5 MAY 2010NICOLAS PETIT

UNIVERSITY OF LIEGE (ULG)HTTP: / /CHILLINGCOMPETITION.COM

Public and Private Enforcement of EU Competition Law

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Purpose of the Presentation

EU competition rules have many fascinating features

One of their most intriguing features is that they are subject to specific enforcement mechanisms

Unlike other rules of law, the EU competition rules are enforced not only through the courts system (« private enforcement », upon requests of private parties), but also by independent administrative agencies (« public enforcement »)

Against this background, this presentation ambition is to offer you a short journey on those two enforcement routes (and their interplay)

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Outline

I. A reminderII. Public enforcementIII. Private enforcementIV. Conclusions

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I. A reminder

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Background – The Theory

Competition rules are predicated on the view that market competition promotes economic efficiency in the form of low prices, increased choice and technological innovation (+ in the EU contribution to market integration)

Modern competition rules generally outlaw: Anticompetitive agreements between independent firms (Article 101

TFEU) => price-fixing amongst competitors, exclusivity agreements which foreclose rivals, etc.

Abuses of dominant positions (Article 102 TFEU) => excessive prices, predatory pricing, refusal to supply indispensable inputs, etc.

Anticompetitive mergers => mergers to monopoly/oligopolyArticles 101 and 102 TFEU only apply to practices which

have an appreciable effect on cross-border trade

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Article 101 TFEU Article 102 TFEU

Lifts and escalators cartel, 2007

International removal services cartel, 2008

Microsoft I, 2004Intel, 2009Microsoft II, 2010Google, 2011

Background – The Practice

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II. Public Enforcement

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Structure

1. Why? – Rationale for Public Enforcement2. Who? – The Creatures of Public

Enforcement3. What? – The Nature of Public Enforcement

Activities 4. Conclusions

91. Why? – Rationale for Public Enforcement

Private enforcement by generalist courts is unsatisfactory Courts lack expertise in complex economic matters Courts cannot deal with resource intensive competition cases Courts cannot monitor markets to uncover hidden, unlawful behavior Courts are reluctant to order investigative measures Courts cannot focus/prioritize their resources on those specific

markets/practices that matter (=> duty to deal with all cases). Absence of “opportunité des poursuites”. Often, courts are clogged with disputes of minor importance in economic welfare terms

EU competition law is thus primarily enforced by specialized administrative agencies (“competition authorities”) with very intrusive powers

Those authorities share many analogies with sector specific regulators in network industries (telcos, etc.) or other independent agencies (European agencies). Yet, they have oversight over all sectors of the economy

102. Who? – The Creatures of EU Competition Enforcement

i. Overview of the System

ii. The European Commission

iii. The NCAs

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i. Overview of the System

EU competition rules (Article 101 and 102 TFEU) can be enforced both at the European – by the Commission – and national levels – by National Competition Authorities (“NCAs”)

With the adoption of Regulation 1/2003, the Commission and the NCAs form a “network” of competition authorities (the “ECN”). All those authorities can apply the EU competition rules

To avoid duplication of efforts and decisional conflicts, distribution of cases amongst ECN is subject to certain principles Commission focuses on (i) hardcore cartels; (ii) cases raising new questions of

law (e.g. generic competition in pharma sector); and (iii) cases with significant transnational interest (+3 rule: see international removal services)

NCAs deal with other cases (e.g., vertical restraints), under the monitoring of the Commission (which can take cases from NCAs). NCAs may also provide assistance to the Commission in the context of investigations in the MS

Cases are allocated to the “best placed” NCA (generally the 1st one to start an investigation…). Reallocation is possible

“Spirit” of mutual recognition

ii. The European Commission12

At the European level, the Competition Authority is the European Commission (the « Commission »)

The enforcement of the EU competition rules is bestowed upon a particular Directorate General within the Commission => DG COMP DG COMP is placed under the political authority of the

Competition Commissioner (J. Almunia + cabinet) who sets policy priorities

DG COMP is placed under the Direction of a Director General (A. Italianer) who oversees the officials’ technical work

DG COMP is divided in Directorates and Units Approximately 900 civil servants (lawyers, economists, but

also IT professionals, etc.) and an operating budget of €95 .000.000

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ii. The European Commission

Is the Commission a truly specialized and independent competition agency? Important competition decisions must be adopted by the College of

Commissioners Commission is also in charge of proposing EU legislation, and must

thus muster support from the Member States Competition decisions with legal implications must be cleared by

the Commission’s legal service The Commission also holds enforcement duties in other areas

(single market, international trade, transport, energy policy, etc.)The various decisional layers involved in EU competition

proceedings have pros (decisional quality, etc.) and cons (create vantage points for lobbying , etc.)

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iii. The NCAs

To assist the Commission in the enforcement of the EU competition rules, Member States MUST appoint effective NCAs (Article 35 of Regulation 1/2003)

Freedom on the means (procedural autonomy) v. obligation on outcome (effectiveness) MS can designate courts as NCAs (Article 35, Reg. 1/2003); But NCAs “ shall have the power, acting on their own

initiative or on a complaint”, to “take the following decisions: - requiring that an infringement be brought to an end, - ordering interim measures, - accepting commitments, - imposing fines, periodic penalty payments or any other penalty provided for in their national law” (Article 5, Reg. 1/2003).

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iii. The NCAs

Three institutional models have been implemented Integrated => a sole administrative agency prosecutes and decides

competition cases (Commission) Bifurcated (administrative) => an administrative organ prosecutes

competition cases, a distinct administrative organ decides (Belgium) Bifurcated (judicial) => an administrative organ prosecutes competition

cases, a court rules on the merits of the case (Austria)Pros and cons of integrated v. bifurcated model

Integrated model Pros => procedural efficiency Cons => prosecutorial bias (confirmation, investment bias)

Bifurcated model Pros => second look, which limits biases and increases decisional legitimacy Cons => coordination issues (e.g. policy priorities); transaction costs for

parties (e.g. UK); vantage points for lobbying/political pressure; over-filtering of allegations, and inflation of arguments invoked by parties

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iii. The NCAs

Performance of NCAs is satisfactory Commission Staff WP, 2009: « The key challenge […], to

boost enforcement results while ensuring the consistent and coherent application of EC competition rules, has been largely achieved ».

Number of cases dealt with by NCAs >1000 (§84: « Impressive »)

Few cases with disputes over jurisdictional issues (§214: « discussions on case-allocation came up only in a few cases and actual re-allocation of cases took place even less »)

173. How? - The Nature of Public Enforcement Activities

How do the Commission and NCAs enforce the competition rules?

In other words, how do they cook competition cases?

EU procedure and decisional powers as proxyA competition case typically goes through 4 main

stages, which correspond to 4 types of enforcement activities i. Detectionii. Investigationiii. Evaluationiv. Decision

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i. Detection

The first and foremost activity of competition authorities is to unearth information indicative of potential infringement

To this end, competition authorities rely on 6 types of detection mechanisms1. Market monitoring (Parisian palaces case)2. Information gathered through other activities (EUMR, SSR, etc.)3. Consumers (online form on DG COMP website)4. Complaints (mostly abuse of dominance cases)

1. Third parties entitled to procedural rights but burdensome2. Ability for the Commission to dismiss on discretionary grounds (non prioritary

case, overly demanding investigation, etc.)5. Sector  inquiries (energy, pharma, electronic communications, financial

services, etc.)6. Leniency applications (mostly cartel cases)

Other mechanisms => bounties/rewards for individuals (OFT: 100,000£)

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ii. Investigation

Once the Commission holds indications of a potential infringement, it will seek to corroborate this intuition through various investigative measures

Those nvestigative powers are very intrusive

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ii. Investigation

1. Requests for information (frequent) – Article 18, Reg. 1/2003 Factual information Customers, rivals, suppliers, but also public institutions and NCAs Commission may impose periodic penalty payments up to 5 % of the

average daily turnover in the preceding business year per day in order to compel the undertakings to comply with the request for information

2. Dawn raids (less frequent, mostly cartel cases) – Article 20, Reg. 1/2003

Firms must submit themselves to inspection + actively cooperate Commission can

Enter any premises, land and means of transport; examine the books and other records related to the business; Take or obtain in any form copies of or extracts from such books or records; Seal any business premises and books or records for the period necessary for

the inspection (E.ON case); Ask any representative or member of staff of the undertaking or association of

undertakings for explanations on facts or documents

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ii. Investigation

3. Inspection of other premises (private premises) - Article 21, Reg. 1/2003

Only if a reasonable suspicion exists that books or other records related to the business and to the subject-matter of the inspection, are being kept in any other premises

Which may be relevant to prove a serious violation of Article 101 or 102 TFEU

Prior authorisation from the national judicial authority of the Member State concerned

4. Interviews at DG COMP’s premises

=> The Commission often combines those various types of investigative measures

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ii. Investigation

Firms are under an obligation to cooperate actively with the Commission (see Orkem, §27)

Examples of non-cooperation: Destruction of documents (see Professional videotapes

cartel) Refusal to provide documents or answer questions Provision of misleading information (see Tetra Laval) Deny officials access to the premises (see Bitumen

Netherlands) Breach of seal (See E.ON)

Consequences Increase of the global fine (art. 23(2) Reg. 1/2003) Or stand alone fine (art. 23(1) Reg. 1/2003)

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iii. Evaluation

Once the investigation has entitled the Commission to gather sufficient evidence, the Commission will review the evidence and seek to delineate the exact scope, nature, gravity of the infringement(s)

The Commission opens “formal proceedings”NCAs can no longer investigate the caseThe procedure becomes more analytical and

adversarial

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iii. Evaluation

This phase goes through 3 critical stages The Commission first issues a “Statement of Objections”

(SO) (parties are informed of allegations levelled at them) Parties are then granted “access to file” (equality of harm) Parties can then use their “right to reply” (optional)

Written response to SO (at least 4 weeks) Oral response during hearing (only if written response)

If new theories of harm are identified, Commission must issue a new SO.

Allegations which have not be brought the attention of the parties cannot lawfully form a basis of infringement

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iv. Decision

Once DG COMP has heard all arguments, it must come to a view on the case

It drafts a decision which is submitted to other internal and external organs (CET, Legal Service, other DGs, Advisory Committee, etc.)

Approval by the College of Commissioners for all important decisions (subject to delegation)

Notification to the partiesPublication in the Official Journal

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iv. Decision

The Commission can adopt several types of decisionsThe most important are

1. Prohibition decisions Decisions finding an infringement of Article 101 and 102 TFEU Decisions may also prescribe “cease and desist” orders, if the

infringer has not given up the unlawful conduct Decisions may give more details as to how to eliminate risks of future

infringement (article 7 of Regulation 1/2003) Excessive price => price cap Discrimination => price decrease Refusal to supply => duty to supply with qualitative/quantitative

conditions Decisions often inflict fines on infringers. Fine capped at 10% of the

total annual turnover in the preceding business year (e.g.,  1.06bn euros in Intel). Ultimate purpose is deterrence

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iv. Decision

2. Settlements Competition authorities’ have limited resources/firms may be willing to avoid

financial and reputational damage caused by formal infringement decisions In the course of an investigation, and before the infringement is proven, the parties

can be ready to meet the Commission’s concerns by offering “commitments” which restore market competition, in exchange for the termination of the proceedings (without a formal finding of infringement)

Regulation 1/2003 entitles the Commission to do this The Commission will adopt a summary decision which renders the commitments

compulsory on the parties (Article 9 of Regulation 1/2003) Conditions

Proposed at the initiative of the undertakings concerned Shall entirely eliminate the grounds for action by the Commission Only where the Commission doesn’t intend to impose a fine (excluded in cartel cases)

Increasingly used by the Commission => procedural efficiency and results akin to a prohibition decision

Illustrations Microsoft II (must carry) Coca-Cola (termination of exclusivity clauses) ENI (divesture of pipelines necessary to transport gas)

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4. Conclusions

The EU competition enforcement system entails clear limitations on individual freedom and property rights (dawn raids, remedies, etc.) and hefty sanctions (fines, etc.)

This is justified on the ground that competition rules are “public policy” rules, which shall prevail, in certain circumstances, property rights and individual freedom

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III. Private Enforcement

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1. Background Article 101 and 102 TFEU are

directly applicable Natural and legal persons can

thus invoke them before ordinary courts of law

In addition, competition rules are rules of “public policy”. National courts have the duty to raise violations of EU competition law of their own motion (subject to equivalence rule)

This is conventionally referred to as “private enforcement” (although the expression is slightly confusing)

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2. Actual Scope of Private Enforcement

On paper, private enforcement before courts has a number of interesting features Duty of courts to deliver judgment One stop shop => ordinary courts can deal with the several facets of a case

In practice, very limited involvement of national courts Typical setting => “Euro-defense” A plaintiff seeks to obtain execution of a contract (payment) The defendant argues that the contract is null and void under Article 101

TFEU (or that its implementation is tantamount to an abuse of dominance under Article 102 TFEU)

Illustration => “Beer contracts” with exclusive purchasing clauses (C-453/99, Courage v. Crehan, etc.)

That said, very little cases And when cases, issues with little impact on economic welfare/society at

large

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3. The Future of Private Enforcemen

In recent years, growing sentiment that national courts should play a larger role in the EU competition enforcement system, through the allocation of damages to victims of antitrust infringements

After all, administrative fines do not make good for the harm caused to customers (who pay higher prices), competitors (who lose market share), suppliers (who pay lower prices)

In addition, the allocation of damages to victims will increase the costs of competition infringements and in turn improve deterrence

Increasing policy support to follow-on actions

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3. The Future of Private Enforcement

In 2004, DG COMP launches an empirical review process, which is followed by a Green Paper in 2005

Picture is clear => right to damages is ineffective EU institutions have no jurisdiction to award damages for

competition infringements Only possible at national level. But existing domestic rules and

legal traditions are ill-suited for such actions Access to evidence Unfavorable cost/benefit analysis for damage seekers, in particular end-

consumers Passing-on defense Limitation periods Fault requirements Etc.

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3. The Future of Private Enforcement

On 2 April 2008, the Commission adopts a White Paper on Damages Actions for Breach of the EC antitrust rules

It presents a set of recommendations to ensure that victims of competition law infringements have access to genuinely effective mechanisms for obtaining full compensation for the harm they have suffered

In 2009, the Commission adopts a “Proposal for a Directive on rules governing damages actions for infringements of Article 81 and 82 of the Treaty”

Important => primarily focused on follow-on actions

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3. The Future of Private Enforcement

Full compensation No multiple compensation (as in the US) => deterrence is NOT the purpose of

the directive Damnum emergens (actual loss) and lucrum cessans (lost opportunities) +

payment of interests for the time between infringement and compensation Computation of damages

Jurisdictional issue => national matter, and well-settled rules in MS But Commission may provide guidance (price overcharge + output effect),

possibly through soft law instrument Passing-on defense

Infringers can invoke passing-on defense But direct purchasers can rebutt the presumption Directive unclear on compensation of output effect => direct purchaser may have

passed-on the price overcharge, but meanwhile may have reduced purchasing orders and thus lost business

Limitation periods Commission recommends a new limitation period of at least two years starting

once the infringement decision on which a follow-on claimant relies has become final

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3. The Future of Private Enforcement

Using final decisions as evidence To save time and costs, the Commission recommends, as is already the case

for Commission decisions, that final infringement decisions of Member States’ competition authorities should be considered as irrebutable proof of an infringement in subsequent civil actions for damages

Fault requirement Draft directive seeks to eliminate requirement of fault for the award of

damages Collective actions

Action is brought on behalf of individual victims of an infringement => economies of scale

Two types of collective redress mechanisms: Opt-in collective actions : combines in one single action the claims from those

who have expressed their intention to be included in the action Opt-out collective actions: representative actions brought by empowered entities

(or other), with claimants being entitled to opt-out Commission draft directive eventually choses « opt-out »

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4. Current State of Commission’s Proposals

Faced with intense lobbying against the proposal, Commissioner Kroes fails to muster support to its proposed directive

Fear of a US-style litigation culture Resistance to change in the MS Industry fears increased financial stakes (deterrence through the backdoor)

Commissioner Almunia is committed to improve actions for damages in competition cases

Change of approach Public consultation on collective redress, to gather the views and concerns

of stakeholders and civil society Transversal approach: involves with Commissioner Reding (Justice,

Fundamental Rights and Citizenship) and Dalli (Health and Consumer Policy)

Once the results of the public consultation will be available, the European Commission will seek to agree on a common European approach and a general legal framework to collective reddress across the Union in the Spring of 2011. Subsequently, this framework will be used to launch specific legislative initiatives in the different policy domains (consumer protection, environmental protection, competition policy, etc.).

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IV. Conclusions

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Food for thought

Public enforcement plays a larger role than private enforcement in competition matters => contrast with US antitrust law

CAs hold extensive enforcement powers under the competition rules. CAs may deliberately, or accidentally, steer the competition rules beyond their initial remit => correct regulatory mistakes (IP rights), achieve regulatory purposes (ownership unbundling in energy sector), or simply “show muscle” (regulatory competition)

Current enforcement process is very criticized by practitioners, on grounds of rights of defense and fairness issues. Are the internal and external checks and balances effective? Are fines akin to “criminal” sanctions? Will accession to ECHR bring changes?

In private practice, lawyers must often make a choice between CA and/or court => litigation trade-offs

The interplay between public and private enforcement is complex. Improving the effectiveness of public and private may bring inconsistent results => leniency v. compensation?

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Thank you!