions. Powers of investigationà enter the premises, land and means of transport; examine books and other records related to the business; to take or obtain copies; to seal premises; to ask for explanations on facts or documents related to the purpose of the inspection and to record the answers. In case of homes of directors or staL, a prior decision by a national court is compulsory. The competition authorities are also entitled to go to a private home of directors or staL of the undertaking that is being investigated. The relevant NCA must be informed. They usually cooperate with the EC inspection. An NCA can conduct an inspection if requested by the EC. OLicials will exercise their powers according to their national law. Usually, these inspections are a consequence of the leniency program. Leniency program: A cooperation program that incentivizes undertakings of a cartel to report the cartel, to self-incriminate and provide the competition authorities with information that would help the investigation. This program is successful is that this reporting of information comes with a reward for the cartel company that is giving the information. To receive immunity, it must be the ﬁrst company to do so. It is kind of stick and carrot way. 90% of the cartels that have been detected since the program got installed is because of such program. This program is an incentive. - Commission Notice on immunity from ﬁnes and reduction of ﬁnes in cartel cases (2006) - Undertakings which are —or have been— party to a secret cartel aLecting the EU market are rewarded if they cooperate with the Commission in investigating the conduct, either by submitting information and evidence enabling the Commission to carry out a targeted inspection (or inspections); or submitting information and evidence enabling the Commission to ﬁnd an infringement under art. 101 TFEU - First undertaking submitting such information and evidence → “immunity from any ﬁne which would otherwise have been imposed”. - Main requirements for immunity under the leniency program: Providing corporate statement and ‘contemporaneous, incriminating evidence of the alleged cartel’ not in the possession of the Commission. Providing genuine, full and continuous cooperation; Remaining at the Commission’s disposal to answer requests; Making (current and, if possible, former) employees or directors available for interviews; Not destroying, falsifying or concealing relevant evidence; Not disclosing the leniency application; Ending involvement in the cartel. - Where exemption is NOT available (someone beat you to it), possibility to apply for a reduction of the ﬁne. Information of ‘signiﬁcant added value’. The diLiculty of this system is for this immunity to be granted is that this information must have signiﬁcantly added value, it cannot be information that the EC already has. First undertaking (after the leniency applicant): 30-50% reduction. (That is to incentivize the companies to give good information). Second undertaking: 20-30 % reduction Subsequent undertakings: up to 20% reduction. - EC may exclude or withdraw the beneﬁts of the leniency programme. - Usual procedure: Marker (only for immunity) / leniency (or reduction) applicationà if the legal representative of a company that has been engaged to a cartel is trying to seek for the leniency program, can make a communication anonymously, asking if there is already a leniency program going on in their relevant market, so they can be safe. The EC will review of the information and evidence provided → at the end of this initial review would give conditional granting; Veriﬁcation of requirements; Granting (or not) of immunity at the end of administrative procedure. (Anonymous) Whistleblower Tool: Another set of tools that allow the competition authorities to notice the existence of cartels or other infringement of competition law. Unlike the leniency program, the anonymous whistleblower tool it NOT only applies to cartels, but other competition law infringements. - Implemented in 2017. - Complement to leniency program. - Individuals can report the EC the existence of a cartel (as well as other anti- competitive practices). - Possibility to: Report anonymously or revealing one’s identity; Ask the EC to reply the messages sent via this tool. - Directive (EU) 2019/1937 of the European Parliament and of the Council on the protection of persons reporting on breaches of Union law. Addresses fragmentation of protection across the EU. There are some states that do not oLer protection (gaps from translating the directive into each MS domestic law). SETTLEMENT PROCEDURE - Commission Notice on the conduct of settlement procedures (2008). - Rewards “cooperation in the conduct of proceedings commenced in view of the application of article 101 TFEU to cartel cases”. - Reward = 10% reduction on the amount of the ﬁne. - Possibility (an option that the EC can use at its discretion) to apply settlement in relation to: i. certain cartel cases, but not all; and ii. all participants of a cartel, or only to certain participants, but not others. - Commission has the discretion to explore the settlement procedure or not; settlement procedure cannot be imposed on undertakings. - Procedure: Initiation of proceedings and exploratory steps with affected undertakings. Settlement discussions: Parties are informed of objections, evidence available, non-confidential versions of relevant documents and range of possible fines (therefore before SO). Settlement submissions: Parties submit for settlement. The EC may reject the settlement submissions, in which case the standard procedure applies. Statement of objections (SO) and reply. Reply = confirming that the SO corresponds to settlement submission. No oral hearing, no full access to the file. EC decision and settlement reward (10% reduction is applied) - EC may discontinue discussions at any time (in a case generally, or regarding one or more parties) where it considers that procedural efficiencies are unlikely to be achieved. Undertakings in the same cartel are saying yes, this happening and giving information about the others, at the same time, there are the other companies that have not accepted the settlement, that are challenging those allegations. The Court of Justice has stated that even though some of the undertakings take and benefit from the settlement, and others don’t, it does NOT affect the right of defense from the later. CONSEQUENCES Fines: Commission Guidelines (2006) Calculation: Basic amount: value of sales of the previous years (in general, up to 30%) x duration; may include a deterrence factor; this calculation may increase or decrease the final fine. Adjustments to the basic amount (aggravating and mitigating circumstances); Specific increase for deterrence. Once the basic amount has been established, we must calculate possible aggravations, etc. once all of this is calculated, then, the EC calculates the maximum possible fine: Maximum possible fine = 10% of turnover of the offender in the previous year. The maximum possible fine is being calculated not only in the relevant market in which the cartel is happening, but considering all the markets that the offender has activity in. Parental liability: A parent company can be held liable for the activities of its subsidiaries if these do not enjoy autonomy in determining its commercial policy (i.e., the former exercises decisive influence over the latter). When a subsidiary is engaging in a cartel it is presumed that the parent company was aware of such cartel, and may be considered liable for the payment of the fine. Where the parent owns 100% of the subsidiary, rebuttable presumption on the exercise of decisive influence Both are often held jointly and severally liable in cartel cases. Right to appeal before European Courts; full jurisdiction in relation to the fine (i.e., decrease or increase it). They are entitled to review the fine in any possible wat, so they may reduce the fine, or increase it. Ex: mismo vibe de cuando vas a superación de exámenes para subir nota, te puede subir o bajar. Fines – Example – Power transformers: Conduct: market-sharing agreement between European and Japanese producers of power transformers to respect each other’s home markets: ABB - EUR 33,750,000 Alstom SA and Areva T&D SA - EUR 16,500,000 (AREVA was made jointly and severally liable for EUR13,353,000 of this amount) Fuji Electrics - EUR 1,734,000 Hitachi - EUR 2,460,000 Toshiba - EUR 13,200,000 Siemens - EUR 33,360,000 (reduced to 0 under the leniency program). Basic amount: Value of sales: 16% of the undertakings' value of sales of power transformers during 2001 Duration: four (4) years Deterrent factor: 16% of the value of sales Actions for damages: National courts are competent to apply art. 101 TFEU or, in cases of follow-on actions (more frequent in cartel cases), to grant compensation for an infringement declared in a previous administrative decision. Courage/Crehan case (C-453/99), preliminary ruling from UK Court of Appeal): “The full effectiveness of Article [101 TFEU] and, in particular, the practical effect of the prohibition laid down in Article [101(1)] would be put at risk if it were not open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition”. Directive 2014/104/EU on damages actions. Main points: o Rebuttable presumption that cartels cause harm o Cartelists face joint and several liability o Leniency statements and leniency submissions are protected (C-306/09 Pfleiderer). SESSION 5 – ABUSE OF A DOMINANT POSITION I: Introduction: In this session, we are not dealing with coordinated behavior between companies, but we are concerned about the conduct of a single company that is dominant in the relevant market, so, it prohibits that there is abuse of a dominant position. It only deals with bilateral behavior (as opposed to art. 101 à bilateral behavior). This raises a possible question: it is possible to apply art. 101 and art. 102 to the same facts? Or we have to choose between one and another? Yes, provided that all requirements are met. Most situations the EC, adopts a very pragmatic approach, and usually pics one or the other, to be more practical, but in any case, the EC prosecutes the same facts, the fine would be only one despite 2 legal provisions infringed. Article 102 TFUE prohibits any abuse of a dominant position within the internal market or in a substantial part of it in so far as it may affect trade between Member States, such as: (non- exhaustive list): – Imposing unfair prices or trading conditions; – Limiting production, market or technical development to the prejudice of consumers; – Applying dissimilar conditions to equivalent transactions (i.e., discrimination); – Making the conclusion of contracts subject to acceptance of supplementary, unconnected obligations. Therefore: Unilateral behavior (art. 102 TFUE) vs Bi- Multi-lateral behavior (art. 101 TFUE) NO legally exempted abuses (no “art. 102(3) TFEU equivalent”). Another BIG DIFFERENCE with art. 101 TFUE since in such article we do not the same structure as art. 101. There is only the equivalent (structure wise) as to art. 101.1, however, there are NO legally exempted abuses of the dominant position as there are exemptions regarding the infringements of conduct regulated in art. 101. The list is non exhaustive. It is a very abstract provision (developed by case-law and still...). It is very difficult to have general statements that are applicable to the different infringements. We must analyze each case on its merits. We cannot take the conclusions of one case to another. The only guidance we have is the EC’s guidance of art. 102. EC’s guidance paper on enforcement priorities in applying Article 102 TFEU → Currently under (heavy) review for update and amendments. Areas open to discussion, very much depends on the case, but in addition to case law we have this guidance issued in 2008, and since then the EC has currently been planning for an update which will be out soon. Because on the last years has been very bold statements of the tribunal and needs to be updated. We use it as a reference, not binding. National competition law also applicable (article 3(2) in fine of Regulation 1/2003). So, if a company does not comply with the requirements or “umbrales” of European abuse of dominant, it does not prevent to be infringing national competition law. It is a matter of scope. Elements: Undertakings: same meaning and scope as under article 101 TFEU Dominant position (Abusive) Conduct Effect on trade between MS: same meaning and scope as under article 101 TFEU. Dominant Position Dominant position Significant (and durable) market power. Very linked to the concept of market power. In our language dominant position is = significant market power. The little notion of power is linked by economic literature. Power to set prices above the competing price. So, if a company is able to do that, is because it is not facing enough competition restrain. “The concept of dominant position refers to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers” (C-27/76, United Brands). The notion of independence is related to the degree of competitive constraint exerted on the undertaking (EC’s Enforcement Priorities) It requires defining the relevant market (Session 1). To see if an undertaking is dominant in such market. “In a substantial part of the internal market”: equivalent meaning to “significant restriction of competition” under article 101 TFEU. A single MS, a port, an airport, have been found sufficiently substantial. Assessment on a case-by-case basis according to concurring factors. Factors to assess the existence of a dominant position (I): Actual competition: Market / product features; maturity Number and evolution of competitors. Relevance of market shares: “The existence of a dominant position may derive from several factors which, taken separately, are not necessarily determinative but among these factors a highly important one is the existence of very large market shares” (C-322/81, Michelin) Market shares over 50% → rebuttable presumption of dominance (C-85/76 Hoffmann-La Roche; C-62/86 AKZO). Market shares below 40% → Dominance is unlikely (but not impossible); further evidence / support. Factors to assess the existence of a dominant position (II): Potential competition Barriers to entry and expansion Existence of competitors with the ability + incentive to enter the market in a timely manner? Legal barriers (e.g., IP rights, patents, licensing). Economic (dis)advantages: control of an essential facility, economies of scale or scope, vertical integration, developed sales network, brand image, customer loyalty. Countervailing (buyer / customer) power. Examples: Dominance in recent cases (I): Google Shopping Relevant market(s): national markets for online general search services and for online comparison shopping services Very high and stable market shares in every EEA country since 2008 (>80%) + low market shares of competitors (60% Economic factors: economies of scale and scope, brand name ASPEN Relevant market(s): medicines for treating cancer based on different active pharmaceutical ingredients (APIs); national markets in scope Very high market shares (generally above 70%) Barriers to entry and expansion: regulatory requirements (market authorization); supply requirements; limited market size → difficult to break-even No threat of future entries or countervailing customer power → no credible or readily available alternatives Abusive conduct No legal definition of what constitutes an abuse of a dominant position → case by case assessment → relevance of case-law. List of conducts under article 102 TFEU is not exhaustive. According to the CJEU, the abuse of a dominant position is: “an objective concept relating to the behavior of an undertaking in a dominant position which is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question the degree of competition is weakened and which, through recourse to methods different from those which condition normal competition in products or services on the basis of the transaction of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition” (C- 85/76, Hoffmann- La Roche). “It is NOT the purpose of Article 102 TFEU to prevent an undertaking from acquiring, on its own merits, a dominant position on a market, or to ensure that competitors less efficient than an undertaking in such a position should remain on the market. On the contrary, competition on the merits may (...) lead to the departure from the market or the marginalization of competitors which are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation” (C- 48/22, Google Shopping). “Article 102 TFEU does not sanction the existence per se of a dominant position, but only the abusive exploitation thereof” (C-333/21, European Superleague Company). A firm in a dominant position has a “special responsibility not to allow its conduct to impair genuine, undistorted competition on the internal market” (C-48/22, Google Shopping). In short, dominant companies should refrain from methods other than those that come within the scope of “competition on the merits” (e.g. offering lower prices, better quality and a wider choice of new and improved goods and services; EC’s Enforcement Priorities). It is NOT necessary for the dominance, the abuse and the effects to be all in the same market (e.g., C-6/73 Commercial Solvents, C-48/22, Google Shopping). Usually, purpose of abusive conducts is to extend dominance to related markets. Steps to determine an Infringement of Art. 102 TFEU Conditions under Article 102 TFEU: Undertaking? Does it have a dominant position (within the internal market or a substantial part)? (To answer that question we must consider the factors to establish dominant position). Has it carried out an abusive conduct? (to answer that we must look at the factors to establish an abuse). Does the conduct have an (appreciable) effect on trade between MS? Factors to establish a dominant position: Actual competition (need to define relevant market first!!) Potential competition (barriers to entry / expansion) Countervailing (buyer/customer/user) power Factors to establish an abuse: Assessment of the firm’s conduct on a case-by-case basis (restriction by object/effect). (Absence of) Objective justification Consequences of Infringement Fines: 2006 guidelines. Remedies (Article 7 of Regulation 1/2003) Cease-and-desist orders. Behavioral and/or structural remedies. Preference for behavioral remedies (either positive or negative). Structural remedies must be proportionate and necessary to bring the infringement to an end and provided that there is no equally effective behavioral remedy or that such a remedy would be more burdensome. Structural remedies can be imposed by the EC or offered by the dominant firm and later accepted as legally binding commitments under Article 9 of Regulation 1/2003. Measures to monitor the implementation of remedies / commitments. Damages. SESSION 6: ABUSE OF A DOMINANT POSITION II Defenses: Objective justification: objective necessity based on factors external to the dominant undertaking (e.g., health or safety considerations). Principle of proportionality. Has rarely been accepted in courts and because of that, it has been in decline since then. Efficiency defense: would have to be realized or likely to be realized as a result of the conduct; conduct must be indispensable; efficiencies must outweigh negative effects; conduct must not eliminate all competition (EC’s Enforcement Priorities). The most usual defense, try to make value of the good things that could be solved of that contract, try to convince the courts that the benefits of the alleged abuse of dominant position won’t only benefit the entities, but also others. They argue that holding them liable for abuse of dominant position is restringing them or limittating the progress in their area. This is their counterattack. The burden of proof lies with the dominant undertaking. Not vague, general and theoretical arguments. There would be a third one, the inexistence of effects, but we will get into it later on. Try to convince the courts that the conduct did not in fact produce no effects in the market, or that the effects had not been officially proven. Ex: case of Intel. Types of abuse (on the basis of actual cases that had actually happened) Types of abuse in light of its effects: Depending on who is feeling the effects of the abuse. If its competitors, we would usually refer to exclusionary abuse (excludes competitors of the market). On the other hand, we have the exploitative abuses, enjoy the monopoly benefits, going beyond what is rational, moral. Here the affected are the customers rather than competitors. The distinction is not always is straight forward, that is because in some cases, both conducts can happen in the same case, that is why the distinction is a bit blurry. Exclusionary abuse: The dominant firm impedes effective competition by foreclosing competitors. E.g.: exclusive dealing (and practices with similar effects), refusal to supply, tying/bundling, predatory pricing, margin squeeze. Exploitative abuse: The dominant firm takes advantage of its market power to exploit its customers. E.g.: excessive prices, discrimination. But generally, reference is made to: Pricing abuses, e.g. fidelity / conditional rebates, predatory pricing, excessive pricing, margin squeeze, bundling. Non-pricing abuses, e.g. exclusive dealing, refusal to supply; tying; self- preferencing; (mis)use of IPRs. Fidelity rebates: The situation is that we assume that there is a firm in a dominant position that engages in these conducts. This fidelity rebates consists in that the firm tries to consolidate a conduct by excluding competitors by rebating with its customers. Provide an offer with discounts and rebates with costumers. We have to differentiate the rebates and offers to be competitive, and the ones made for the solely purpose of getting the dominant position. Different forms (examples): – Discounts conditional on the customer’s obtaining all or most of its requirements from the dominant firm. – Target rebates (discount is granted only if a specific threshold is met). – Rebates inducing the customer to purchase more units in the future than in the past. Discount if the next year you purchase of me more amount. Many factors to consider if this conduct is being done: Theory of harm: loyalty-inducing effect, foreclosure effect. Relevant factors: reference period, whether covering all sales retroactively or only incremental sales, whether rebate increases as targets are reached, etc. Conduct per se abusive? Possibility of defense is open (e.g., rebates amount to actual cost savings). Burden of proof lies on the dominant firm. There was a point in time that it was considered as an abuse and it wasn’t necessary to provide any more evidence, but this has changed. Now, the possibility of defense from abusive accusations is entirely open. Intel caseà rebates to purchase 86 chipsets from me rather than my competitor. That was a fine for fidelity rebate. But that was annulled because intel was successful in counterargue these accusations. Intel said that this conduct has not generated negative effects in the market due to a list of things. The court of justice concluded that if the commission provides accusation and the firm provides evidence on the contrary the court is obliged to analyze them, and in this case, intel won. It is a discussion in a legal basis. Predatory pricing (e.g., pricing below cost): As the name suggest is a pricing abuse with the aim of eventually excluding competitors as well. Is the typical conduct that an entity goes for. The dominant firm is assumed to have deep pockets and can afford in a period of type to sell its products at a very low price (even lower that production costs). This is very difficult for competitors to match and compete with that, because they probably do not have as much money as the dominant firm, and if the dominant firm forces the competitors to incur in losses, they will lead them to exclusion of the market (bankruptcy). Predatory pricing: setting prices below costs for a sufficient period to drive competitors out of the market (and, once done, increase prices again). Theory of harm: competitors cannot match the prices and are excluded from the market. Case law (Akzo, C-62/86) states that: where the court of justice established some binge marks to consider that this conduct was considered abusive. The main thing, in this case there was a presumption that the prices were below average variable costs. – If a dominant firm is charging prices above average total costs (ATC), that is legitimate price competition. – If a dominant firm is charging prices below ATC but above average variable costs (AVC), such prices are regarded abusive if they are part of a plan aimed at eliminating a competitor. – If a dominant firm is charging prices below AVC, they are prima facie abusive (i.e., every sale would generate a loss) à presumption. There is no need for the Commission to prove that the dominant firm has the ability to recoup the losses incurred. Excessive pricing: A price is excessive if it has no reasonable relation to the economic value of the product or service. Requires detailed analysis of the dominant firm’s costs. Because there is really no parameter to determine if a price is excessive or not, and who decides that. But there have been a few cases, which there were very clear cases. Theory of harm: excessive prices are unfair prices. Exploitation of market power. Burden of proof lies on the Commission, who has to prove: (i) whether the difference between the costs actually incurred and the price actually charged is excessive and, in the affirmative, (ii) whether it is unfair in itself or when compared to competing products (United Brands, C-27/76). Dominant firm is entitled to justify prices differences. All these market abuse pricing were regarding the same relevant market. That is different from the next abuse conduct. Margin squeeze: A dominant firm is a supplier of a key input in an upstream market and competes with its customers in a downstream market. Margin squeezing implies the dominant firm charging a price in the upstream market that has or could have an effect in the ability of firms to compete with it in the downstream market. This dominant firm is present in more than one level in the supply chain. Theory of harm: exclusionary effect in the downstream market. Non per se abuse; exclusionary effects as regards as (at least) efficient competitors of the dominant firm must exist, although potential effects are sufficient. Not so frequent. Case Telefonicaà company that was the owner of the network over which internet services were provided. The owner of the network which is a market itself. But also, in addition of being the owner, Telefonica provided internet services by cable. It was operating in 2 different levels of the supply chain. At the time that the market was liberalized, there were other operators that provided internet services, but to do that, needed to get the services from the owner of the network which was Telefonica. What was the conduct that Telefonica was engaging to? Telefonica notices that the operators needed access to the network in order to provide their services, so, Telefonica set a price to access. The price for internet services (provision of services), Telefonica lowered them. Therefore, there was a margin squeeze for the operators, because there was a higher price for access and lower for Telefonica to provide the services. So, made them not being able to compete, and therefore, Telefonica was engaging in an abuse of dominant position conduct. We move from the pricing abuses to non-prancing abuses: Exclusive dealing: One of the few, that almost always considered to be abuse. Diff

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