European Commission Competition Law - Literature review Example

Introduction. The European Commission in conjunction with the European courts developed the competition policy in Europe, building on a conceptual and legal foundation of promoting market opening and strengthening community institutions. The competition law of the European Union is now in transition toward a policy based on market-centered economic considerations and relies more on its application by the extensive network of national-level authorities applying substantive rules. The legal standard for merger control deals with all kinds of competitive effects. The Commission’s 2004 guidelines about horizontal mergers imply strong harmonization in horizontal combinations. Nevertheless, the courts’ response to merger control actions revealed weaknesses in its decision process, which the Commission has corrected by increasing its capacity for economic analysis and strengthening its internal quality controls. Treaty provisions that prohibit Member State measures contrary to Treaty rules about public undertakings and undertakings with special or exclusive rights have been the foundation for the long-term liberalization program to reform traditional infrastructure monopolies. The five principal institutions of the Community are the Council, the Commission, the European Parliament, the Court of Auditors and the Court of Justice1. Foundations. The Commission’s decisions can be reviewed by the Community’s judiciary, which is usually the Court of First Instance or CFI and this allows the Commission to devise new strategies in relation to particular aspects of competition policy or state aids. Further, the Commission clarifies the precise meaning of Treaty Articles for the national courts. The EU competition law was framed in response to Europe’s mid-century economic conditions and its development profited from the symbiosis between the protection of competition and the promotion of open trade. The decisions of the European Court of Justice (ECJ), established the legal framework supporting an ambitious Community competition policy. The European Commission’s Competition Directorate is unique in the European Community system, because in the area of competition policy it can exercise direct enforcement power independently of the national governments. The Community institutions developed, substantive principles have become a common legal framework, shared by the national laws of the Member States. The Development of EC Merger Regulations. Encouraged by the judiciary the competition law framed an economic constitution and in the process of decision and appeal, the dialogue between the Commission and the ECJ set the direction and scope of competition policy. In contrast to the restrictions that some national courts had imposed on new competition agencies, the ECJ supported expansive claims of competition policy jurisdiction, as they implemented the Court’s goals of promoting market integration and strengthening the institutions of the common market. In this process, the Treaty rules in respect of competition were accorded a quasi-constitutional status. The Commission concentrated on jurisdictional and procedural questions and avoided the imposition of heavy fines. Its target was mainly the private firms rather than the state-owned companies. Growing confidence in EU competition policy resulted in the 1989 merger regulation, completing the European competition-policy arsenal. It took 20 years to lay the foundation and by the 1980s the Commission was able to take stronger enforcement actions. The single-market program and the Single European Act of 1986 reinforced the market-integration objective and served to further promote the competition policy. Merger control, deliberately omitted in the 1957 Treaty, was adopted by a Council regulation after 17 years of effort. Implementation involved a process of adjustment and the first time the Commission prohibited a merger, in 1991, governments where the firms were located protested. It took some time to overcome the early impression that political factors could play a role in Commission merger actions2. Closer judicial supervision led the Commission to improve its internal procedures. Introduction of the Court of First Instance (CFI) in 1989 provided a more practical avenue for parties to appeal Commission decisions. Though the Community courts remain supportive of the Commission’s competition policy initiatives, the CFI has rejected Commission actions because of procedural errors and for defects in the quality of its reasoning and its treatment of evidence. When the CFI permitted “fast track” review, it became practical for parties to seek judicial review of merger decisions. In 2004 the Community implemented a “modernised” enforcement process,3 whereby the removal of the Commission’s monopoly on deciding about exemptions, makes it much more practical to apply the law through national institutions and processes. At present, all the Member States have competition laws and enforcement agencies and their national substantive laws have generally converged on the Community standards. National law and Community law have to be applied at the same time to conduct that meets the jurisdictional test concerning effect on trade between Member States and national law cannot prohibit restrictive agreements that would not violate the Treaty. However, national law can be stricter than Community law in respect of unilateral behaviour4. Policy Goals. There are several activities of Community institutions that directly implicate competition policy, to provide “an internal market characterized by the abolition, as between Member States, of obstacles to the free movement of goods, persons, services and capital,” and “a system ensuring that competition in the internal market is not distorted.5” The Community and its Member States are to adopt a coordinated economic policy based on “an open market economy with free competition.6” Article 21 (1) of the ECMR, states that “the Commission shall have sole jurisdiction to take decisions provided for in this Regulation”, subject only to review by the Court of Justice and accordingly, “no Member State shall apply its national legislation to any concentration that has a Community dimension”7. Thus, the political concept of ‘subsidiarity’, embodied in Article 5 EC is upheld. Promotion of market integration was important when the common market was being established and where industries were established within national markets, the challenge was to make them transcend those boundaries. The market integration goal vindicates the emphasis on vertical relationships and intellectual property rights, which were seen as obstacles to cross border trade. The Commission has exclusive Community-wide competence. Mergers. The aim being to establish "a system ensuring that competition in the internal market is not distorted"8, agreements and concerted practices come within the jurisdiction of the Community authorities only if they affect trade between Member States. This condition differentiates between the scope of application of the rules on competition laid down by the Treaty and that of national rules on competition. However, in practice what affects intra-Community trade is determined by the Commission and the Court of Justice. European competition law is applicable to agreements or conduct of parties established outside the European Union if they restrict competition in the common market and affect intra-Community trade. The Community rules on competition are laid down in Articles 81 to 89 of the EC Treaty. The two main pillars of Community competition law applicable to private firms or "undertakings" are Articles 81 and 82. Article 81 prohibits agreements and concerted practices with an anticompetitive object or effect on the market, while Article 82 prohibits abuse of a dominant position. Article 86 declares that the rules on competition are applicable to public undertakings provided that "application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them." Community Dimension. The allocation of jurisdiction between the Commission and competent national authorities relies on the concept of a “concentration with a Community dimension”, which is subject to the world and EC-wide turnover thresholds laid down in Article 1 ECMR. Article 1 (2). This article states that “a concentration has a Community dimension, where, a) the combined aggregate worldwide turnover of all the undertakings concerned is more than €5000 million; and b) the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than €250 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State”. Restrictive agreements and concerted practices. Article 81 (1) of the EC Treaty9 prohibits agreements and concerted practices between firms which "may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market". A restrictive agreement’s objective is to limit or eliminate competition between undertakings in order to increase the prices and profits of the undertakings concerned without producing any objective counterbalancing advantages. A concerted practice involves coordination among firms which falls short of an agreement proper and takes the form of direct or indirect contact between them in order to influence market behaviour or to let each other know what conduct they intend to adopt in the future. Since discerning between these two forms of cooperation is difficult, the Commission has confined itself to distinguishing between agreements falling within the scope of Article 81(1) and parallel conduct not meeting the criteria of Article 81(1). The prohibition in Article 81(1) of the EC Treaty10 applies to both horizontal and vertical agreements. Horizontal agreements are agreements between actual or potential competitors. Horizontal agreements restrict competition. Vertical agreements are agreements or concerted practices between two or more undertakings (each of which operates, for the purpose of the agreement, at a different stage of the production or distribution chain) which affect the conditions under which the parties can buy, sell or re-sell certain goods or services. Article 81(3)11 lays down conditions under which certain types of agreement may be exempted from the general prohibition in Article 81(1). Under this provision the Commission or the Council may enact "block exemption" regulations. Similarly under Article 81(3), an agreement that does not qualify for exemption under the block exemption regulations may be exempted by an individual exemption if its restrictive effect on competition is counterbalanced by the contribution it makes to the general welfare. The Commission has exempted certain agreements, which do not fulfill conditions of Article 81(3), are basically agreements of minor importance12, are incapable of affecting competition and encourage cooperation between small and medium-sized enterprises. Abuse of a Dominant Position. Article 8213 states that "Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States”. A dominant position is a situation of economic power held by a firm which allows it to hinder effective competition in the relevant market. The dominant position must be held with respect to the whole or at least to a substantial part of the common market. Unlike Article 8114, Article 8215 does not provide for individual or block exemptions. Since, 1962 Council Regulation 17 was the basic legislation for the application of antitrust law. It established a system of control whereby the Commission had exclusive power to authorize restrictive agreements under Article 81(3)16. This led companies to notify a huge number of agreements to the Commission, which diluted efforts to promote a rigorous and decentralized application of competition rules. In order to simplify administrative formalities and enable the Commission to take effective action against serious infringements of the competition rules it started a long-term process of reform with the publication of the 1999 White Paper that led to the publication of Council Regulation No 1/2003 of 16 December 2002. This regulation supplants Regulation No 17 from 1 May 2004 and replaces the centralized control system with a directly applicable exception system based on a decentralized application of the competition rules. The new Merger Regulation - Regulation (EC) No 139/2004 Company mergers create or strengthen a dominant position which gives rise to abuse. This justifies advance vetting of mergers by the Community authorities. Initially the EEC Treaty made no provision in this regard, and mergers were handled by Court of Justice case law. In Continental Can the Court ruled that there is abuse of a dominant position if an undertaking already holding such a position strengthens it by acquiring a competitor17. In the 1987 BAT/Philip Morris case, the Court accepted that in the absence of a dominant position, an acquisition could be penalized for forming an anti-competitive agreement under Article 81. However, this system allowed only for ex post supervision, and as early as 1973 the Commission proposed that formal legislation be adopted in this connection. In 1989 Merger Regulation No 4064/89 of 21 December 1989 that stipulates that a "concentration" with a Community dimension "which creates or strengthens a dominant position as result of which effective competition in the common market or in a substantial part of it is significantly impeded" is to be declared incompatible with the common market was adopted. A merger or "concentration" exists where a firm acquires exclusive control of another firm, or of a firm it previously controlled jointly with another firm, or where several firms take control of a firm or create a new one. The Commission published the 2001 Green Paper and launched a wide-ranging debate on the reform of merger control. Due to the greater degree of industrial concentration in the economy, the Merger Regulation, which is based on the "one-stop shop" principle, began to suffer. The new Merger Regulation (Regulation (EC) No 139/2004), encourages participation by the national competition authorities and simplifies the notification and investigation procedure. Regulation (EC) No 139/2004 applies to all concentrations with a "Community dimension". However, turnover is not the only criterion for identifying such concentrations. The "type 3+" criterion, allows the Commission to have exclusive competence at Community level where all Member States or at least three of them request that the matter be referred back to the Commission. In an enlarged European Union of 25 Member States, strengthening the "one-stop shop" principle, as introduced by the Regulation via the new pre-notification procedure, has the major advantage of simplifying the procedure and reducing the cases of multiple notifications. In addition, there are criteria other than the turnover and the "type 3+" that accompany the new criterion of referral to the competent authorities in the Member States. This system of referral to the national competition authorities is not intended to weaken the "one-stop shop" principle but to permit appraisal of the concentration at the level best suited to assess its potential effects. Mandatory 3+ System. Review of Article 1(2) and the 2/3 rule has revealed that these should remain unaltered, as they are useful in recognizing the principle of subsidiarity. In its 2000 report, the Commission found that the 1997 introduction of an extra set of turnover-based thresholds in Article 1(3) to be unsuitable. Only a limited number of concentrations had been prevented by this provision while many concentrations involving cross-border interests escaped its jurisdiction. The Commission did not approve attempts to improve the situation by reducing the threshold levels or by modifying the current criteria of Article 1(3) ECMR. The Commission based its trust on the argument that there has been significant harmonization of relating Member State laws since 199618. Standard of Proof and Scope of Judicial Review. Judicial review of the Commission’s decisions is critical in the development of EU Merger Control. In 2005, the Community Courts rendered three rulings in the merger control area. In Tetra Laval II19, the ECJ upheld the CFI’s ruling that in 2002 had annulled the Commission’s prohibition decision in Tetra Laval/Sidel. The CFI upheld the Commission’s first prohibition decision relating to the merger between Energias de Portugal (‘‘EDP’’) and Gas de Portugal (‘‘GDP’’)20. Finally, on December 14, the CFI gave its judgment in GE/Honeywell21. These decisions by the CFI against the Commission prohibitions have established the importance of Community Courts, in merger control. Impact of the Tetra Laval II Case. The importance of this case lies in the fact that the Commission decided to appeal only in respect of the judgment annulling the Commission’s decision in respect of a number of grounds of which the standard of proof required for the Commission to intervene. In particular the Commission argued that the CFI had set and applied a standard that was higher than that of a cogent and consistent body of evidence as formulated by the ECJ in Kali&Salz22 and had not given sufficient leeway to the margin of discretion which the Commission enjoys when making complex assessments of an economic nature. The ECJ held that commitments cannot be rejected by the Commission solely on the basis that they are behavioural rather than structural. With regard to The Commission’s margin of discretion, it is settled law that for the appreciation of complex economic facts the Commission enjoys a certain discretion which the Community Courts have to respect. From this it follows that judicial review of the Commission’s appreciation is limited to ensuring compliance with the rules of procedure and the statement of reasons, as well as the substantive accuracy of the facts, the absence of manifest errors of assessment and of any misuse of powers. However, in Tetra Laval II the ECJ gave very little weight to the Commission’s margin of discretion. It formulated the standard of judicial review under Art.230 EC to be applied by the CFI as follows: ‘‘Not only must the Community Courts, inter alia, establish whether the evidence relied on is factually accurate, reliable and consistent but also whether the evidence contains all the information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it’’. EDP v Commission. In this case the CFI stated that, as regards complex economic assessments, the Commission enjoys a ‘‘wide discretion’’. After that it reviewed the Commission’s analysis under a standard of manifest error of assessment and upheld the Commission’s prohibition on the ground that the applicant had failed to show such manifest errors. From the above it is clear that soft law plays an important role regarding the interpretation of the competition rules and undertakings. It is a valuable information source to those trying to assess whether or not their agreement will be prohibited by the Community competition rules. There is however, a trend towards softer forms of regulation as evidenced by the result of the Commission’s wide discretionary powers. The European Court of Justice. It is possible to appeal from judicial panels to the CFI and to appeal, on points of Law, in respect of decisions of the CFI to the ECJ, which is the court of final appeal of the EU. However, Member States, Community institutions and parties under certain conditions can contest a judgment rendered without their being heard, if it is prejudicial to their rights23. Moreover, any party with interest in a particular judgment can seek the Court’s interpretation in respect of the meaning or scope of a judgment which is in doubt24. In addition, it is possible to seek revision of a judgment, within ten years of its being given, ‘on discovery of a fact which is of such nature as to be a decisive factor’ and which was unknown at the time the judgment was given25. It participated actively in the creation of the internal market through the litigation which came before it, by requiring the removal of national barriers to trade, at a time when progress towards completing the Single Market through legislative harmonization was hindered by institutional inaction. The fact that the travaux préparatoires to the original Treaties were never published implied that these were never used as a source, and this is reflected in the Court’s case law26. In respect of secondary legislation, declarations and extracts from the minutes have occasionally been relied on as aids to interpretation by the Court. Some academics hold that the Community is a dynamic organization, the Treaties are imbued by teleology and that it is essential to preserve the central role of the Court. Institutional balance which is dynamic has always characterized decision-making within the EU. Conclusion. The Commission is seized with the achievement of policy objectives and its responsibilities are of an executive nature. Of particular importance are those responsibilities that relate to finance and external relations. It plays an important role in the establishment of the Community’s budget. The competence of the Community and its institutions, is an attributed competence, limited by Article 5 (ex Article 3b) EC. The Council has made use of opinions and resolutions as a way of pressuring the Commission into generating legislative proposals. This ability of the Council to bring about policy initiatives is due COREPER and the surfeit of working parties, etc. which contribute to it. Finally, in respect of the ECJ, though it follows the pattern and reasoning of its previous case law it does not consider itself bound by a strict system of precedent27. Undoubtedly, the Court has extended its functions beyond those expressly outlined in the Treaty under which it was established28. BIBLIOGRAPHY 1. Bailey, David (2004), “Scope of Judicial Review under Article 81 EC,” Common Market Law Review, vol. 41, no. 5, Kluwer, Netherlands, pp. 1327-60. 2. Bustin, George L. et al. (2004), “2003 Annual Review of European Union Legal Developments”, International Lawyer, vol. 38, no. 3, American Bar Association Section of International Law, Chicago, pp. 629-664. 3. González Díaz, Francisco Enrique (2004), “The Reform of European Merger Control: Quid Novi Sub Sole?”, World Competition Law & Economics Review, vol. 27 no. 2, Kluwer, Netherlands, pp. 177-99. 4. Dolmans, Maurits and Thomas Graf (2004), “Analysis of Tying under Article 82 EC: The European Commission’s Microsoft Decision in Perspective,” World Competition Law and Economics Review, vol. 27 no. 2, pp. 225-244. 5. Ehlermann, Claus-Dieter and John Ratliff (2005), “Mario Monti’s Legacy for Competition Policy in Article 82,” Competition Policy International, vol. 1 no. 1, spring 2005, p. 79. 6. European Commission, Directorate-General for Competition (2004), European Union Competition Policy: 23d Report on Competition Policy 2003, Luxembourg. 7. George, S. and Bache, I., Politics in the European Union (Oxford, 2001) 8. Hayes-Renshaw, F., and Wallace, H., The Council of Ministers (Macmillan, 1997) 9. Jacobs, F., Corbett, R., and Shackleton, M., The European Parliament (Harper, 4th edn.,2000) 10. Nugent, N., The Government and Politics of the European Union (Macmillan, 4th edn., 1999) Read More