lumsa – international commercial law competition law – general principles competition law is law...

LUMSA – International Commercial Law

COMPETITION LAW – GENERAL PRINCIPLES

Competition law is law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies.It is implemented through Public and Private Enforcement .

Competition law is known as antitrust law in the United States and anti-monopoly law in China and Russia. In previous years it has been known as trade practices law in the United Kingdom and Australia.



European Union competition law arose out of the desire to ensure that the efforts of government could not be distorted by corporations abusing their market power. Hence under the treaties are provisions to ensure that free competition prevails, rather than cartels and monopolies sharing out markets and fixing prices. Competition law in the European Union has some similarities with the law in the United States antitrust, though there are some key differences.



Four main policy areas include:1. Cartels, or control of collusion and other anti-competitive

practices that affect the EU (or, since 1994, the European Economic Area). This is covered under Articles 101 of the Treaty on the Functioning of the European Union(TFEU).



Four main policy areas include:2) Market Dominance, or preventing the abuse of firms'

dominant market positions. EU law can apply for "dominant" market players with as little as 38% market share, compared to the US where a market share of 60%+ is usually required to trigger intervention. This is governed by Article 102 TFEU. This article also gives rise to the Commission's authority under the next area.



Four main policy areas include:3) Mergers, control of proposed mergers, acquisitions and joint

ventures involving companies that have a certain, defined amount of turnover in the EU/EEA. This is governed by the Council Regulation 139/2004 EC (the Merger Regulation);



Four main policy areas include:4) State aid, control of direct and indirect aid given by Member

States of the European Union to companies. Covered under Article 107 of the Treaty on the Functioning of the European Union (TFEU), which now supersedes the Treaty Establishing the European Community (TEC).Article 107 of the TFEU is equivalent to Article 87 of the TEC.


COMPETITION LAW – STATE AID

This last point is a unique characteristic of the EU competition law regime. As the EU is made up of independent member states, both competition policy and the creation of the European single market could be rendered ineffective were states free to support national companies as they saw fit. A 2013 report lists some of the artifices used by participants to skirt the state aid rules on procurement. Primary authority for applying EU competition law rests with European Commission and its Directorate General for Competition, although state aids in some sectors, such as transport, are handled by other Directorates General.


COMPETITION LAW – STATE AID

The Directorates can mandate that improperly-given state aid be repaid, as was the case in 2012 with Malev Hungarian Airlines. On 1 May 2004 a decentralised regime for antitrust came into force to increase application of EU competition law by national competition authorities and national courts.


ART. 101 OF TFEU

Under EU law cartels are banned by Article 101 TFEU. Art. 101 TFEU makes clear who the targets of competition law are in two stages with the term agreement "undertaking". This is used to describe almost anyone engaged in an economic activity, but excludes both employees, who are by their very nature the opposite of the independent exercise of an economic or commercial activity, and public services based on solidarity for a social purpose.


ART. 101 OF TFEU

Undertakings must then have formed an agreement, developed a "concerted practice", or, within an association, taken a decision. Like US antitrust, this just means all the same thing; any kind of dealing or contact, or a "meeting of the minds" between parties. Covered therefore is a whole range of behaviour from a strong handshaken, written or verbal agreement to a supplier sending invoices with directions not to export to its retailer who gives "tacit acquiescence" to the conduct



Article 101 of TFEU1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which:

• (a) fix purchase or selling prices or any other trading conditions;• (b) limit or control production, markets, technical development,

or investment;• (c) share markets or sources of supply;


COMPETITION LAW – GENERAL PRINCIPLES (Art. 101)

(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.



2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void.3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of- any agreement or category of agreements between undertakings,- any decision or category of decisions by associations of undertakings,- any concerted practice or category of concerted practices,


COMPETITION LAW– GENERAL PRINCIPLES (Art. 101)• which contributes to improving the production or distribution

of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:

• (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;

• (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question


COMPETITION LAW– GENERAL PRINCIPLES (Art. 101)

This includes both horizontal (e.g. between retailers) and vertical (e.g. between retailers and suppliers) agreements, effectively outlawing the operation of cartels within the EU. Article 101 has been construed very widely to include both informal agreements (gentlemen's agreements) and concerted practices where firms tend to raise or lower prices at the same time without having physically agreed to do so.



However, a coincidental increase in prices will not in itself prove a concerted practice, there must also be evidence that the parties involved were aware that their behaviour may prejudice the normal operation of the competition within the common market. This latter subjective requirement of knowledge is not, in principle, necessary in respect of agreements



As far as agreements are concerned the mere anticompetitive effect is sufficient to make it illegal even if the parties were unaware of it or did not intend such effect to take place.Exemptions to Article 101 behaviour fall into three categories.



Firstly, Article 101(3) creates an exemption for practices beneficial to consumers, e.g., by facilitating technological advances, but without restricting all competition in the area. In practice the Commission gave very few official exemptions and a new system for dealing with them is currently under review.



Secondly, the Commission agreed to exempt 'Agreements of minor importance' (except those fixing sale prices) from Article 101. This exemption applies to small companies, together holding no more than 10% of the relevant market. In this situation as with Article 102 (see below), market definition is a crucial, but often highly difficult, matter to resolve.



Thirdly, the Commission has also introduced a collection of block exemptions for different contract types. These include a list of contract permitted terms and a list of banned terms in these exemptions.


COMPETITION LAW – GENERAL PRINCIPLES (Art. 102)Article 102Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in:(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;(b) limiting production, markets or technical development to the prejudice of consumers;



Article 102(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.



Article 102 of the TFEU is aimed at preventing undertakings who hold a dominant position in a market from abusing that position. Its core role is the regulation of monopolies, which restrict competition in private industry and produce worse outcomes for consumers and society.


COMPETITION LAW – GENERAL PRINCIPLES (Art. 102)DominanceFirst it is necessary to determine whether a firm is dominant, or whether it behaves to an appreciable extent independently of its competitors, customers and ultimately of its consumer. Under EU law, very large market shares raise a presumption that a firm is dominant, which may be rebuttable.

Where a firm has a dominant position, it has a special responsibility not to allow its conduct to impair competition on the common market.


COMPETITION LAW – GENERAL PRINCIPLES (Art. 102)Market definitionMarket shares are determined with reference to the "relevant market" in which the firm and product in question is offered.Market definition refers to the delineation of this relevant market. It is an essential part of a competition case under Art. 102. If the market is defined too widely then it will contain more firms and supposedly substitutable products, preventing a finding of a dominant position. If the market is defined too narrowly then there might be an incorrect presumption that the company is dominant. There are various ways to define whether a company is dominant.


COMPETITION LAW – GENERAL PRINCIPLES (Art. 102)The product marketWhat other products or services might consumers switch to?There is the 'hypothetical monopolist' test which is whether a small but significant increase in price is likely be allowed by the hypothetical monopolist company to profit from this. If consumers can and would move away from the hypothetical monopolist's product and onto other products then their market is more widely defined.There is also the 'intuitive approach', which focuses on brand loyalty and the use of the products.The Commission's Notice on the Definition of the Relevant Market is a mixture of the two above approaches, with the hypothetical monopolist having more importance.


COMPETITION LAW – GENERAL PRINCIPLES (Art. 102)The geographical marketWhat other products or services might consumers switch to?There is the 'hypothetical monopolist' test which is whether a small but significant increase in price is likely be allowed by the hypothetical monopolist company to profit from this. If consumers can and would move away from the hypothetical monopolist's product and onto other products then their market is more widely defined.There is also the 'intuitive approach', which focuses on brand loyalty and the use of the products.The Commission's Notice on the Definition of the Relevant Market is a mixture of the two above approaches, with the hypothetical monopolist having more importance.

lumsa – international commercial law competition law – general principles competition law is law...

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