eu competition law...why is eu competition law important for me? if you want to become a...
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EU Competition lawAnti-competitive agreements
Prof. Tihamér Tóth
Pázmány Péter Catholic University
Budapest, Hungary
Why is EU competition law important for me?
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 interaction of public and private law
– Wide use of soft law and case law
Competition law and policy –
the foundations
Competition/rivalry
The concept and benefits of competition
– The human conflict: individualism vs. co-operation
– The business conflict: companies tend to monopolize
Activity
Please describe in one or two sentence what
market/economic competition means!
Please write a sentence, completing one of
these:
– Competition is good, because …
– Competition is bad, because …
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?
Competition – protecting why?
Different schools of thoughts
The best mechanism for ensuring effective
allocation of resources
Pressure towards lower prices and more
innovation and choice (consumer welfare)
Provides the widest possible freedom of action
to all, freedom of choice
Beyond markets: democracy
Activity
The case of Uber vs. traditional taxis
– Argue for the newcomer Uber!
– Argue for the incumbent taxi operators!
Notes:
– Whom do we protect? Consumers, companies, new
entrants, SMEs, nationals, competition as a process
– Level playing field, fair game
– The power of language: colleagues vs. competitors
The human/moral dimension of
competition
Is competition good or bad?
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.
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 responsibility
– Pope Benedict, Caritas in Veritate
Competition and culture
Competition policy is deeply embeded in the way
one views human nature and the role of the state
– Liberal/neoclassical: profit maximizing, rational
individualism
– Socialist theory: man being part of the society,
emphasis on social equality, justice
An overview of EU competition
rules
Regulating competition
Global/regional/national
– Self regulation?
Competition law vs. sector specific regulations
EU or national rules: „may affect trade”
Actual or potential, direct or indirect effect
Wide jurisdictional concept
Territories affected:• More Member States
• One Member State
• Part of one Member State
Appreciability (Commission Notice)
– Market share and turnover figures
Likelihood of effect
The aims of EU competition policy
To protect the efficient functioning of markets,
thereby raising consumer welfare
– Price, quality, choice, innovation
To protect the single market – „open markets”
– Neither State nor private market barriers
To protect individual economic freedom of action as a
value in itself
Considers competition policy as linked to economic
and social policy
Sources of Competition law
Case law of the Courts
Treaty articles (TFEU)
Regulations(by the Council and
the Commission) Soft law
Business conduct covered under Article 101
Abuse of dominance
The control of M&As
Rules applicable to Member States
State supported
cartels
Commercial state
monopolies
Exclusive and special rights
State aid
SGEI exception
Article 106 TFEU: public undertakings,
exclusive rights and public services
State aid: Article 107 (1) – prohibition with
exemptions
Law enforcement at EU and national levels
Sanctions
Administrative
Prohibition decision
Fines up to
10 % of turnover
Private law
Nullity
Action for damages
Private enforcement
Criminal law, national sanctions?
EU directive for more private
enforcement (2014)
Public vs. private enfrocement
Why? What can civil law courts do better?
– Enforcing nullity and actions for damages
Should it substitute or supplement public
enforcement?
Discovery procedures
– But protecting Leniency Programs
Will it work without (opt-out) class actions?
Issues of general importance
The scope of EU competition law
Subjects of the law
– Undertakings – the notion of economic activity
• Substantive rules
• Fines: calculating the maximum
– Member States
Territorial scope (how to cope with globalization)
– The effect or implementation doctrine
– Need for international agreements
Sectoral scope: general – what about agriculture?
Scope: undertakings = economic activity
Activity!
Discuss in groups: is it an economic activity?
Pazmany providing MA/LLM education services
A public hospital providing healthcare services
The public transport operator in Lyon
EUROCONTROL: ensuring safety of aviation
charging a fee to airlines
Scope: Undertakings
Irrelevant, or at least not decisive:
– Ownership
– Private/public law foundations
– Profit seeking
Liberal professions included
Excluded: services organized based on solidarity
The concept of „economic unit”
– Operates as an exception
– Allows the Commission to impose higher fines
Before analyzing market impacts:
the art of market definition
Interchangeability: product & geographic dimension
The art and science of market definition
A tool to define boundaries of competition among firms
To identify those actual competitors of the undertakings involved that are capable of constraining those undertakings’ behaviour
Two dimensions: relevant product and geographic market
Legal relevance: De minimis, BERs, Dominance, Merger control
Analyzing markets - the SCP modell of
competition
Structure of the market
Conduct of market
actors
Performance of
the market
Economics - the SCP modell of competition
Structure of the market
– Market participants, market shares
– Barriers to entry
Conduct
– Pricing, marketing, distribution, R&D
Performance
– Price, output, new products, consumer welfare
Market power
The power to raise prices above the competitive level
(profitably)
Competitive constraints on undertakings
– Competitiors, potential competitors, buyer power
– Owners?
A general concern in competition law– De minimis exception
– BERs ceilings
– Abuse of dominance, M&A control to avoid future MP
– State monopolies, state aid control
Activity
Discuss the structure of some markets where
you have personal experience, i.e.
– Mobile phones (manufacture of …)
– Internet search
– Cars (manufacture, distribution)
– Beer (manufacture, distribution)
– Cola flavored carbonated drinks
What kind of anti-competitive activities may
occur in these markets?
The fight against cartels
Article 101 (1) - 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…”
Cartels
Definition? Private enforcement directive…
Competitors – by aim infringement – as a rule
secretive/covert - no efficiency justification
US: crime – EU: most serious unlawful activity
Industries affected (‚infected’) by cartels
– Nature of product: homogenous
– Structure of the market: view, similiar actors
The restriction of competition
By objectPrice cartels
Quota cartels
Status quo cartels
Information exchange on future prices
Fixing retail prices for distributors
Total prohibition of parallel trade for distributors (absolute territorial protection)
By effectMost information exchanges
Joint production
Joint procurement/selling
Standardisation
Non-compete in distribution
Exclusive distribution
Selective distribution
What is an agreement?
„Meeting of the minds”, consensus– Legally enforcable contract
• Vertical distribution, JVs
– Non-binding gentlemen’s agreements, oral agreements
– Expired agreement which effects continue to be felt
– Even if it is sketchy, lacking details
– Even without an „enforcement mechanism”
– Settlement before a court
– Even if unvalid under national civil/company laws
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 companies, the object or
effect of which is either to influence the conduct of a competitor or
to disclose to such a competitor the course of conduct to be
adopted on the market
The comandment of independent risk taking?
Complex cartels:
single and continuous infringements
Agreements and/or concerted practices
Involving numerous meetings, discussions, exchanges of
information - individual infringements united by…
– Objective elements:
• More or less between the same undertakings
• The same goals, overall plan to restrict competition
– Subjective element
• Intended to contribute to an overall plan
• Was/should have been aware of the conduct of the others
Consequence: longer duration of the infringement (higher fines),
not time barred (5 years)
How to avoid becoming a party to a
concerted practice?
Avoid the situation
– Clarify the subject matter of the meeting in advance
– The presence of lawyers
The obligation to distance yourself
• During meetings
• E-mail exchanges
Parallel behavior is not unlawful
You can always copy your competitor
– Price leadership
Yet, parallel behaviour can be circumstantial
evidence of collusion – if there are no other rational
explanations for the parallelism
– Woodpulp case: plaintiffs prevailing over the Commission
Algorithms and collusion
„[…] the industry-wide use of pricing
algorithms increases both market transparency
and the risk of conscious parallelism.”
„[…] the computers will already be programmed to
anticipate and respond to rivals‘ moves. In such
a scenario, computers can rapidly calculate the
profit implications of myriad moves and
countermoves. [...] prices, as a result of
conscious parallism, will climb.“
Ariel Ezrachi & Maurice Stucke: Virtual Competition
(2016)
Algorithms and collusion
Self-learning systems (artificial intelligence) can develop skills
to assess huge amounts of market data and facilitate pricing
practices that might be profitable for sellers, but harmful to
competition and end consumers.
If there is no coordination, but only informed independent
decisions by each company relying on pricing robots: maybe
harmful, but not illegal
– Change of law needed?
If there is coordination between algorithms of independent
companies the question arises whether and how this can be
attributed to human behavior
Decisions by associations
Extending the prohibition of anti-competitive
agreements
Does not have to be legally binding
Not only formal decisions, also actions are covered
– Circulating industry specific sensitive information among members
Broadly two types of cases
– Unlawful conduct initiated by (hyperactive) officers
– Association used as a disguise by members creating a cartel
Price signalling: an area for concern
Public announcements vs private sharing of
information
Commitment decisions
EU liner shipping case
– Intended future price increase, timing, trade routes
affected
Practical approach: what, why, when, how…
– Should reflect an individual business decision, not
dependent upon competitor response
Is this a cartel?
The five mobile phone operators
in the Netherlands met and
discussed the reduction of
standard dealer remunerations
for postpaid subscriptions
– Just one single meeting
– Sharing confidential
information
Is this a cartel?
Overproduction of beef in Ireland; Government urged companies to solve the problem
Aim: reduce the total capacity of the processing industry by 25% within one year
The 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 years
Investigating cartels
Strong investigative powers: dawn raids
(inspections)
Leniency (zero fines or reductions)
Settlements (10% fine discount)
Criminalization of sanctions + higher fines to
deter: more emphasis on procedural safeguards,
full court review = „human rights movement”
Fining policy of the Commission
The aim: deterrence and punishment
The legal nature of guidelines
The maximum: 10%, group, worldwide
The significance of affected/relevant turnover
Aggrevating and mitigating factors
Are parents responsible for the wrongdoings of
their kids?
– AKZO presumption
The marine hose cartel
What 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 exist?
How did the Commission calculate the fines?
– Why was Yokohama Rubber not fined?
The global vitamins cartel
1990s, the best documented global conspiracy
U.S. (1999): guilty pleas + criminal fines 875 M
$, private settlements 5-7 B $
– First European nationals to serve time in U.S. prison
EU (2001): admin fines 850 M €
– 8 companies (H. La Roche, BASF), 8 cartels
– Well structured „clubs”, prices, quota agreement,
compensation mechanism, client allocation
– CFI judgments reducing fines
Also in Canada, Australia and Korea
Check your knowledge!
Your competitor has raised its price by 10% - you
simply follow it two days later
You sign an agreement to allocate markets with a
competitor for 2 years – after 2 years you still do not
enter each others’ territory
You 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 them
Check your knowledge!
Public tender to construct an airport– Two companies form a consortium, none of whom could
perform the job on its own
Sharing 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%
Joint ventures
JV agreements
Competitors – efficiency/welfare enhancing
Effect based approach
– BER, individual exception and de minimis available
Industry examples
R&D, joint production
Joint purchasing agreements
What about ‚crisis cartels’ (Irish beef)?
M&A – Joint Ventures
Joint control: power to veto decisions
Full function JVs are covered by the Merger Control
Regulation
– Performing on a lasting basis all the functions of an
autonomous economic entitiy
– For co-operative aspects of the JV (having the
object/effect of co-ordinating the behaviour of parents):
Article 101 test applied in the merger procedure
The restriction of competition
By objectPrice cartels
Quota cartels
Status quo cartels
Information exchange on future prices
Fixing retail prices for distributors
Total prohibition of parallel trade for distributors (absolute territorial protection)
By effectMost information exchanges
Joint production
Joint procurement/selling
Standardisation
Non-compete in distribution
Exclusive distribution
Selective distribution
The de minimis notice
The power of interpretation…: the role of case law
Only agreements with an appreciable effect on
competition are caught by Article 101 (1)
– 10% for horizontals, 15% for verticals
Except for
– hard core restrictions
• i.e price cartel, market allocation, total ban an exports
– cumulative market foreclosure effects
Effect analysis
Comparing to the actual legal and economic
context in which competition would occur in the
absence of the agreement with all of its alleged
restrictions
Defining the relevant market
Combined market shares (market power)
Efficiency gains analyzed only under 101 (3)
See: horizontal guidelines by the Commission
Article 101 (3)
Exception instead of exemption - since 2004
– Self-enforcing instead of Commission procedure
The four criteria:
– Economic development (efficiencies)
– Fair share to consumers
– No unnecessary restrictions
– No elimination of competition
Article 101 (3) – the four criteria
Balancing efficiencies with the loss of rivalry
EC block exemption regulations
Automatic exemption system, directly applicable
Built on the experience of individual exemption
cases of the past
Safe harbour subject to market shares
‘Blacklisted’ clauses
Explanatory Commission guidelines
EC block exemption regulations
Technology transfer
R&D
Specialisation
Expired BER: insurance agreements
Horizontal Commission Guidelines!
Distribution agreements
Bringing the product to the consumer
Vertical rules protecting market entry, and
freedom of traders
Article 101 (1) and verticals
Agreement or unilateral action?
Independent undertakings: agency
Competition restrictions with third party effects
More NCA than Commission cases
Commission priority: online sales restrictions
– E-commerce sector inquiry of 2017
– Individual cases targeting e-commerce, i.e. geo-
blocking, RPMs
The restriction of competition
By objectCartels
Information exchange on future prices
Fixing retail prices for distributors
Total prohibition of parallel trade for distributors (absolute territorial protection)
Prohibition of sales between members of a selective distrbution
By effectMost information exchanges
Joint production
Joint procurement/selling
Standardisation
Non-compete in distribution
Exclusive distribution
Exclusive purchasing
Selective distribution
(Seemingly) unilateral actions
As a rule these are not covered by Art. 101
But: actions within a distribution system
– Refusal to supply discount shops (AEG)
– Under-supply distributors (VW)
– Sending of a circular + complying with it (Konica)
Real unilateral actions may fall only under Art 102
– Lessons of the Bayer (Adalat) case
Distribution agreements
Dominantly effect based approach
– 15%: de minimis exception
– 15-30% BER
– Above 30%: individual exception, efficiencies
Absolute territorial protection is always prohibited
– Active/passive sales
Resale price maintenance (RPM)
Typical restrictions
Exclusive distribution
Exclusive purchase
Non-compete obligation
– Post non-compete
Selective distribution system
Agency agreements: exception!
Trade marks used to partioning markets
BERs
Vertical - 2790/99 Commission Regulation
Motor vehicle distribution and servicing
Technology transfer
Commission guidelines
Verticals – practical analysis
The parties
– Are they independent undertakings?
• Intra-group and agency exceptions
– Are they non-competitors?
The agreement
– Are there black listed clauses?
– For other restrictions: market shares, business
rationale?
• De minimis, BER, 101 (3)
Selective Distribution - Coty
ECJ held in Coty (2017) that it can be lawful under Article 101 TFEU
if a supplier of luxury goods prohibits the authorised dealers from
making online sales through discernible third-party platforms (such as
Amazon Marketplace or Ebay)
Article 101 TFEU does not preclude such a ‘platform ban’ if
– A prohibition to distributthe objective is to preserve the luxury image of a
product (‘aura of luxury’),
– the restriction is laid down uniformly and not applied in a discriminatory fashion,
and
– it is proportionate in the light of the objective pursued
Price parity clauses – Amazon
The BKartA prohibited Amazon from using price parity clauses in its
terms and conditions for Amazon Marketplace (2013)
Prevented sellers on Amazon platform from offering their goods
elsewhere at lower prices (their own websites, other online shops)
The BKartA considered the relationship between Amazon and
sellers on Amazon Marketplace to be not only vertical, but also
horizontal
– hardcore restriction that could not be justified (price-fixing)
Amazon abandoned the clauses throughout the EU
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.
The hub: a company, i.e. a retailer,
transmits information and disciplines
cheaters
No direct contact between the
spokes (i.e. producers)
Vertical relations used to arrive at a
horizontall collusion
Awareness of the single
anticompetitive purpose or effect
(e.g., price fixing, market sharing) 84
Parallel price increases and
„hub-and-spoke” agreements
Check your knowledge!
Producer of branded tennis rockets
– Stipulating in a contract with retailers that the prices listed in an annex
shall be applied
– Sending an e-mail to the retailers not to sell below a certain price to
maintain the image, asking them not to reply if they agree
– Putting into the contract a „recommended” price but terminating the
relationship with those retailers selling below that price
– Prohibiting its dealer in France to operate an English language
website
Check your knowledge!
The producer of tennis rockets
– assigns certain territories to its exclusive dealers where it
promises not to appoint other retailers
– imposes a non-compete obligation on the retailer for 3
years
– Imposes a post non-compete for 4 months