Public and Private Enforcement of EU Competition Law

1. Public and Private Enforcement of EU Competition Law 5 May 2010 Nicolas Petit University of Liege (ULg) http://chillingcompetition.com

2. Purpose of the Presentation EU competition rules have many fascinating features One of their most intriguing features is that they are subject to specific enforcement mechanisms Unlike other rules of law, the EU competition rules are enforced not only through the courts system (« privateenforcement », uponrequests of private parties), but also by independent administrative agencies (« public enforcement ») Against this background, this presentation ambition is to offer you a short journey on those two enforcement routes (and their interplay)

3. Outline A reminder Public enforcement Private enforcement Conclusions

4. I. A reminder

5. Background – The Theory • Competition rules are predicated on the view that market competition promotes economic efficiency in the form of low prices, increased choice and technological innovation (+ in the EU contribution to market integration) • Modern competition rules generally outlaw: • Anticompetitive agreements between independent firms (Article 101 TFEU) => price-fixing amongst competitors, exclusivity agreements which foreclose rivals, etc. • Abuses of dominant positions (Article 102 TFEU) => excessive prices, predatory pricing, refusal to supply indispensable inputs, etc. • Anticompetitive mergers => mergers to monopoly/oligopoly • Articles 101 and 102 TFEU only apply to practices which have an appreciable effect on cross-border trade

6. Background – The Practice Article 101 TFEU Article 102 TFEU Lifts and escalators cartel, 2007 International removal services cartel, 2008 Microsoft I, 2004 Intel, 2009 Microsoft II, 2010 Google, 2011

7. II. Public Enforcement

8. Structure Why? – Rationale for Public Enforcement Who? – The Creatures of Public Enforcement What? – The Nature of Public Enforcement Activities Conclusions

9. 1. Why? – Rationale for Public Enforcement • Private enforcement by generalist courts is unsatisfactory • Courts lack expertise in complex economic matters • Courts cannot deal with resource intensive competition cases • Courts cannot monitor markets to uncover hidden, unlawful behavior • Courts are reluctant to order investigative measures • Courts cannot focus/prioritize their resources on those specific markets/practices that matter (=> duty to deal with all cases). Absence of “opportunité des poursuites”. Often, courts are clogged with disputes of minor importance in economic welfare terms • EU competition law is thus primarily enforced by specialized administrative agencies (“competition authorities”) with very intrusive powers • Those authorities share many analogies with sector specific regulators in network industries (telcos, etc.) or other independent agencies (European agencies). Yet, they have oversight over all sectors of the economy

10. 2. Who? – The Creatures of EU Competition Enforcement Overview of the System The European Commission The NCAs

11. i. Overview of the System • EU competition rules (Article 101 and 102 TFEU) can be enforced both at the European – by the Commission – and national levels – by National Competition Authorities (“NCAs”) • With the adoption of Regulation 1/2003, the Commission and the NCAs form a “network” of competition authorities (the “ECN”). All those authorities can apply the EU competition rules • To avoid duplication of efforts and decisionalconflicts, distribution of cases amongst ECN issubject to certain principles • Commission focuses on (i) hardcore cartels; (ii) cases raising new questions of law (e.g. generic competition in pharma sector); and (iii) cases with significant transnational interest (+3 rule: see international removal services) • NCAs deal with other cases (e.g., vertical restraints), under the monitoring of the Commission (which can take cases from NCAs). NCAs may also provide assistance to the Commission in the context of investigations in the MS • Cases are allocated to the “best placed” NCA (generally the 1st one to start an investigation…). Reallocation is possible • “Spirit” of mutual recognition

12. ii. The European Commission • At the Europeanlevel, the Competition Authorityis the European Commission (the « Commission ») • The enforcement of the EU competitionrulesisbestowedupon a particularDirectorate General within the Commission => DG COMP • DG COMP isplacedunder the politicalauthority of the Competition Commissioner (J. Almunia + cabinet) who sets policypriorities • DG COMP isplacedunder the Direction of a Director General (A. Italianer) whooversees the officials’ technicalwork • DG COMP isdivided in Directorates and Units • Approximately 900 civil servants (lawyers, economists, but also IT professionals, etc.) and an operating budget of €95 .000.000

13. ii. The European Commission • Is the Commission a trulyspecialized and independentcompetitionagency? • Important competitiondecisions must beadopted by the College of Commissioners • Commission isalso in charge of proposing EU legislation, and must thusmuster support from the Member States • Competition decisionswithlegal implications must becleared by the Commission’slegal service • The Commission alsoholdsenforcementduties in other areas (single market, international trade, transport, energypolicy, etc.) • The variousdecisionallayersinvolved in EU competitionproceedings have pros (decisionalquality, etc.) and cons (createvantage points for lobbying , etc.)

14. iii. The NCAs • To assist the Commission in the enforcement of the EU competition rules, Member States MUST appoint effective NCAs (Article 35 of Regulation 1/2003) • Freedom on the means (proceduralautonomy) v. obligation on outcome (effectiveness) • MS candesignate courts as NCAs (Article 35, Reg. 1/2003); • But NCAs“ shall have the power, acting on their own initiative or on a complaint”, to “take the following decisions: - requiring that an infringement be brought to an end, - ordering interim measures, - accepting commitments, - imposing fines, periodic penalty payments or any other penalty provided for in their national law” (Article 5, Reg. 1/2003).

15. iii. The NCAs • Threeinstitutionalmodels have been implemented • Integrated => a sole administrative agencyprosecutes and decidescompetition cases (Commission) • Bifurcated (administrative) => an administrative organprosecutescompetition cases, a distinct administrative organdecides (Belgium) • Bifurcated (judicial) => an administrative organprosecutescompetition cases, a court rules on the merits of the case (Austria) • Pros and cons of integrated v. bifurcated model • Integrated model • Pros => proceduralefficiency • Cons => prosecutorialbias (confirmation, investmentbias) • Bifurcated model • Pros => second look, whichlimitsbiases and increasesdecisionallegitimacy • Cons => coordination issues (e.g. policypriorities); transaction costs for parties (e.g. UK); vantage points for lobbying/political pressure; over-filtering of allegations, and inflation of arguments invoked by parties

16. iii. The NCAs • Performance of NCAs is satisfactory • Commission Staff WP, 2009: « The key challenge […], to boostenforcementresultswhileensuring the consistent and coherent application of EC competitionrules, has been largelyachieved». • Number of cases dealtwith by NCAs >1000 (§84: « Impressive ») • Few cases with disputes over jurisdictional issues (§214: « discussions on case-allocation came up only in a few cases and actualre-allocation of cases took place evenless »)

17. 3. How? - The Nature of Public Enforcement Activities • How do the Commission and NCAs enforce the competition rules? • In other words, how do they cook competition cases? • EU procedure and decisional powers as proxy • A competition case typically goes through 4 main stages, which correspond to 4 types of enforcement activities • Detection • Investigation • Evaluation • Decision

18. i. Detection • The first and foremost activity of competition authorities is to unearth information indicative of potential infringement • To this end, competition authorities rely on 6 types of detection mechanisms • Market monitoring (Parisian palaces case) • Information gatheredthroughotheractivities (EUMR, SSR, etc.) • Consumers (online form on DG COMP website) • Complaints (mostly abuse of dominance cases) • Third parties entitled to proceduralrights but burdensome • Ability for the Commission to dismiss on discretionary grounds (non prioritary case, overlydemanding investigation, etc.) • Sectorinquiries (energy, pharma, electronic communications, financial services, etc.) • Leniency applications (mostly cartel cases) • Other mechanisms => bounties/rewards for individuals (OFT: 100,000£)

19. ii. Investigation Once the Commission holds indications of a potential infringement, it will seek to corroborate this intuition through various investigative measures Those nvestigative powers are very intrusive

20. ii. Investigation • Requests for information (frequent) – Article 18, Reg. 1/2003 • Factual information • Customers, rivals, suppliers, but also public institutions and NCAs • Commission may impose periodic penalty payments up to 5 % of the average daily turnover in the preceding business year per day in order to compel the undertakings to comply with the request for information • Dawn raids (less frequent, mostly cartel cases) – Article 20, Reg. 1/2003 • Firms must submit themselves to inspection + actively cooperate • Commission can • Enter any premises, land and means of transport; • examine the books and other records related to the business; • Take or obtain in any form copies of or extracts from such books or records; • Seal any business premises and books or records for the period necessary for the inspection (E.ON case); • Ask any representative or member of staff of the undertaking or association of undertakings for explanations on facts or documents

21. ii. Investigation • Inspection of otherpremises (privatepremises) - Article 21, Reg. 1/2003 • Onlyif a reasonable suspicionexiststhat books or other records related to the business and to the subject-matter of the inspection, are beingkept in anyotherpremises • Whichmaybe relevant to prove aserious violation of Article 101 or 102 TFEU • Prior authorisationfrom the national judicialauthority of the Member State concerned • Interviews at DG COMP’spremises => The Commission often combines those various types of investigative measures

22. ii. Investigation Firms are under an obligation to cooperateactivelywith the Commission (seeOrkem, §27) Examples of non-cooperation: Destruction of documents (seeProfessional videotapes cartel) Refusal to provide documents or answer questions Provision of misleading information (seeTetra Laval) Denyofficialsaccess to the premises (seeBitumenNetherlands) Breach of seal (SeeE.ON) Consequences Increase of the global fine (art. 23(2) Reg. 1/2003) Or stand alone fine (art. 23(1) Reg. 1/2003)

23. iii. Evaluation Once the investigation has entitled the Commission to gather sufficient evidence, the Commission will review the evidence and seek to delineate the exact scope, nature, gravity of the infringement(s) The Commission opens “formal proceedings” NCAs can no longer investigate the case The procedure becomes more analytical and adversarial

24. iii. Evaluation • This phase goes through 3 critical stages • The Commission first issues a “Statement of Objections” (SO) (parties are informed of allegationslevelledatthem) • Parties are thengranted“access to file” (equality of harm) • Parties canthen use their“right to reply” (optional) • Writtenresponse to SO (at least 4 weeks) • Oral responseduringhearing (only if writtenresponse) • If new theories of harm are identified, Commission must issue a new SO. • Allegations which have not be brought the attention of the parties cannot lawfully form a basis of infringement

25. iv. Decision Once DG COMP has heard all arguments, it must come to a view on the case It drafts a decisionwhichissubmitted to otherinternal and externalorgans (CET, Legal Service, otherDGs, AdvisoryCommittee, etc.) Approval by the College of Commissioners for all important decisions (subject to delegation) Notification to the parties Publication in the Official Journal

26. iv. Decision • The Commission can adopt several types of decisions • The most important are • Prohibition decisions • Decisions finding an infringement of Article 101 and 102 TFEU • Decisions may also prescribe “cease and desist” orders, if the infringer has not given up the unlawful conduct • Decisions may give more details as to how to eliminate risks of future infringement (article 7 of Regulation 1/2003) • Excessive price => price cap • Discrimination => price decrease • Refusal to supply => duty to supply with qualitative/quantitative conditions • Decisions often inflict fines on infringers. Fine capped at 10% of the total annual turnover in the preceding business year (e.g.,  1.06bn euros in Intel). Ultimatepurposeisdeterrence

27. iv. Decision • Settlements • Competition authorities’ have limited resources/firms may be willing to avoid financial and reputational damage caused by formal infringement decisions • In the course of an investigation, and before the infringement is proven, the parties can be ready to meet the Commission’s concerns by offering “commitments” which restore market competition, in exchange for the termination of the proceedings (without a formal finding of infringement) • Regulation 1/2003 entitles the Commission to do this • The Commission will adopt a summary decision which renders the commitments compulsory on the parties (Article 9 of Regulation 1/2003) • Conditions • Proposedat the initiative of the undertakingsconcerned • Shallentirelyeliminate the grounds for action by the Commission • Onlywhere the Commission doesn’tintend to impose a fine (excluded in cartel cases) • Increasingly used by the Commission => procedural efficiency and results akin to a prohibition decision • Illustrations • Microsoft II (must carry) • Coca-Cola (termination of exclusivity clauses) • ENI (divesture of pipelines necessary to transport gas)

28. 4. Conclusions The EU competition enforcement system entails clear limitations on individual freedom and property rights (dawn raids, remedies, etc.) and hefty sanctions (fines, etc.) This is justified on the ground that competition rules are “public policy” rules, which shall prevail, in certain circumstances, property rights and individual freedom

29. III. PrivateEnforcement

30. 1. Background Article 101 and 102 TFEU are directly applicable Natural and legal persons can thus invoke them before ordinary courts of law In addition, competition rules are rules of “public policy”. National courts have the duty to raise violations of EU competition law of their own motion (subject to equivalence rule) This is conventionally referred to as “private enforcement” (although the expression is slightly confusing)

31. 2. Actual Scope of Private Enforcement • On paper, private enforcement before courts has a number of interesting features • Duty of courts to deliverjudgment • One stop shop => ordinary courts can deal with the severalfacets of a case • In practice, very limited involvement of national courts • Typical setting => “Euro-defense” • A plaintiff seeks to obtain execution of a contract (payment) • The defendant argues that the contract is null and void under Article 101 TFEU (or that its implementation is tantamount to an abuse of dominance under Article 102 TFEU) • Illustration => “Beer contracts” with exclusive purchasing clauses (C-453/99, Courage v. Crehan, etc.) • That said, very little cases • And when cases, issues with little impact on economic welfare/society at large

32. 3. The Future of Private Enforcemen In recent years, growing sentiment that national courts should play a larger role in the EU competition enforcement system, through the allocation of damages to victims of antitrust infringements After all, administrative fines do not make good for the harm caused to customers (who pay higher prices), competitors (who lose market share), suppliers (who pay lower prices) In addition, the allocation of damages to victims will increase the costs of competition infringements and in turn improve deterrence Increasing policy support to follow-on actions

33. 3. The Future of Private Enforcement • In 2004, DG COMP launches an empirical review process, which is followed by a Green Paper in 2005 • Picture is clear => right to damages is ineffective • EU institutions have no jurisdiction to award damages for competition infringements • Only possible at national level. But existingdomesticrules and legal traditions are ill-suited for such actions • Access to evidence • Unfavorablecost/benefitanalysis for damage seekers, in particular end-consumers • Passing-on defense • Limitation periods • Faultrequirements • Etc.

34. 3. The Future of Private Enforcement On 2 April 2008, the Commission adopts a White Paper on Damages Actions for Breach of the EC antitrust rules It presents a set of recommendations to ensurethatvictims of competitionlawinfringements have access to genuinely effective mechanisms for obtaining full compensation for the harmthey have suffered In 2009, the Commission adopts a “Proposal for a Directive on rules governing damages actions for infringements of Article 81 and 82 of the Treaty” Important => primarily focused on follow-on actions

35. 3. The Future of Private Enforcement • Full compensation • No multiple compensation (as in the US) => deterrenceis NOT the purpose of the directive • Damnumemergens (actualloss) and lucrumcessans (lostopportunities) + payment of interests for the time betweeninfringement and compensation • Computation of damages • Jurisdictional issue => national matter, and well-settledrules in MS • But Commission mayprovide guidance (priceovercharge + output effect), possiblythrough soft law instrument • Passing-on defense • Infringerscaninvoke passing-on defense • But direct purchaserscanrebutt the presumption • Directive unclear on compensation of output effect => direct purchasermay have passed-on the priceovercharge, but meanwhilemay have reducedpurchasingorders and thuslost business • Limitation periods • Commission recommends a new limitation period of at least twoyearsstarting once the infringementdecision on which a follow-on claimant relies has become final

36. 3. The Future of Private Enforcement • Using final decisions as evidence • To save time and costs, the Commission recommends, as isalready the case for Commission decisions, that final infringementdecisions of Member States’ competitionauthoritiesshouldbeconsidered as irrebutable proof of an infringement in subsequent civil actions for damages • Faultrequirement • Draft directive seeks to eliminate requirement of fault for the award of damages • Collective actions • Action isbrought on behalf of individualvictims of an infringement => economies of scale • Two types of collective redressmechanisms: • Opt-in collective actions : combines in one single action the claims fromthosewho have expressedtheir intention to beincluded in the action • Opt-out collective actions: representative actions brought by empoweredentities (or other), withclaimantsbeingentitled to opt-out • Commission draft directive eventually choses « opt-out »

37. 4. Current State of Commission’s Proposals • Facedwith intense lobbying against the proposal, CommissionerKroesfails to muster support to itsproposed directive • Fear of a US-style litigation culture • Resistance to change in the MS • Industryfearsincreasedfinancialstakes (deterrencethrough the backdoor) • CommissionerAlmuniaiscommitted to improve actions for damages in competition cases • Change of approach • Public consultation on collective redress, to gather the views and concerns of stakeholders and civil society • Transversal approach: involveswithCommissioner Reding (Justice, FundamentalRights and Citizenship) and Dalli (Health and Consumer Policy) • Once the results of the public consultation willbeavailable, the European Commission willseek to agree on a commonEuropeanapproach and a generallegalframework to collective reddressacross the Union in the Spring of 2011. Subsequently, thisframeworkwillbeused to launchspecificlegislative initiatives in the differentpolicydomains (consumer protection, environmental protection, competitionpolicy, etc.).

38. IV. Conclusions

39. Food for thought • Public enforcement plays a larger role than private enforcement in competition matters => contrast with US antitrust law • CAs hold extensive enforcement powers under the competition rules. CAs may deliberately, or accidentally, steer the competition rules beyond their initial remit => correct regulatory mistakes (IP rights), achieve regulatory purposes (ownership unbundling in energy sector), or simply “show muscle” (regulatory competition) • Current enforcement process is very criticized by practitioners, on grounds of rights of defense and fairness issues. • Are the internal and external checks and balances effective? • Are fines akin to “criminal” sanctions? • Will accession to ECHR bring changes? • In private practice, lawyers must often make a choice between CA and/or court => litigation trade-offs • The interplay between public and private enforcement is complex. Improving the effectiveness of public and private may bring inconsistent results => leniency v. compensation?

40. Thankyou!