E U Competition law General - PowerPoint Presentation

Slide1

EU Competition lawGeneral principles

Tihamér Tóth, Phd.Slide2

The menue: coverage of EU competition lawAntitrust

Rules applicable to MSs

Anti-competitive agreements

Abuse of dominance

M & A

State aid

State monopolies, exclusive rights

Anti-competitive state measuresSlide3

Why is EU competition law important for me?If you want to become a competition lawyer…You are a consumer…

If you are interested in the functioning of EU law

Direct applicability/effect

Competence sharing between EU/national level

Enforcement of EU rules at national level

The combination of public and private lawWide use of soft law instrumentsSlide4

What is competition?A situation

in

which

firms independently strive for buyers’ patronage in order to achieve a particular business objective (profits, sales, market share) - rivalry.A process whereby market actors participate in the economy

without overwhelming contraints from private or public power.Is competition (economic freedom) a value in itself, or just an instrument to maximize welfare?Slide5

Competition – why?The best mechanism for ensuring effective allocation of resourcesPressure towards lower prices and more innovation and choice

Provides the widest possible freedom of action to all Slide6

Competition, culture, and democracyCompetition

policy is

deeply

embeded

in the way one views human nature and the role of the stateLiberal/neoclassical: profit maximizing, rational individualismSocialist theory: man being part of the society, emphasis on social equality, justiceCan

we have democracy in the absence of free markets and competition?Slide7

Is competition good or bad? - CST

Just as the unity of human society cannot be founded on an opposition of classes, so also the right ordering of economic life cannot be left to a free competition of forces. (…) But free competition, while justified and certainly useful provided it is kept within certain limits, clearly cannot direct economic life. (…) competition can still less perform, since it is a headstrong power and a violent energy that, to benefit people, needs to be strongly curbed and wisely ruled. But it cannot curb and rule itself.

Pope Pius XI,

Quadragesimo

anno, 88.Slide8

Competition: good or bad?

[T]

oday

everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.

Pope FrancisSlide9

Competition: good or bad?

Economy

and

finance

,

as instruments, can be used badly when those at the helm are motivated by purely selfish ends. Instruments that are good in themselves can thereby be transformed into harmful

ones. But it is man's darkened reason that produces these consequences, not the instrument per se. Therefore it is not the instrument that must be called to account, but individuals, their moral conscience and their

personal and social responsibilityPope Benedict, Caritas in VeritateSlide10

The (more) economic approachCompetition law

is part of

the

law

of economicsMainstream economic theories, principles influence legal principles Beware of competition lawyers who ignorant to basic economic rules of the markets!The question nowadays: how

much and what kind of economics is needed for correct and effective law enforcement?Slide11

Economics - the SCP modell of competitionIt is just

a

theory

,

but …

Structure of the marketMarket participants, market sharesBarriers to entryHelps identify market powerConductPricing, marketing, distribution, R&DPerformancePrice, output, new products, consumer welfareSlide12

Regulating competitionSector

specific

regulation

vs

competition lawGlobal competition regulation nationally?State rulesIntegration levelInternational competition rules?The relations between MS and EU comp. lawsSCP: regulating structure or conduct?What about self-regulation?Slide13

The aims of EU competition policy

To protect

the

efficient

functioning of markets, thereby raising consumer welfare Chicago schoolTo protect the single market – „open markets”

Neither State nor private market barriersTo protect individual economic freedom of action as a value in itself

Considers competition policy as linked to economic and social policySlide14

Sources of Competition lawThe Treaties

Regulations

The

case

law of the CourtsCrucial for practicioners: soft law and the decisions of the EU CommissionSlide15

Institutions shaping EU law

Law-making

EP and

Council

of

Ministers, CommissionLaw enforcementEU CommissionGeneral Court, ECJNCA (European Competition Network)courtsSlide16

Scope: UndertakingsEconomic activityIrrelevant:

Ownership

Private/public law foundations

Profit seeking

Liberal professions included

The concept of „economic unit”Slide17

The art of market definitionA

tool

to

define

boundaries of competition among firmsTo identify those actual competitors of the undertakings involved that are capable of constraining those undertakings’ behaviourTwo dimensions: relevant product

and geographic marketLegal relevance: De minimis, BERs, Dominance, Merger controlSlide18

The scope of EU competition lawSubjects of the

law

Undertakings

– the notion of economic activitySubstantive rulesFines: calculating the maximumMember StatesTerritorial scope (how to cope with globalization)The effect or implementation doctrineNeed

for international agreementsSectoral scope: generalSlide19

Sanctions

Administrative

Prohibition

decision

Fines up to 10 % of turnoverPrivate lawNullityAction for damages Private enforcement

Criminal law, national sanctions

?Slide20

Anti-competitive agreementsThe structure of Article

101 TFEUSlide21

What is missing?

„

The following shall be prohibited as incompatible with the internal market: all agreements between undertakings,

……….

by associations of

…………… and ………………. which may affect trade between Member States and which have as their object …. effect the prevention, restriction or distortion of competition within the internal market…”Slide22

Types of business conduct covered under Article

101

Cartels

JV,

cooperation

Distribution agreementsActivities of associationsSlide23

What are agreements?„Meeting of the minds”Legally enforcable contractNon-binding gentlemen’s agreements, oral agreements

Expired agreement which effects continue to be felt

Even without an „enforcement mechanism”

Settlement before a courtSlide24

Concerted practices„A form of coordination between undertakings which, without having reached the stage when an agreement properly so-called has been concluded,

knowingly

substitutes

practical cooperation

between them for the risks of competition.”

Any direct or indirect contact between such operators, the object or effect whereof is either to influence the conduct of a competitor or to disclose to such a competitor the course of contact which they themselves have decided to adopt on the marketSlide25

Concerted practices, cont.Burden of proof

is

on

the

Commission/plaintiffParallel behaviour as such is not illegalcan be circumstantial evidence of collusion – if there are no other rational explanationsOther evidence: meetings, internal notes, wording of letters,

closeness of price increasesSlide26

Unilateral actionsAs a rule these are not covered by Art. 101But: actions within a distribution system: „seemingly” unilateral

Refusal to supply discount shops (AEG)

Under-supply distributors (VW)

Sending of a circular + complying with it (Konica)

Real unilateral actions may fall under Art 102Slide27

Anti-competitiveIs every

restriction

of

conduct

restriction

of competition?Horizontal and verticalInter and intra brand competitionActual/potential competitionHard core, black listed restrictions are more or less clearde minimis and BER exceptionsSlide28

Competition restrictions

By

object

Price

cartelsQuota cartelsStatus quo cartelsInformation exchange on future pricesFixing retail prices for distributorsTotal prohibition of parallel trade for distributors (absolute territorial protection)

By effectMost information exchangesJoint productionJoint procurement/sellingStandardisationNon-compete in distributionExclusive distributionSelective distributionSlide29

The de minimis noticeThe power

of

interpretation

…

Only

agreements with an appreciable effect on competition are caught by Article 101 (1)10% for horizontals, 15 % for verticalsExcept for hard core restrictions i.e price cartel, market allocation,

total ban an exportscumulative market foreclosure effectsSlide30

May affect tradeActual or

potential

,

direct

or indirect effectWide jurisdictional conceptTerritories affected:More Member StatesOne Member StatePart of one Member StateAppreciability (Commission Notice)Negative presumption: 5% and 40 M turnover

Likelihood of effectSlide31

Article 101 (3)Exception instead of

exemption

-

since

2004

The 4 criteria:Economic development (efficiencies)Fair share to consumersNo unnecessary restrictionsNo elimination of competitionVW/Ford JV caseSlide32

EC block exemption regulationsAutomatic exemption system

,

directly

applicable

Built on the experience of individual exemption cases of the pastSafe harbour subject to market shares‘Blacklisted’ clauses Explanatory Commission guidelinesSlide33

EC block exemption regulationsVertical [2790/99 Commission Regulation]Motor vehicle distribution and servicing

Technology transfer

R&D

Specialisation

Insurance

Vertical and Horizontal Commission Guidelines!Slide34

JV agreementsCompetitors – efficiency/welfare

enhancing

Effect

based approachBER, individual exception and de minimis availableIndustry examplesR&D, joint productionJoint purchasing agreementsWhat about ‚crisis cartels’ (Irish beef)?Slide35

Article 101 TFEUCartelsSlide36

CartelsCompetitors – by

aim

infringement

- no

efficiency justificationUS: crime – EU: most serious infringementIndustries affected (‚infected’) by cartelsProving cartelsStrong investigative powersLeniency policy, settlement procedureState promoted cartelsSlide37

Is this a cartel?

Overproduction of beef in Ireland

;

Government urge

d

companies to solve the problemAim: reduce the total capacity of the processing industry by 25% within one yearThe Beef Industry Developments Society decided to set up a fund financed by market share related contributions to provide compensation to slaughter houses cutting back their capacities; they had to agree not to re-enter the market for 2 yearsSlide38

Is this a cartel?

The five m

obile

phone

operators in the Netherlands met and discussed the reduction of standard dealer remunerations for postpaid subscriptionsJust one single meetingSharing confidential informationSlide39

The hub - a firm from a downstream or upstream market, i.e. a retailer - transmits information, mediates, eases tensions, and disciplines cheatersNo direct contact between the spokes

(i.e.

producers

)

The cartel can be initiated

either by the hub or by a spokeVertical relations used to arrive at a horizontal collusionAwareness of the single anticompetitive purpose or effect (e.g., price fixing, market sharing)39Hub-and-spoke agreements: retail sectorSlide40

Fining policy of the CommissionThe

aim

:

deterrence

and

punishmentThe legal nature of guidelinesThe maximum: 10%, group, worldwideThe significance of affected turnoverAggrevating and mitigating factorsAre parents responsible for the wrongdoings of their kids?Slide41

Your readings…The marine hose cartel

W

hat

is

bid-rigging

? How did it function, who was the co-ordinator?How did the Commission learn about the cartel?Where did the Commission carry out inspections?What

role is given to national judges?How long did the cartel last?How did the Commission calculate the fines?Why was Yokohama Rubber not fined?Slide42

Check your knowledge! Your

competitor

has

raised

its price by 10% - you simply follow it two days laterYou sign an agreement to allocate markets with a competitor for 2 years – after 2 years you

still do not enter each others’ territoryYou inform your competitors that next week you will raise prices by 10% - they do not object

An association collects information on monthly capacity utilisation from the members and circulates this individualised data among themSlide43

Check your knowledge!

Public tender

to

construct

an airportTwo companies form a consortium, none of whom could perform the job on its ownSharing with your competitors export markets (Russia, USA) for

bottled French wine Establish with a competitor a JV to manufacture a new tennis rocket, provided your aggregate market share is below 20%Slide44

Article 101 TFEUDistribution agreementsSlide45

Distribution agreementsVertical/

Horizontal

restrictions

of competition

Dominantly effect based approachBER, individual exception and de minimis availableAbsolute territorial protection is always badActive/passive salesExclusive distributionNon-competeResale price maintenance (RPM)Slide46

Is this unlawful?

Parker Pen,

the

manufacturer

of prestigious pens with an EU wide market share of 36% sets up an exclusive distribution system with one distributor per each MS.

The Czech and Hungarian distributors are 100% owned by Parker Pen, in the Italian distributor it has a 25% stake.To mantain high prices for its German distributors in Germany Parker Pen prohibits its distributors to sell directly or indirectly to German customers. Slide47

Check your knowledge!

Producer of

branded

tennis

rocketsStipulating in a contract with retailers that the prices listed in an annex shall be appliedSending an e-mail to the retailers not to sell

below a certain price to maintain the image, asking them not to reply if they agreePutting into the contract a „recommended” price but terminating the

relationship with those retailers selling below that priceProhibiting its dealer in France to operate an English language websiteSlide48

Check your knowledge!

The producer of

tennis

rockets

assigns certain territories to its exclusive dealers where it promises not to appoint other retailersimposes a non-compete obligation on the retailer for 3 yearsImposes a post non-compete

for 4 monthsSlide49

Abuse of dominanceArticle 102 TFEUSlide50

What is missing?Article

102 TFEU

Any

………

by one or more undertakings of a

………. ….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 …………….trade between Member States. Slide51

Abuse of a dominant positionExistence of a dominant position

Definition

of

the

relevant marketSingle or collective dominanceAbuse by one or more undertakingsExploitative: consumers hurt (i.e. unfairly high prices) Exclusionary: competitors suffer (market foreclosure)

May affect interstate tradeNote: no exception/exemption systemBut: Art. 106 (2)Justifications Slide52

AbuseCharging unreasonably high

prices

Charging

different

prices based upon the nationality of the buyerSelling at artificially low prices efficient competitors can't compete withRefusing to deal with certain customers or offering special discounts to customers who buy all or most of their supplies from the domcoMaking the sale of one product conditional on the sale of another productSlide53

Is dominance as such prohibited?

NO,

but

…

Abusively

extending it to a neighboring marketStructural remedy (divestiture) if the abuse derives form the structure of the domcoEx ante control if it results from an M&A State created

exclusive rights can be abolishedSlide54

The Intel caseLoyalty enhancing

,

exclusivity

rebates

, CPU chipsPayments to distributors for delaying, etc. AMD…1 billion € fines in 2009 by the CommissionGeneral Court agreeing (2014)EU Court (2017) setting aside the judgment: foreclosure of ‚as efficient

competitors’ can be problematicPolicy issues:Formalism vs. searching for effects case by caseEarly intervention vs. correcting market failuresSlide55

The control of M&AsSlide56

M&As rules in a nutshellCouncil

Regulations

4064/89 EC

139/2004 ECCommission implementing regulationGuidelines, noticesSIEC (dominance) test, forward-lookingEx ante control: notification and suspensionCommunity dimension - „One stop shop” forconcentrations

above the thresholdsSlide57

M&A - Concentrations

Triggering

event

: lasting

change of controlMerge AmalgamateAbsorbAcquisition of controlSole and joint controlChange in the nature of controlLegal or de facto basisSlide58

M&A - AcquisitionsObjects of the acquisitionUndertaking (existing or new)

Assets, business, brands, licences

Control can be based on

Shares, voting rights

Directors

ContractsDe facto basisSlide59

M&A – Joint VenturesJoint

control

:

power

to veto decisionsFull function JVs are covered by the MCR:Performing on a lasting basis all the functions of an autonomous economic entitiyFor co-operative aspects of the JV (

having the object/effect of co-ordinating the behaviour of parents): Article 101 test applied in the merger procedureSlide60

JV - examplesSiemens and

Dragerwerk

agreed to transfer their hospital equipment businesses to a new entity called Drager Medical which would be jointly controlled by them (2003/777/EC)

Ericsson/Hewlett Packard

: Ericson (60% & 4 directors), HP (40 % & 3 directors); but: major decisions have to be taken unanimously (2003)Slide61

JV example – Article 101 TFEUPasteur Mérieux/Merck pooled their activities (human vacines) in Western Europe. PM transferred to the JV all its distribution of all the products previously distributed separately (1993)

Ex

Article 81 (3) exemption

Geographical scope of the JV limited

No transfer of R&D, production, IP rigtsSlide62

Shifting alliances – Article 101 TFEU

If

no

quorum

rules in its statute: each 40 % party has to rally support from another owner, with the result that none of

them will have a lasting majorityNo shareholder agreementNo de facto controlThe operation creating such a strucutre can be assessed under Article 81 and/or national competition

rules40 %20 %40 %Slide63

The Commission’s jurisdictionCompare Articles

101&102:

legal

certainty

„may affect trade between MSs”Complex turnover thresholdsworldwide/EU/not concentrated in 1 MSTendency of expansionAdvantages of the „one-stop shop”2004 reform: streamlined referral system

Commission NCANCA CommissionSlide64

M&A – The substantive testPossible evaluation

criteria

:

Public interest test

Significant lessening of competition (SLC)Dominance test (Reg. 4064/89)Slide65

M&A – The SIEC test4064/89: „a dominant position will be created or strengthened as a result of which effective competition would be impeded in the common market or in a substantial part of it”

139/2004

: „which would 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”Slide66

M&A – The SIEC test II.The structure of competitive assessments:

Defining the relevant market(s)

Analysing the state and future of competition (horizontal, vertical, portfolio and conglomerate effects)

Covers both single firm and collective dominanceSlide67

Consequences of M&AsBalancing

Benefits of concentrations

Increased market power

Economies of scale

and scope (efficiencies)

The

ability of one or morefirms to profitably raiseprices, reduce output, choice or quality, diminish innovationSlide68

Structure of the competition analysis

Market definition

Anticompetitive

effects

Justifications

RemediesHorizontalVerticalConglomerate

Non-coord.Coord.Portfolio

LeveregingFailing firm defenceEfficiencies

ForeclosureSlide69

Unilateral and co-ordinated effects

A

merger

may

change equilibrium prices due to the merging parties’ unilateral incentive to raise their priceA merger may make it more feasible for the remaining firms

to sustain a collusive regime (ability to exercise market power collectively)Slide70

Competitive analysis of M&As: measuring concentrationfirst indications of competitive concerns (or of their absence):

Market shares of merged entities

50 % or more – „very large”

25 % or below

HHI; no competition problems if

1000 or below1000-2000 and Δ<250above 2000 and Δ<150Criticism of the SCP paradigmSlide71

The coordinated price increase test

Airtours

(T-342/99):

merger

from 4 to 3 on a non-homogenous product marketStrict conditions of collective dominanceEach member of the oligopoly knows how the others behave in order to monitor whether they are adhering

to the collusive policyDeterrence mechanism must exist to ensure that there is no incentive to depart from the common policyForeseeable reactions of competitors and customers would not jeopardise their successSlide72

Conglomerate mergersPortfolio power

„

the

market

power

deriving from a portfolio of brands is greater than the sum of its part”Firm

III

IIIIV

V

A30 %

30 %

10 %

0

0

B

0

0

10 %

40 %

40 %Slide73

Portfolio power & vertical mergers

Presence in 5 markets gives a better competitive position then being in 1

Concerns

: potential for tying, refusal to supply, unfair pricing

Vertical mergers (supplier-customer)

The same problems like in Art. 101 vertical agreeements (market foreclosure)Slide74

Levereging Tetra Laval

/

Sidel

(T-5/02) – 1st

time

court review of conglomerate theoriesA merger that does not give rise to horizontal overlaps or vertical relationship rarely can have anti-competitive effects: prohibition must be based on „

convincing evidence”Levereging: if one of the parties already holds a dominant position it may extend that to another marketSlide75

Competitive pressures on merged firms

Competitors

Buyers

:

countervailing

buying powerreal possibility of switching to othersPotential competitors„Hit & run” entry - supply side substitutionLikelyTimelySufficient to deter potential negative effects

Long-term entrySlide76

M&A – Failing firm defenceNo link between

the

transaction

and

the increase in market power if:the company would go bankrupt anywayits market share would go to the acquiring company andthere is no less anti-competitive way of selling the

company.Slide77

Commission interventionsProhibition

decision

Withdrawal

of

the

notificationDropping or restructuring the transactionNegotiating remedies, commitmentsConditions and obligationsSlide78

M&A - Remedies

Types

:

behavioural

and

structuralDivestitureTo give access to infrastrucure, technologyTerminating distribution restrictionsTreating customers equallyInformation requirementsImplementation/monitoringTrustee

Commission approval of buyerSlide79

Remedies - examplesElf

acquierd

by

Totalfina approved with conditions (February 2000)the merged entity agreed to sell 70 TFE motorway service stations, purchaser must be approved by the Commission

Commission rejected Petrolessence as buyer (September 2000)New entrant, no experience, not an effective competitorCFI confirmes the „complex economic assessment” made by the Commission (April 2003)

Limited court review; the Commission did not exceed its margin of discretionSlide80

M&A - Court reviewEffective

judicial

scrutiny

by the General Court (CFI)Unprecedented 5 Commission prohibitions in 20012002-2003: 4 CFI annulments (only 1 judgement was appealed to the ECJ)Result: no Commission prohibitions for 3 yearsInternal

re-organisation in DG Comp (chief economist, other internal checks and balances)Slide81

Institutions and proceduresEnforcing antitrust

rulesSlide82

Selected features of EU Commission procedures

1/2003

Council

R

egulationCriminalization of sanctions – more emphasis on procedural safeguards, „human rights movement”Dawn raids (inspections)LengthyCommitmentsSettlements (10% fine discount)Co-operation within the ECNSlide83

The desire for more private enforcement

Public vs.

private

enfrocement

Why? What can civil law courts do better?Enforcing nullity and actions for damagesShould it substitute or e…… public enforcement?Increased need for consistencySlide84

Anti-competitive State actionsState

aidSlide85

Article 107 (1) - prohibitions…any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by

favouring

certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.Slide86

Article 107 (2) - exceptionsThe following shall

be compatible with the

internal

market:

(

a) aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned;(b) aid to make good the damage caused by natural disasters or exceptional occurrences;(c) aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division. Five years after the entry into force of the Treaty of Lisbon, the Council, acting on a proposal from the Commission, may adopt a decision repealing this point.Slide87

Article 107 (3) - exceptionsThe following

may be considered to be compatible

with the internal market:

(

a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment, and of the regions referred to in Article 349, in view of their structural, economic and social situation;

(b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State;(c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;(d) aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Union to an extent that is contrary to the common interest;(e) such other categories of aid as may be specified by decision of the Council on a proposal from the CommissionSlide88

Other sources of lawPocedural

rules

:

Article

108 and

Council Regulation (EU) 2015/1589 Block exemption: Commission Regulation 651/2014Case law + Guidelines!Transparency directiveSlide89

Some key conceptsForms of

aid

Scheme

/

individual

aidAims of the aid: regional, horizontal, sectoralMEIP testAltmark testIllegal & Incompatible State aidRecovery with interestSlide90

The actorsEU CommissionMember

States

What

about

undertakings (beneficiaries)?What about national courts?Slide91

Illegal tax benefits to Apple

,

recovery

of € 13

billion