Legal Background of Competition Law - Essay Example

?Introduction Cartels in whatever form perform acts that is inimical to the interest of the public. It is considered by many including the European Union as band of legitimate bandits preying on the innocent and robbing them blind. Thus, the EU have provided laws that will regulate, monitor the conduct of companies to ensure that cartels are not formed if not to guard against alliances by companies that can be considered as cartels. To correctly ascertain the functionality or infirmity of a decentralized enforcement regime of Article 101 of the Treaty of the Functioning European Union (TFEU), it is imperative to revisit the evolution of the Competition Law, including the justification for its creation as well as efficiency of the procedural rules laid down under the Council Regulations for its implementation. Due to the influx of complaints that reaches the office of the European Court of Justice, a new accord was passed to devolve the function to the national competition authority and the national courts of each jurisdiction. The new process was formulated to ensure that more focus is given to each complaints and also to ensure that proper monitoring of the conduct of the companies within each jurisdiction is well managed. As it is there are three ways wherein monopolies or cartels can be broken. Through notification where the companies themselves will submit to the regime of the national competition authority the agreements it will enter into with a company within the same industry. The Notification process will certify and state the reason to the National Competition Commission on why the agreement is not in violation of the anti cartel law. The other process wherein attention to the existence of the cartel will be put to the fore is through the initiation of a complaint against the cartel or the companies that make up the cartels. It is normally lodged by consumers acting to preserve and protect its interest against acts by company considered as against public policy. The National Commission itself acting on its behalf and in congruence with its power may investigate and launch its inquiry as to the existence of the cartel. The process enunciated above at first instance can be considered as laudable due to the focused implementation of the law by the National Competition Authority of each jurisdiction. To illustrate: The notification process only provides a prima facie evidence that would make the companies involved in the agreement or alliance. This will pave the way for undocumented gentlemen’s agreement to be hatched in golf courses or similar fora. While more powers are given to the National Competition Authority to assess, rule and provide guidance to companies willing to submit itself to the regime of the NCA, the European Court of Justice have effectively reduced its clout over the TFEU. Legal backGround In 1952, the European Coal and Steel Community (ECSC) was created not only to boost economic growth in Europe in the aftermath of the Second World War but more importantly, to foster lasting peace. This treaty marked the beginning of the free movement of coal and steel and it guaranteed access to sources of production as well as the establishment of fair competition rules and price transparency. Under this Treaty, three cases were identified as hindrance to free trade and fair competition—agreements, concentrations and the abuse of dominant positions thus it explicitly provided that any agreement and undertaking could be nullified or an association could be disbanded if they would likely promote unfair competition or directly or indirectly prevent, restrict or distort free enterprise or fair competition. The European Economic Community (then known as EEC but now referred to as the EC Treaty) pursuant to the Treaties of Rome established the single or common European market on 1 January 1958. Under this Treaty, the free movement of people, goods and services were similarly conferred to achieve the envisioned economic development under the single or common market scheme. It was also acknowledged that the welfare of the consumer is paramount thus any undertaking which would diminish consumer rights must be curtailed. Accordingly, safeguards and protective measures against the establishment of cartels and monopolies through restrictive agreements or undertakings by associations, entities or businesses were established in Articles 81 and 82 of the EC Treaty and reiterated in Articles 101 and 102 of the TFEU where it was plainly stated that any arrangement that could potentially prevent, disrupt, distort or prevent the movement of competition is disallowed in the European Economic Area (EEA). Consumer protection against predatory company policies is the most fundamental edict that is explicitly mandated under the EU Competition Law. It not only strictly prohibits the perpetuation and proliferation of agreements, undertakings, decisions or concerted practices which influence trade in the Member States that prevents, restricts or distorts competition within the common market but more importantly, any such agreements which aims to foster anti-competition activities shall be rendered void or without any legal force and effect. (Article 101(1)(2) of the Treaties of the Functioning European Union) The prohibitive or restrictive practices may be but not limited to: price-fixing or fixing of trading conditions; quantitative restrictions; market sharing; discrimination of undertakings in order to reduce their competitiveness; and (e) tying agreements. These prohibitions however are not absolute as paragraph 3 thereof recognizes exemptions provided that the agreements or arrangements contribute to the improvement of the production or distribution of goods or to the promotion of technical or economic progress and it is further provided that the resulting benefit to the consumers does not impose on the undertakings restrictions which are not indispensable to the attainment of these objectives; and afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. (Article 101(3) of the TFEU) The sole authority to determine whether an agreement is prohibited or falls under the exemption was lodged to the European Commission pursuant to Council Regulation 17/62 of February 1962. Having been conferred the exclusive competence to resolve any prohibition or exemption issues, the European Commission was deluged with agreements and applications that virtually stopped its operation due to the vast number of notifications. It cannot be denied that the agreements or application for exemption should be thoroughly examined however the concentration of massive power into one entity, the European Commission, created a colossal backlog as the entity did not possess the necessary administrative tools to resolve the applications expeditiously or organizational tools improve the processes. However, the procedural difficulties and infirmities which marked Regulation 17/62 under the centralized scheme resulted in several doctrinal pronouncements of the European Court of Justice which became the basis of the new policies promulgated under Regulation 1/2003 that modified its centralized authorization policy to decentralized enforcement policy. The clarification laid down by European Court of Justice in the case of SA Brasserie de Haecht v Consorts Wilkin-Janssen is instructive as only those restrictive agreements, decisions or practices which affect trade between Member States will fall under its European Commission’s jurisdiction. It is further declared the issues are nonetheless not confined to the subject matter but more importantly its effects in relation to competition—thus all aspects of the agreement, decision or practices will be taken into consideration to determine its cumulative effect on competition that include economic and legal impact. However, it is stressed that is tis only to the extent to which agreements, decisions or practices are affecting trade relationship between Members States that come within the purview of EU prohibitions. (see page 415, ECR) In Walt Wilhem and others v. Bundeskartellamt, the ECJ declared that competition issues which do not affect the trade relation between Member States do not come within the ambit of jurisdiction of the European Commission and the national competition law of such Member State shall be applicable. And, although all community laws are deemed incorporated and enacted in the national laws of the Member States, the latter can promulgate laws to regulate its own trade or competition measures so long as it is consistent with the Community law. It was likewise emphasized in this case that the community law takes precedence over the national law should conflict arise. (see page 1) Under Article 9 of Regulation 17/62, the European Council is empowered to apply Art. 81(1) and allows their application by the national competition authorities (NCAs) as long as the Commission has not initiated its own proceedings. It is clear however that Regulation 17 does not confer any competencies of national courts and it was only in the case of BRT v. SABAM I that the ECJ has applied the doctrine of direct effect on Art. 81(1) that national courts are empowered to apply directly. Under the same Article 9 of Regulation 17/62, the national courts of the Member States are proscribed from issuing exemption under Article 81(3) as this power exclusively belongs to the European Commission. The ruling of the ECJ in Delimitis v. Henninger Brau AG is appropriate and relevant where it was stated that the national courts cannot rule on agreements which do not explicitly meet the conditions for exemption or declare the inapplicability of the provisions of the treaty to agreements but it is however authorized to declare the agreement void if it is certain that the agreement could not be the subject of an exemption decision. Although the Regulation 17 authorizes the Commission to issue—a negative clearance decision if there is no infringement is found; an infringement decision; an exemption decision; and a decision to impose a fine for infringement—it has demurred from making official decision and in lieu thereof, it has issued comfort letters which are not in accordance with the provisions of Regulation 17/62. Comfort letters were issued by the Directorate General for Competition (DG Comp) if it is found that no restrictions are apparent from the notifications of parties seeking negative clearance or exemption. (Europa) While Article 4 of Regulation 17/62 requires notification to the European Commission of restrictive practices defined under the Treaty but exemption decision is sought, the parties to the undertaking are absolved from any culpability until such time that the Commission issued a statement that the preliminary examination has led it to the conclusion that a restrictive practice does not qualify for an exemption. Other remedies which the Commission has availed of is the issuance of Regulation 19/65 which vested upon the Commission the authority to issue regulations that exempt categories of restrictive practices, otherwise known as the block exemptions) for types of agreements which by their nature qualify for an exemption. And, provided that the undertakings cover only those clauses which are validated by the block exemption, there is no necessity to notify their agreement to the Commission. Thereafter, the Commission issued Regulation (EC) No 2790/1999 to cover sector-specific and industry-wide block exemption regulations which included block exemption regulation for vertical restraints. Under Regulation 17/62, the Commission can commence a proceeding on three instances—based on the notification; based on complaint; or on its own initiative. Regulation 17/62 likewise provided investigative rights of the Commission and duties of the Member States to cooperate. In 1999, the Commission itself submitted a proposal relinquishing its exclusive authority to grant exemptions and further stated the NCAs and national courts should equally be conferred the power to issue exemptions under Article 81(3). So also, the Commission recommended for the total abolition of the notification system and instead shifted to legal exception system where self-assessment of the agreements has to be made to determine compliance with the requirements of the exemption provision. It was likewise proposed that the Commission retains its authority to issue decision confirming the agreement promotes free trade and competition which is declaratory in character. And, as an added safety measure, the Commission proposed to create mechanisms for close cooperation and information exchange with NCAs and national courts. On 16 December 2002, the Council approved Regulation 1/2003 which became on 1 May 2004 where the decentralized application of Article 81 ECT including the power of national competition authorities and national courts to apply Article 81(3). Some of the introduced reforms are contained in Article 2 of Regulation 1/2003 where rules on evidence where the principle that he who alleges has the burden of proof is equally applicable for infringements cases. On the other hand, those who aver that their undertakings are within the exemption should adduce evidence that the restrictive agreement fall under the exemption provided under Article 81(3). So also, it is presently recognized under Article 3(1) of Regulation 1/2003 that in instances where inter-state trade could be affected, national competition law can only be applied concurrently with EU competition law while Article 3(2) affirms the supremacy of EU competition law. Article 3(3) provides that Regulation 1/2003 do not apply when the competition authorities and the courts of the Member States apply national merger control laws or apply the provision of its national law to pursue an objective other than those provided under the competition law. CRITIQUE/CONCLUSION The most glaring legal infirmity which must be addressed at the first instance is the validity of the legal exception system provided under Regulation 1/2003. The sole authority to decide whether restrictive agreements are covered under the exemption lies within the exclusive purview of the Commission. Thus, any Regulation adopted by the European Council without amending the Treaty is legally untenable since the source of its power does confer or authorize the delegation of power to grant exemption. However, until such time that the validity of the Regulation is challenged and/or assailed, it remains as a valid source of right. The Commission’s position abolishing the notification system is likewise proscribed since the notification process is explicitly provided under the Treaty. No Regulation or administrative procedure may be approved or enacted which will thwart the power and authority of the Commission to be notified of the undertakings and agreement. This procedural aspect was explicitly provided in the Treaty to give the Commission opportunity to pass upon the validity of the agreements and claims for exemption. The removal of the notification system foreclosed any avenue for the Commission to determine whether the agreements constituted fall within the prohibition and/or allowed under the exemption. The value of the notification system cannot be overlooked as it is not only a means to protect the interest of the public of a predatory conduct of market participants but more importantly, a procedural safeguard to expose infringements. So also, the notification system is a pre-emptive safety measure to compel the parties to modify or correct any of the provisions of their agreement to conform to the competition law. Without such notification process in place, it is now more difficult to keep track on the restrictive agreements to the damage and prejudice of the public which the competition law vowed to protect. The assertion that the dockets of the Commission were clogged with notifications cannot be a valid or legal ground to override a Treaty. Any procedural misstep in the Treaty cannot be corrected by a mere Regulation but rather it should be contained in an amendment or modification of the Treaty itself. The most patent violation under Regulation 1/2003 is the total change in policy from absolute prohibition of restrictive agreements to more liberal approach on the procedural rules for agreement which may be covered by the prohibition. Regulation 1/2003 makes it more conducive to form restrictive undertakings or agreement rather than impede its creation. However, Regulation 1/2003 likewise created a vacuum with respect to the rights of the parties to request for comfort letters as only the Commission is authorized to issue at its discretion. The import of this provision is that the parties must rely on its own personal assessment and determination whether the undertaking is permissible and await any action from the NCA or until such time that the undertaking is judicially assailed. The decentralized procedure may have laudable intention however it also opened avenues where the procedures may mitigate the prohibitive cost of litigation whereby it is now recognized under Regulation 1/2003 that the national competition authorities and the national courts are now conferred concurrent jurisdiction. Thus the parties shall have the discretion to choose the venue to ventilate its concern however a safety net was put in place to foreclose any other jurisdiction from hearing and adjudicating on the similar subject matter. Indeed, the parties are precluded from undergoing limitless litigation as one unsatisfied party could invoke the jurisdiction of the other venues to hear and adjudicate its case. This would likewise discourage the parties to shop for more friendly venues to ventilate the issues. Another issue which militates against the abuse or misuse of this administrative measure is giving due recognition to decisions issued by the NCA and/or the national courts on similar matters. The cases adjudicated would become the law of the case and binding upon all parties who may be similarly situated. This would likewise foster uniformity in the decision and rules even if it involves different NCAs and courts. The main motive of the Commission to concentrate on the more serious infringements issues might induce undertakings to conclude more restrictive practices which may be subject to various interpretations. The abolition of the notification system and replace by the mechanism of information exchange makes it more difficult for competitors and consumers to acquire knowledge about the existence of restrictive agreements which might result in fewer complaints and imposes an obstacle for private court actions. However, under Article 12 Regulation 1/2003 empowers the Commission and the national competition authorities to exchange the information they have collected and use this information as evidence in a proceeding. This procedure would reduce the information costs of the authorities. Another procedural accomplishment under the said Regulation is the reduction of duplicate proceedings as all other proceedings are deemed suspended upon the assumption of jurisdiction of the three bodies authorized to conduct the proceedings. So also, duplication in the investigation of certain agreements can be forestalled under Article 22 of the said Regulation as an NCA is empowered to carry out investigations on behalf of the Commission or another authority. However, the Commission is not precluded from withdrawing a case from the NCAs if several parallel investigations are commenced to avoid duplication of decisions which may result in multiple interpretations. The provision allowing the sharing of information will substantially reduce the cost of obtaining information however the success of this provision will depend on the degree of voluntary cooperation between such competition authority as they are not oblige to cooperate. There is no doubt that the cost of information will not only be further reduced should the Commission be obliged to supply the information for a court proceeding but it would likewise obtain for the parties a more congruent information on the undertakings. There is no doubt that respect to prior decision of the Commission in the same matter is guaranteed thus eliminating conflicting decisions. And, Regulation 1/2003 demands from national competition authority and the national courts to inform the Commission about the initiation of formal investigations, including the obligation to inform the Commission one month before taking a formal decision about the direction it wants to take which information can be shared with the other NCAs and national courts in the network to preclude forum shopping and should the Commission find patent legal errors, it can intervene and remove a case from the national authority to avoid legal controversy to erupt. Other procedure which is included in the Regulation is the recognition of national competition authorities to submit written observations regarding a pending proceeding to a national court in such capacity as expert witness before court. Nonetheless, it will not guarantee that the national courts with sitting judges will follow the arguments of the competition authority. It cannot be denied that Regulation 1/2003 was intended to strengthen and empower national competition authorities and national courts to timely address competition issues and to reduce the possibility of multiplicity of actions relating to the same issues. However, one of the components of the competition law which may deter infringement is the imposition of a fine regardless of the venue. Bibliography BRT v. SABAM I. [1974]. Case 127/73 Brasserie de Haecht v. Wilkin-Janssen. [1967]. Case 23/67, viewed 27 April 2011 Council Regulation (EC) 1/2003 of 16 December 2002 On the Implementation of the Rules on Competition Laid Down in Articles 81 and 82 of the Treaty. Council Regulation (EEC) No 19/65. Application of Article 85 (3) of the Treaty to certain categories of agreements and concerted practices. Council Regulation (EC) No 1215/1999. Amending Regulation No 19/65/EEC on the application of Article 81(3) of the Treaty to certain categories of agreements and concerted practices. 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[online] Available from http://ec.europa.eu/competition/antitrust/cases/comfort_letter.html> Walt Wilhem and others v. Bundeskartellamt, [1969], Case 14/68, viewed 27 April 2011. Read More