LIDC Annual Congress 23 October 2009 Vienna

1. LIDC Annual Congress 23 October 2009Vienna Prof. Nicolas Petit Institute for European Legal Studies (IEJE) Nicolas.petit@ulg.ac.be

2. Question A • “Do”, and in turn “shouldcompetition authorities (“CAs”) enjoy an unfettered discretionary power in the context of the investigation of competition law infringements”or “should their margin of discretion be subject to certain limits”?

3. Question A • Certainly a good question, but broad, abstract and subjective • Methodology • Empirical input through objective questions seeking to elicit the « revealed preferences » of national law makers re. CAs’ discretion • Focus on a set of issues which, in practice, are of critical importance

4. National Reporters • Italy: Caterina GASTALDI • Austria: Ursula PIRKO • Lithuania: Lauras BUTKEVICIUS • Latvia: Ieva BERZINA-ANDERSONE • Germany: Meinrad DREHER • Japan: Masashige OHBA • China: Jiang JIANG • Czech Republic: Vlastislav KUSÁK • Spain: Javier GUILLÉN • Switzerland: Patrick L. KRAUSKOPF • Hungary: Zoltán HEGYMEGI-BARAKONYI • Belgium: Evi MATTIOLI • France: Michel PONSARD and Nizar LAJNEF • Sweden: Henrik NILSSON • United Kingdom: Maya LESTER • Estonia: Kaupo LEPASEPP • Luxemburg: Gabriel BLESER and Anne DOSTERT • European Union: Valeria ENRICH and Carmen CAMPO

5. Purpose of the Presentation • Convey the results of this empirical survey • Formulate public policy recommendations

6. Outline of the Presentation • Main Conceptual Issues arising from CAs’ Discretion • « Detection » discretion • « Target » discretion • « Process » discretion • « Outcome » discretion

7. I. Main conceptual issues arising from CAs’ discretion

8. The Concept of CAs’ Discretion • Definition – The ability to make a « choice over a significant aspect of an issue » • Multi-faceted • Substantive issues (legal and economic assessment) • Organizational, procedural and institutional issues • Rationale – expertise, independence, and resource-constraints

9. The Challenges Raised by CAs Discretion • Risks – regulatory capture (Stigler), revolving doors, idle enforcement, populism (Forrester), short-sighted enforcement policy, etc. • Remedies? • Ex ante obligations, incentives, etc. • Ex post controls, etc. • The challenge: striking the right balance between control and discretion • Example – « Target » discretion • Competition law as a public policy => wide target discretion • Competition law as a body of objective rights and duties=> limited target discretion

10. « Detection  Discretion » II. CAs’ Discretion in Devising a Detection Policy

11. Do CAs’ enjoy discretion in devising their detection policy? • In general, CAs can avail themselves of both reactive and pro-active detection techniques • Yet, indirect constraints on « detection » discretion • In countries where legal duty to respond to complaints with reasons, deadlines, and judicial review => little scope for pro-active detection policy (e.g., Sweden, Lithuania, Latvia, Estonia) • Idem in countries with referral mechanisms and obligation of the CA to follow-on (e.g., Belgium)

12. Should CAs enjoy an Unfettered Discretion in devising their Detection Policy? • Regulatory frameworks do not incentivize, let alone require, CAs to carry out pro-active detection approaches • A majority of CAs thus exhibits a reactive enforcement record. This trend is compounded by the introduction of leniency programmes (exception: Germany, Austria and Czech Republic) • Unsatisfactory state of affairs – reactive enforcement is inefficient (not deterrent) and insufficient (brazen cartels are not sanctioned)

13. Should CAs enjoy an Unfettered Discretion in devising their Detection Policy? • Public policy recommendations • Ex officio work matters and should be encouraged! • Administrative practice – CAs’ should periodically save spare resources for future pro-active detection work • Legislative – codification of sector inquiries sends signal that ex officio work matters • Academic – CAs should sponsor studies on market screening instruments • Increase financial resources? • Budgetary raise? => unlikely • Internal financing mechanisms (e.g. Italy) => further research needed

14. « Target Discretion » III. Competition Agencies’ Discretion in Selecting Investigation Targets

15. The Issue • Finite resources / infinite targets • Target discretion is the ability to focus on certain practices/sectors, and to stray away from other, potentially problematic, practices/sectors • Hefty criticism: « à la carte » enforcement, « populism », etc.

16. Do CAs enjoy an Unfettered Discretion in Selecting Investigation Targets? • In most jurisdictions the law says nothing of (i) the ability of CAs to rank cases; and (ii) the substantive criteria that should be followed for this purpose • Most reports conclude that CAs can discretionarily engage into priority setting • In practice, only a limited number of CAs follow explicit, articulated, priority-setting methods • UK, Belgium and Hungary

17. Should CAs enjoy an Unfettered Discretion in Selecting Investigation Targets? • As a matter of principle, CAs should be entitled to set priorities (limited resources + perverse effects of uniform enforcement policies) • Yet: • need to enshrine this rule in a binding legal instrument (as priority setting may entail discrimination) • Prioritization criteria should be as neutral, objective and accurate as possible • CAs should be periodically required to clarify what their priorities are (for instance through reports, press releases, speeches, etc.).

18. « Process Discretion » IV. Competition Agencies’ Discretion in Initiating Infringement Proceedings

19. Do CAs enjoy an Unfettered Discretion in Initiating Infringement Proceedings? • Specific adoption rules: high-level officials vs. case handlers • Information requirements: • Most CAs must inform suspected firms through a decision; third parties are not necessarily informed; publication is often optional • Judicial review • In some countries decision to open proceedings can be reviewed, in others not • Query: practical relevance? • Deadlines for the adoption of a decision: rare, but some CAs face stringent timelines (6 months)

20. Should CAs enjoy an Unfettered Discretion in Initiating Infringement Proceedings? • Adoption rules – pros and cons of delegation to case-handlers • Information requirements – Key issue is information of third parties. Good administrative policy to keep third parties informed • Judicial review – does not seem to bring much added value • Deadlines – pros and cons. Case-specific deadlines (see Italy and EC) may be appropriate

21. « Outcome discretion » V. Competition Agencies’ Discretion in Terminating Proceedings

22. The Issue • In recent years,mushrooming of new enforcement methods • Settlement approach vs. Negative enforcement approach • Positive enforcement approach vs. Negative enforcement approach • Controversial issues: • Discrimination? • Ability to settle in cases involving enduring anticompetitive conduct? • Ability to discretionarily shift from settlement track to negative enforcement track (M. Monti re. Microsoft)?

23. Do CAs enjoy an Unfettered Discretion in Terminating Infringement Proceedings? • A vast majority of the CAs covered in the report can settle cases in exchange for commitments => CAs generally enjoy outcome discretion • Relevant question is: can all cases be settled? Discrepancies amongst jurisdictions • With some limited exceptions, CAs cannot adopt positive decisions in individual cases

24. Should CAs enjoy an Unfettered Discretion in Terminating Infringement Proceedings? • Settlements => outcome discretion should be reduced • No commitments in cases where conduct has had enduring effects on the market • Positive enforcement => outcome discretion should be increased • « Negative enforcement-only » sends counter-productive signals to the market place • Positive guidance improves compliance and limits CAs’ ex post enforcement costs

25. Conclusions

26. First, CAs favoring reactive detection policies should be incentivized to increase their share of ex officio detection activities (▼) and, where necessary, should be entrusted with additional resources. • Second, CAs should be entitled to engage in effective priority setting (▲), on the basis of clear, well-defined, criteria (▼). CAs should in addition be requested to clarify publicly their enforcement priorities on a regular basis (▼). • Third, CAs should be requested (i) to inform all interested third parties when opening proceedings; and (ii) to publish their decision (▼). In addition, at the stage of the opening of proceedings, CAs should be compelled to set mandatory deadlines for their review (▼). Those deadlines should be established on a case-by-case basis. • Fourth, in so far as settlements are concerned, CAs should be precluded from negotiating commitments in cases involving long-lasting restrictions of competition (▼). By contrast, in so far as positive enforcement is concerned, national legislations should enable CAs to adopt “inapplicability” decisions and to provide individual guidance to firms (▲).

27. Thanks for your attention! Presentation will be available shortly at www.chillingcompetition.com