EC Competition Law

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EC Competition Law

• Professor dr. juris Olav Kolstad
• Department of Private Law, Faculty of Law

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What is competition law?

• Competition law exists to protect the process of
  competition in a free market economy
• A system where the allocation of resources is
  determined solely by supply and demand in free
  markets
• Competition wanted because of the market result
  it produces
• Efficiency
• Low prices
• Innovations
• Competition rules limits the freedom of the
  market players to protect the process of
  competition

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The EC Treaty competition rules an overview

• Article 81
• Article 81(1) prohibits agreements or concerted
  practices restrictive of competition is
• According to Article 81(3) Article 81(1) may
  be declared inapplicable
• Article 82
• Forbids dominant undertakings to abuse their
  market power
• Merger Regulation
• Prohibits concentrations that significantly
  impedes effective competition

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Competition policy and competition law

• Competition policy
• Describes the way in which governments take
  measures to promote competitive market structures
  and behaviour
• Formulation of goals
• Competition policy and science
• Competition law
• The legal rules implementing the competition
  policy
• Law and economics
• Developing competition policy through case law

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Economic efficiency- main objective of
competition policy

• Competition gives the best utilisation of scarce
  resources
• Perfect competition v monopoly
• Perfect competition
• Pareto optimal use of resources
• None could be made better of without someone
  being made worse of
• Consumer welfare maximized
• Productive efficiency
• Constant pressure on costs
• Cost reductions is the only means whereby firms
  can stay in business and increase profits
• Dynamic efficiency
• New knowledge

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• Monopoly
• Leads to an inefficient allocation of resources
• Quantity supplied less the quantity which would
  be supplied in a competitive market
• Deadweight loss
• Loss of consumer surplus which is not turned into
  profit for the producer
• X-efficiency
• Perfect competition, monopoly and competition in
  the real world
• Workable competition

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Other goals of competition policy?

• Preservation of liberty
• Fair competition
• Promoting small and medium sized undertakings
• Socio-political issues
• Social policies
• Employment
• Industrial policy
• Environment

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The objectives of EC competition law

• ECJ Teleological interpretation
• Article 2 EC Treaty
• The Community shall have as its task, by
  establishing a common market and an economic and
  monetary union and by implementing the common
  policies or activities referred to in Articles 3
  and 3a, to promote throughout the Community a
  harmonious and balanced development of economic
  activities, a high level of employment and of
  social protection, equality between men and
  women, sustainable and non-inflanatory growth, a
  high degree of competitiveness and convergence of
  economic performance, a high level of protection
  and improvement of the quality of life, and
  economic and social cohesion and solidarity among
  Member States.

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• The common market is not an end in itself but a
  means of achieving the promotion of matters
  listed in Article 2
• Common market
• An area where direct and indirect barriers to
  trade between Member States are removed (internal
  aspect) and
• a common import and export policy adopted toward
  the outside world as far as commercial
  transactions are concerned (external aspect)

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• Internal market
• the internal aspect of the common market
• Defined in Article 14
• The internal market shall comprise an area
  without internal frontiers in which the free
  movement of goods, persons, services and capital
  is ensured in accordance with the provisions of
  this Treaty.
• Articles 3 sets out the activities of the
  Community, including
• (g) a system ensuring that competition in the
  internal market is not distorted

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• The role of competition policy as an instrument
  of single market integration absolutely crucial
  to understanding EC competition law
• Regulates conduct of undertakings threatening the
  establishment of an internal market
• Rules on free movement directed towards Member
  States
• EC competition law serve to masters
• Competition
• Single market integration
• Thus efficiency and allocation of resources a
  central concern, but not the sole goal

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• Other objectives?
• The objectives in Article 2
• Interface with other policies

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ECJs concept of competition

• ECJ has not relied upon any particular
  competition ideology
• But economic arguments/theories/models decisive
  for the application of the competition rules in
  individual cases
• Article 81
• An economic approach to Aricle 82
• Definition in Metro (case 26/76)
• The requirements contained in Articles 3 and 81
  of the EEC Treaty that competition shall not be
  distorted implies the existence on the market of
  workable competition, that is to say the degree
  of competition necessary to ensure the observance
  of the basic requirements and the attainment of
  the objectives of the Treaty, in particular the
  creation of a single market achieving conditions
  similar to those of the domestic market. In
  accordance with this requirement the nature and
  the intensiveness of competition may vary to an
  extent dictated by the products or services in
  question and the economic structure of the
  relevant market sectors.

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• The ECJs concept of workable competition
  related to what competitin is inteded to achieve
  in the Community context
• Not one of the concepts of workable competition
  found in economic theory
• But influenced by the theory
• Concept of competition in the Merger Regulation
  compared
• Prohibits concentrations creating or
  strengthening a dominant position significantly
  impede effective competition
• Article 2(2) and (3)

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The sources of EC competition law

• The Treaty Articles
• Regulations
• Merger regulation
• Block exemptions
• Judgements
• European Court of Justice
• Court of First Instance
• Commission notices and guidelines
• Commission decisions
• Annual reports from the Commission
• Other documents

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Some basic concepts

• Market power
• Market definition
• Barriers to entry
• S-C-P paradigm

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The concept of market power

• Competition law concerned first and foremost with
  the problems that occur when a firm or two or
  more firms possess market power
• A firm or firms that possess market power can
  enjoy some of the benefits available to the true
  monopolist
• Market power presents undertakings with the
  possibility of limiting output and raising price,
  which are clearly harmful to consumer welfare

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• Ways in which market power is manifested
• Collusion and cooperation between competitors
• Unilateral conduct Abuse of dominant position
• Structural changes Merger Control
• Split up off monopolies
• The legal test of market power per se or rule of
  reason?

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Market definition

• Decides the factual framework for the analysis of
  market power
• The relevant market
• Economic concept Economic or econometric
  analysis of the facts
• An analytical tool, not an end in itself
• a tool for aiding the competitive assessment by
  identifying those substitute products or services
  which provide an effective constraint on the
  competitive behaviour of the products or services
  being offered in the market by the parties under
  investigation
• But have normative implications
• The implications of a broad or limited definition
  of the relevant market

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• The market definition focus on the market as it
  is today
• Identify competitive restraints from actual
  competitors, does not include potential
  competitors
• The European Commissions Notice on the
  Definition of the Relevant Market
• Extract of the Commissions practice or experience
• Without prejudice to the case law of the Court of
  First Instance and the ECJ
• But In practice an extremely an influential
  guide

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• The relevant market the product of three
  different market dimensions
• The relevant product market
• Interchangeability to what degree are other
  products substitutes to the product in question?
• The relevant geographic market
• The area in which the actual product is sold the
  relevant geographic market
• Temporal market

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Barriers to entry

• Barriers to entry hinders the emergence of
  potential competition which would otherwise
  constrain the incumbent undertaking
• Crucial when determining market power
• May have high market shares but no market power
  if there are no barriers to entry

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Analysing barriers to entry

• Market definition and entry by production
  substitutes
• Market conditions and historical entry
• Assessment of absolute cost advantages
• Assessment of strategic (first mover) advantages
• Vertical foreclosure and exclusion
• Predatory behaviour
• Assessment of entry impediments

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S-C-P paradigm

• Structure
• Conduct
• Performance

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Enforcement an overview

• Enforcement by the Commission
• The legal basis
• Article 85, cfr. Article 83
• Regulation 1/2003
• Enforcement by national authorities
• Regulation 1/2003

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• Enforcement by national courts
• Article 81(1) and 82 have direct effect
• Case 127/73, BRT v SABAM
• After Regulation 1/2003 Also Article 81(3)
• Remedies in national courts
• The enforceability of agreements
• Actions by third parties
• Damages
• Does Community law require a national Court to
  ensure that a remedy is available?

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The scheme of Article 81

• The prohibition in Article 81(1)
• Nullity, Article 81(2)
• Exemption, Article 81(3)

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Article 81(1) the elements

• The meaning of undertaking
• Forms of co-operation caught
• The meaning of agreement
• Decisions by associations of undertakings
• Concerted practices
• Object or effect the prevention, restriction or
  distortion of competition
• Effect on trade between member states
• De minimis

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The concept of an undertaking

• Article 81 (and 82) applies only to
  undertakings
• Undertaking not defined in the EC Treaty
• ECJs definition of an undertaking
• the concept of an undertaking encompasses every
  entity engaged in an economic activity regardless
  of the legal status of the entity and the way in
  which it is financed
• Case 41/90, Höfner and Elsner v Macrotron, para 21

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• Every entity
• The legal form of the entity irrelevant
• All kind of companies
• Persons
• Self employed
• Not employees (Opinion of GA Jacobs, case
  C-67/96, Albany)
• Associations
• Associations of undertakings directly caught
• But can also be found to act as undertakings
• Example Co-operatives, PI clubs
• Exception trade unions representing their
  members
• The entitys engagement in economic activity
  decisive

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• Economic activity
• Any activity consisting in offering goods and
  services on a given market
• Wide definition
• Social activity not economic activity (joined
  cases C-159/91 and C-160/91 Poucet and Pistre,
  case C-244/94 Fédération française des sociétés
  d'assurance, case C-67/96 Albany)
• fulfilling an exclusively social function
• the activity must be based based on the principle
  of national solidarity
• non-profit-making The outcome not dependent
  upon the contribution

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• The purchase of goods or services an economic
  activity?
• An activity exercised on the market
• Court of First instance T-319/99 Fenin v
  Commission
• an organisation which purchases goods - even in
  great quantity - not for the purpose of offering
  goods and services as part of an economic
  activity, but in order to use them in the context
  of a different activity, such as one of a purely
  social nature, does not act as an undertaking
  simply because it is a purchaser in a given
  market (para 37)

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State bodies

• Exercising official authority
• ECJ Article 81 does not apply to agreements
  concluded by bodies acting in their capacity as
  public authorities and undertakings entrusted
  with the provision of a public service (case
  30/87, Bodson)
• Includes tasks which are typical those of a
  public authority
• Such tasks are not of an economic nature
• Can to a certain extent be financed through fees
  of economic contributions
• Engaging in economic activity
• Will be regarded as an undertaking
• How the public body is organised is not decisive

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• Bodies both exercising official authority and
  engaged in economic activity
• Undertakings engaged in services of general
  economic interest, article 86(2)

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Single economic unit doctrine

• Two or more separate legal undertakings can be
  treated as on undertaking
• if the undertakings form an economic unit within
  which the subsidiary has no real freedom to
  determine its course of action on the market, and
  if the agreements or practices are concerned
  merely with the internal allocation of tasks as
  between the undertakings
• Case 30/87, Bodson
• Agreements between two undertakings within a
  single economic unit not regarded as an agreement
  between undertakings
• Escapes the prohibition in article 81(1)

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• The rationale
• No freedom to take decisions regarding the market
  conduct
• Regarded as unilateral conduct
• May be caught by article 82 if the undertaking
  has a dominant market position
• Internal allocation of functions
• The other side of the coin
• If a subsidiary engages in anti competitive
  agreements the mother company will also be
  regarded as part of the agreement

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• The test of control
• If a parent company owns more than 50 of the
  shares in a subsidiary interdependency is
  presumed
• Minority share holdings may also give control if
  combined with specific rights attached to them
• One large shareholder and many small
• Joint control (50/50)
• Jointly controlled companies must belong to a
  single group of companies to be regarded as part
  of one economic unit
• The State regarded as one economic unit?

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The concept of an agreement

• Agreement ? widely construed
• It is sufficient if the undertakings in question
  should have expressed their joint intention to
  conduct themselves on the market in a specific
  way
• Alignment of the competition parameters available
  to them
• joint intention ? a legally binding agreement
  not necessary
• The form of no importance (oral, signed,
  unsigned)
• gentlemens agreements
• The agreement does not have to be exhaustive
• It is enough just to set the broad framework for
  the undertakings market conduct

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• The engagement of the parties in the agreement
• It is enough to be partly engaged in the
  collaboration
• Breach of contract regarding parts of the
  agreement
• Passive members
• An excuse if an undertaking has been forced
  into a cartel?
• Collaboration through the establishment of a
  company (joint ventures)
• The distinction between agreement and
  unilateral conduct
• Joined Cases C-2/01 P and C-3/01 P, BAI v Bayer
  and Commission
• Consensus requires and intention from the
  supplier to impose a contract obligation (an
  export ban), and an intention from the
  distributors to adhere to the contract obligation

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• The situation when the agreement is terminated
• ECJ It is sufficient if such agreements continue
  to produce their effects after they have formally
  ceased to be in force
• Case 51/75, EMI Records Limited v CBS United
  Kingdom Limited
• It is the effects of the agreement on the parties
  conduct that is decisive for the application of
  art 81(1)

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Decisions of undertakings

• Collusion can take place through the medium of an
  association Directly covered by art 81(1)
• Makes it possible to hold associations directly
  liable
• Association
• ? widely defined
• Decision
• ? every statement made with the object or effect
  of influencing the commercial behaviour of the
  associations members
• Does not have to be binding (e g recommendations)

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Concerted practices

• A form of co-ordination where undertakings,
  without concluding any sort of agreement or
  establishing a plan of action, knowingly
  substitute practical co-operation between them
  for the risks of competition
• This criteria avoids that situations where
  companies collaborate without any kind of
  agreement but only on the basis of a common
  understand falls outside article 81(1)
• It is contrary to the rules on competition for a
  producer to co-operate with his competitors, in
  any way whatsoever, in order to determine a
  co-operated way of action or to ensure its
  success by prior elimination of all uncertainty
  as to each others conduct regarding the essential
  elements of that action
• ECJ, case 48/69, ICI v Commission

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Proving concerted practices

• Direct or indirect contact
• Meeting of minds or some kind of consensus
• Exchange of information
• Unilateral disclosure
• Public announcements
• Competition is knowingly substituted with
  cooperation
• Uncertainty eliminated
• Subsequent behaviour in the market
• Casuality

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Can a concerted practice be inferred from
circumstantial evidence alone?

• A question of the use of economic evidence in
  competition cases
• Parallel market behaviour alone in itself not a
  concerted practice
• BUT It may however amount to strong evidence of
  such a practice if it leads to conditions of
  competition which do not correspond to the normal
  conditions of the market having regard to the
  nature of the products, the size and numbers of
  undertakings, and the volume of the said market
  power
• ECJ, case 48/69, ICI v Commission
• Oligopoly markets and economic evidence
• Joint dominance

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The distinction between agreement and
concerted practices

• Overlapping concepts
• Complex cartels ? and/or
• No precise distinction
• And no use for a precise distinction
• Concerted practice important mainly where the
  Commission or the Courts is forced to rely upon
  circumstantial evidence alone