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LIDC Annual Congress

23 October 2009Vienna

Prof. Nicolas Petit

Institute for European Legal Studies (IEJE)

Nicolas.petit@ulg.ac.be

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Question A

“Do”, and in turn “should competition authorities (“CAs”) enjoy an unfettered discretionary power in the context of the investigation of competition law infringements” or “should their margin of discretion be subject to certain limits”?

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Question A

Certainly a good question, but broad, abstract and subjective

MethodologyEmpirical input through objective questions

seeking to elicit the « revealed preferences » of national law makers re. CAs’ discretion

Focus on a set of issues which, in practice, are of critical importance

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National Reporters Italy: Caterina GASTALDI Austria: Ursula PIRKO Lithuania: Lauras BUTKEVICIUS Latvia: Ieva BERZINA-ANDERSONE Germany: Meinrad DREHER Japan: Masashige OHBA China: Jiang JIANG Czech Republic: Vlastislav KUSÁK Spain: Javier GUILLÉN Switzerland: Patrick L. KRAUSKOPF Hungary: Zoltán HEGYMEGI-BARAKONYI Belgium: Evi MATTIOLI France: Michel PONSARD and Nizar LAJNEF Sweden: Henrik NILSSON United Kingdom: Maya LESTER Estonia: Kaupo LEPASEPP Luxemburg: Gabriel BLESER and Anne DOSTERT European Union: Valeria ENRICH and Carmen CAMPO

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Purpose of the Presentation

1. Convey the results of this empirical survey

2. Formulate public policy recommendations

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Outline of the Presentation

1. Main Conceptual Issues arising from CAs’ Discretion

2. « Detection » discretion

3. « Target » discretion

4. « Process » discretion

5. « Outcome » discretion

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I. Main conceptual issues arising from

CAs’ discretion

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The Concept of CAs’ Discretion

Definition – The ability to make a « choice over a significant aspect of an issue »

Multi-facetedSubstantive issues (legal and economic

assessment)Organizational, procedural and institutional

issues Rationale – expertise, independence, and

resource-constraints

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The Challenges Raised by CAs Discretion

Risks – regulatory capture (Stigler), revolving doors, idle enforcement, populism (Forrester), short-sighted enforcement policy, etc.

Remedies? Ex ante obligations, incentives, etc. Ex post controls, etc.

The challenge: striking the right balance between control and discretion Example – « Target » discretion

Competition law as a public policy => wide target discretion Competition law as a body of objective rights and duties=>

limited target discretion

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II. CAs’ Discretion in Devising a Detection Policy

« Detection

 Discretion »

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Do CAs’ enjoy discretion in devising their detection policy?

In general, CAs can avail themselves of both reactive and pro-active detection techniques

Yet, indirect constraints on « detection » discretion In countries where legal duty to respond to complaints

with reasons, deadlines, and judicial review => little scope for pro-active detection policy (e.g., Sweden, Lithuania, Latvia, Estonia)

Idem in countries with referral mechanisms and obligation of the CA to follow-on (e.g., Belgium)

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Should CAs enjoy an Unfettered Discretion in devising their Detection

Policy? Regulatory frameworks do not incentivize, let alone

require, CAs to carry out pro-active detection approaches

A majority of CAs thus exhibits a reactive enforcement record. This trend is compounded by the introduction of leniency programmes (exception: Germany, Austria and Czech Republic)

Unsatisfactory state of affairs – reactive enforcement is inefficient (not deterrent) and insufficient (brazen cartels are not sanctioned)

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Should CAs enjoy an Unfettered Discretion in devising their Detection

Policy? Public policy recommendations

Ex officio work matters and should be encouraged! Administrative practice – CAs’ should periodically save spare

resources for future pro-active detection work Legislative – codification of sector inquiries sends signal that

ex officio work matters Academic – CAs should sponsor studies on market

screening instruments Increase financial resources?

Budgetary raise? => unlikely Internal financing mechanisms (e.g. Italy) => further research

needed

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III. Competition Agencies’ Discretion in Selecting Investigation Targets

« Target Discretion »

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The Issue

Finite resources / infinite targets Target discretion is the ability to focus on

certain practices/sectors, and to stray away from other, potentially problematic, practices/sectors

Hefty criticism: « à la carte » enforcement, « populism », etc.

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Do CAs enjoy an Unfettered Discretion in Selecting Investigation Targets?

In most jurisdictions the law says nothing of (i) the ability of CAs to rank cases; and (ii) the substantive criteria that should be followed for this purpose

Most reports conclude that CAs can discretionarily engage into priority setting

In practice, only a limited number of CAs follow explicit, articulated, priority-setting methods UK, Belgium and Hungary

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Should CAs enjoy an Unfettered Discretion in Selecting Investigation

Targets? As a matter of principle, CAs should be entitled to set

priorities (limited resources + perverse effects of uniform enforcement policies)

Yet: need to enshrine this rule in a binding legal instrument (as

priority setting may entail discrimination) Prioritization criteria should be as neutral, objective and accurate

as possible CAs should be periodically required to clarify what their priorities

are (for instance through reports, press releases, speeches, etc.).

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IV. Competition Agencies’ Discretion in Initiating Infringement

Proceedings

« Process Discretion »

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Do CAs enjoy an Unfettered Discretion in Initiating Infringement Proceedings?

Specific adoption rules: high-level officials vs. case handlers

Information requirements: Most CAs must inform suspected firms through a decision; third

parties are not necessarily informed; publication is often optional Judicial review

In some countries decision to open proceedings can be reviewed, in others not

Query: practical relevance? Deadlines for the adoption of a decision: rare, but some

CAs face stringent timelines (6 months)

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Should CAs enjoy an Unfettered Discretion in Initiating Infringement

Proceedings? Adoption rules – pros and cons of delegation to

case-handlers Information requirements – Key issue is

information of third parties. Good administrative policy to keep third parties informed

Judicial review – does not seem to bring much added value

Deadlines – pros and cons. Case-specific deadlines (see Italy and EC) may be appropriate

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V. Competition Agencies’ Discretion in Terminating

Proceedings

« Outcome discretion »

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The Issue In recent years,mushrooming of new

enforcement methods Settlement approach vs. Negative enforcement

approach Positive enforcement approach vs. Negative

enforcement approach Controversial issues:

Discrimination? Ability to settle in cases involving enduring

anticompetitive conduct? Ability to discretionarily shift from settlement track to

negative enforcement track (M. Monti re. Microsoft)?

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Do CAs enjoy an Unfettered Discretion in Terminating Infringement

Proceedings? A vast majority of the CAs covered in the report

can settle cases in exchange for commitments => CAs generally enjoy outcome discretion

Relevant question is: can all cases be settled? Discrepancies amongst jurisdictions

With some limited exceptions, CAs cannot adopt positive decisions in individual cases

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Should CAs enjoy an Unfettered Discretion in Terminating Infringement

Proceedings? Settlements => outcome discretion should be

reduced No commitments in cases where conduct has had

enduring effects on the market Positive enforcement => outcome discretion

should be increased « Negative enforcement-only » sends counter-

productive signals to the market place Positive guidance improves compliance and limits

CAs’ ex post enforcement costs

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Conclusions

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First, CAs favoring reactive detection policies should be incentivized to increase their share of ex officio detection activities (▼) and, where necessary, should be entrusted with additional resources.

Second, CAs should be entitled to engage in effective priority setting (▲), on the basis of clear, well-defined, criteria (▼). CAs should in addition be requested to clarify publicly their enforcement priorities on a regular basis (▼).

Third, CAs should be requested (i) to inform all interested third parties when opening proceedings; and (ii) to publish their decision (▼). In addition, at the stage of the opening of proceedings, CAs should be compelled to set mandatory deadlines for their review (▼). Those deadlines should be established on a case-by-case basis.

Fourth, in so far as settlements are concerned, CAs should be precluded from negotiating commitments in cases involving long-lasting restrictions of competition (▼). By contrast, in so far as positive enforcement is concerned, national legislations should enable CAs to adopt “inapplicability” decisions and to provide individual guidance to firms (▲).

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Thanks for your attention!

Presentation will be available shortly at

www.chillingcompetition.com