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EU Competition Law Overview

EU Competition Law Overview. H. Stephen Harris, Jr. A LSTON & B IRD LLP ABA Antitrust Section Spring Meeting April 4, 2003. The EU Basics. Created and governed by the EC Treaty, as amended . Currently 15 members: Original Members: Belgium Germany France Italy Luxembourg Netherlands

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EU Competition Law Overview

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  1. EU Competition Law Overview H. Stephen Harris, Jr. ALSTON&BIRDLLP ABA Antitrust SectionSpring Meeting April 4, 2003

  2. The EU Basics • Created and governed by the EC Treaty, as amended

  3. Currently 15 members: Original Members:Belgium Germany FranceItaly LuxembourgNetherlands Additional Members:U.K. Denmark IrelandGreece Spain PortugalAustria Sweden Finland The EU Basics

  4. The EU Basics • 10 new members to join May 1, 2004 • Czech Republic • Hungary • Poland • Slovakia • Slovenia • Latvia • Estonia • Lithuania • Cyprus (Greek controlled portion) • Malta

  5. The EU Basics • Turkey to join “without delay” if it meets criteria during December, 2004 review • Bulgaria and Romania “on track” to join by 2006

  6. The EU Basics • 380 million citizens • With 10 new members, • population of 445 million • Largest integrated market in the world • GDP of US$9.46 billion(cf. NAFTA GDP of $11.9 billion)

  7. The EU Basics • The European Parliament • Members (MEPs) directly elected in Member State elections held every five years • Currently 626 MEPs • Sit in party political groups, not national delegations • In some areas, Parliament jointly legislates with the Council

  8. The EU Basics • The Council of European Communities(the “Council”) • 1 member from each Member State • Presidency rotates every 6 months among the Member States • Primary legislative body of the EC • Primary policymaker of the EC • Implements policy through Regulations and Directives proposed by the Commission

  9. The EU Basics • The European Commission (“EC”) • Independent of the Council • 20 members, nominated by Member States • executes EC law • staff of approximately 15,000 • renders decisions

  10. The EU Basics • The Commission is the primary enforcer of EU competition law • Decides cases • Issues Directives • Proposes Regulations • Issues Guidelines (“Notices”) • Directs policy debate (“White Papers” and “Green Papers”) • Participates in shaping of legislation

  11. The EU Basics • Structure of the Commission • President • Secretariat-General • Legal Service • 36 Directorate Generals (1 Commissioner in charge of each) • Competition Directorate (DG Comp)Commissioner Mario Monti

  12. The EU Basics • Commission Procedures • Since 1962, governed by Reg. 17/62 the “implementing regulation”) • Recently adopted Reg. 01/03 restructures the system of competition enforcement for the first time in 40 years

  13. The EU Basics • Reg. 01/03 • Abolishes notification of individual exemptions under Article 81(3) • Creates “European Competition Network” in which all member states must empower their national competition agencies to apply EU competition law

  14. The EU Basics • Reg. 01/03 • Redefines relationship between EU and national substantive competition law, generally affirming primacy of EU law • Confirms power of EC to order structural as well as behavioral remedies • Codifies EC’s powers to issue interim measures (cf. preliminary injunctions) and related procedures

  15. The EU Basics • Reg. 01/03 • Creates new procedure for settlement of cases by giving order to cease infringing conduct (cf. cease and desist orders) • Expands investigatory powers of EC; empowers EC to question company employees about factual matters, and to search homes of employees

  16. The EU Basics • Reg. 01/03 • Substantially increases level of fines which EC may impose re procedural matters (obstruction of investigations, providing false information, failing to comply with EC orders) • Applies to all economic sectors with very limited exceptions; special regulations for certain sectors, such as transport

  17. The EU Basics • The European Court of Justice (“ECJ”) • 1 judge from each Member State • 8 Advocates General • Hears appeals from the Court of First Instance • Considers issues of law, not fact • Gives preliminary rulings on EC law to national courts

  18. The EU Basics • The European Court of First Instance • 15 judges, one from each Member State • hears initial appeals of EC decisions • unlike ECJ, reviews issues of fact and law

  19. The EU Basics • Concurrent Jurisdiction with National Laws • National courts must apply national law (and EC law) in a manner that does not hamper uniform application of EC law within the 15 Member States

  20. Policies Underlying EU Competition Law • Traditional Competition Concerns • Maximizing efficiency • Protecting consumers from collusion and other restraints on free competition • Protecting small and medium-sized entities(“SMEs”) • Integrating the European economy(increasingly important in light of 10 new members)

  21. Principal Sources of EU Competition Law • EC Treaty Section 81 (formerly 85)[Cf. Sherman Act § 1] • EC Treaty Section 82 (formerly 86)[Cf. Sherman Act § 2] • European Community Merger Regulation(“ECMR”)[Cf. Hart-Scott-Rodino Act]

  22. Article 81 • Prohibits and automatically voids all: • agreements, arrangements and concerted practices • between “undertakings” • that affect trade between Member States • that have as their object or effect • the prevention, restriction or distortion of competition within the EU

  23. Article 81“Undertakings” • Not defined in Treaty or other formal document • Construed very broadly • Includes any collection of resources for the purpose of performing an economic or commercial activity, regardless of legal status

  24. Article 81“Undertakings” • Individuals • Corporations • Partnerships • Trade and other associations • Unincorporated groups • Public bodies

  25. Article 81Agreements, Arrangements & Concerted practices • Not restricted to formal contracts • only “requires a joint intention of the parties, without there being any need for them to express their consent formally” • consent may arise implicitly from clear and unequivocal conduct • sufficient if one party limits its freedom of action with regard to another

  26. Article 81Agreements, arrangements and concerted practices • “Concerted practices” are “a form of coordination between undertakings which, without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation between them for the risks of competition”

  27. Article 81“Prevention, Restriction or Distortion of Competition” • Article 81(1) provides non-exhaustive list of examples: • fixing purchase or selling prices or other terms of trade • sharing markets or sources of supply • discriminatory practices • tying arrangements

  28. Article 81“Prevention, Restriction or Distortion of Competition” • Includes, in principle, any form of coordinated bilateral or multilateral behavior that has, or is intended to have, an appreciable negative effect on competition, without limitation as to the form of the restraint

  29. Article 81“Prevention, Restriction or Distortion of Competition” • “Appreciable” is decided on a case-by-case basis

  30. Article 81“Prevention, Restriction or Distortion of Competition” • EC Guidance on what is “appreciable”: • 1968 Notice on Cooperation Agreements (encouraging some cooperation among SMEs) • 1997 De Minimis Notice(e.g., horiz. agreements for production of goods not covered by Art. 81 if less than 5% of goods affected)

  31. Article 81“Prevention, Restriction or Distortion of Competition” • Includes horizontal agreements(agreements between companies at the same level in the production or distribution chain; e.g., between two manufacturers) • Includes vertical agreements(agreements between companies at different levels; e.g. between manufacturer and distributor)

  32. Article 81“Effect on Trade Between Member States” • Article 81 requires that an agreement or practice “may” affect trade between Member States • sufficient if practice is “capable of constituting a threat, either direct or indirect, actual or potential, to freedom of trade between Member States in a manner which might harm the attainment of the objectives of a single market”

  33. Article 81“Effect on Trade Between Member States” • ECJ downplays the importance of this element • ECJ held sufficient the impact on a company’s ability to establish itself in another Member State, holding that “trade” is not limited to movement of goods and services across borders

  34. Article 81Anticompetitive Effect or Objective • Immaterial whether practice has an actual anticompetitive effect or only an intended anticompetitive effect • No need to examine the effect of agreement the clear object of which prevents, restricts or distorts competition (price-fixing, e.g.) • Detailed economic analysis still needed for agreements not designed to restrict competition (distribution agreements, e.g.)

  35. Article 81(3)Individual Exemptions • Previously, notification to the Commission was required under Form A/B • Under new Reg. 01/03, notification system abolished • Competition authorities of member states and courts will apply Article 81(3) without need for prior notification

  36. Article 81(3)Block Exemptions • Apply to categories of agreements • No notification necessary • Examples: • certain R&D horizontal agreements • specialization horizontal agreements • certain IP licensing vertical agreements

  37. Article 81(3)Horizontal Guidelines • Guidelines on the Applicability of Article 81 to Horizontal Cooperation • flexible “blacklist approach” • requires analysis of market power, and procompetitive benefits of the agreement or practice

  38. Article 81(3)Vertical Exemptions • Reg. 2790/99 creates blacklist, whitelist, and greylist

  39. Article 81(3)Vertical Exemptions • Reg. 2790/99 “black list” excludes from the exemption (prohibits): • price-fixing (including minimum RPM) • customer and territorial market allocation • restriction on members of a selective distribution system (“SDS”) to sell to end users • prohibition on component supplier selling to independent service orgs.

  40. Article 81Penalties • Nullification of agreements • Declaratory relief ordering cessation of violation • Fines • EC’s 1998 Guidelines on the Method of Setting Fines • Individual firm may be fined up to €20 million, or 10% of its turnover in the prior year, whichever is greater

  41. Article 82 • Prohibits any abuse • by one or more undertakings • of a dominant position • within the common market or in a substantial part thereof, to the extent that it may affect trade between member states

  42. Article 82“Dominant position” • Product and geographic market definitions are fundamental

  43. Article 82Relevant Product Market • Comprises products that “are particularly suitable for satisfying constant needs and are only to a limited extent interchangeable or substitutable with other products” (ECJ) • Reasonably interchangeable products will be considered part of the same relevant product market if they are apt to meet the same consumer need. (ECJ)

  44. Article 82Relevant Product Market • EC’s 1997 Market Definition Notice requires assessment of: • demand-side substitutability • supply-side substitutability • potential competition

  45. Article 82Relevant Geographic Market • An area in which the conditions of competition applying to the product concerned are sufficiently homogeneous for all traders (ECJ)

  46. Article 82Relevant Geographic Market • The EC’s Market Definition Notice defines it as the “area in which the undertakings concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogeneous, and that can be distinguished from neighboring areas because the conditions of competition are appreciably different in those areas.”

  47. Article 82Relevant Geographic Market • Factors considered under the EC’s Market Definition Notice: • supply-side considerations • demand-side substitution (whether customers would switch to suppliers located elsewhere in response to a hypothetical small (5 to 10%) but permanent price increase

  48. Article 82Relevant Geographic Market • Relevant market must be the common market or a substantial portion of it • pattern and volume of productionconsidered • territory of a single Member State (or group of contiguous states) often recognized as substantial part

  49. Article 82Dominance • Dominance is assessed in the relevant market • A dominant position is demonstrated by an undertaking’s ability to operate to an appreciable extent independently of its competitors, its customers, and ultimately the consumers in a relevant market. (ECJ)

  50. Article 82Dominance • Market power is usually demonstrated through high market shares • Countervailing considerations such as ease of entry, buyer power and other specific conditions of a market may rebut a finding of market power despite a high market share

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