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Kyiv Institute of International Relations

Kyiv Institute of International Relations. European Competition Law: Main Pillars. Lecture 1 - 25 March 2014. Prepared by Riccardo Croce, Partner, and Hanna Stakheyeva, Associate EU Competition and Regulatory Department. < docid >. Table of Contents.

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Kyiv Institute of International Relations

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  1. Kyiv Institute of International Relations European Competition Law: Main Pillars Lecture 1 - 25 March 2014 Prepared by Riccardo Croce, Partner, and Hanna Stakheyeva, Associate EU Competition and Regulatory Department <docid>

  2. Table of Contents Section 1. European Competition Pillars Section 2. Fines +Practical examples Section 3. Competition Authority Section 4. Questions

  3. Table of Contents Section 1. European Competition Law Pillars • Anticompetitive agreements/actions • Abuse of dominance • Merger Control • State aid Section 2. Fines +Practical examples Section 3. Competition Authority Section 4. Questions

  4. European Competition Pillars Competition: a mechanism of the market economy which encourages companies to offer consumer goods and services at the most favourable terms for consumers Goals: Essential to complete a single market Encourages efficiency Increases productivity, quality, choice Creates better conditions for investors and innovators Reduces prices (increases consumer benefit) Requires companies to act independently of each other, but subject to the competitive pressure of others

  5. European Competition Law Pillars • Anticompetitive (horizontal and vertical) agreements: businesses with/out market power that operate at same/vertically related level must avoid hard-core restraints, concerted actions [2+] • Cartels: competing businesses must not enter into anti-competitive agreements (price, market/customer allocation, bid rigging), or inappropriate info exchanges • Abuse of dominance: businesses must not abuse their dominant market position (40%) in a way that affects trade [1+] • Merger control: businesses must not implement acquisitions, mergers and joint ventures above a certain thresholds (or gun-jumping fines) [2+] • State aid: national authorities must not grant state aids that distort competition and trade in the EU + • Private Enforcement/ Litigation

  6. Basic Concepts Undertaking/ company: “every entity engaged in economic activity, regardless of legal status of entity and way it is financed” (Höfner & Elser v Macrotron, ECJ 1991) Offering goods or services = economic activity (Commission v. Italy, ECJ 1998) [ + all football's governing bodies, i.e. FIFA, UEFA, fitness centres; universities] Competitors: Companies active on the same relevant market Relevant market: a) product- “catalogue” of goods/substitutes SNIP test: Small but significant and non-transitory increase in price – profitability of raising price by 5%, switching b) geography- area of activity with homogeneous conditions of competition: pricing, transport cost, trade flows, etc. See Commission's Notice for the Definition of the Relevant Market, 1997

  7. Table of Contents Section 1. European Competition Pillars • Anticompetitive agreements/actions • Abuse of dominance • Merger Control • State aid Section 2. Fines +Practical examples Section 3. Competition Authority Section 4. Questions

  8. Anticompetitive agreements • Article 101(1) TFEU prohibits agreements between businesses [2+] or concerted practices which could affect trade between MS, and which have as their object or effect prevention/ restriction/ distortion of competition • If so, agreementisnull and void – notenforcable • Agreement doesn’t have to be in writing or be legally binding • Agreement re supply of goods/services – but also know-how/patents – across EU borders-with effect on EU or re foreign businesses’ entry into EU market (extra-territoriality) • Restriction on competition can be by object or effect • Effects depends on relevant market, market context, market power, appreciable effect of agreement, and whether there is a vertical or horizontal restriction (cartel v. RPM)

  9. Anticompetitive agreements - Cartels Similar, independent companies join together to fix prices/ limit production/share markets or customers Instead of competing - rely on agreed course of action Reduces incentives to provide new/better products and services at competitive prices Result: consumers end up paying more for less quality Illegal and highly secretive Heavy fines [single company - over €896 million; all members of cartel - over €1,3 billion] Leniency policy for fine reduction – “whistle-blowers” (See Commission Notice on Immunity from fines and reduction of fines in cartel cases, 2006)

  10. Anticompetitive agreements - Cartels: examples EUR 141,7 mln- car parts suppliers - 5 cartels for supply of wire harnesses to Toyota, Honda, Nissan and Renault (2013) EUR 280 mln- German authority fines sugar cartelists (2014) EUR 17 mln– 4 wallpaper manufacturers (price increase 2005-2008) UK’s universities face an investigation by the Office of Fair Trading (OFT) into “anti-competitive” practices (nearly all charge £9,000 a year despite widely varying degree quality – cartel?)

  11. Anticompetitive agreements – General Exemptions • An agreement that technically infringes Article 101(1) may be exempted under Article 101(3) if the benefits that it provides outweigh its anti-competitive effects • Improve production/ distribution, promote technological progress, consumer benefit share • Price fixing, market sharing and bid rigging will almost never be exempt • Self-assessment since 2004: the parties must evaluate whether their agreement could infringe Article 101(1). Guidance notes on horizontal and vertical agreements have been published by the European Commission • Blockexemptions will also apply to certain types of agreements, such as vertical agreements but consider also TTBE (for tech licensing with/out raw material) (market share below 30%). • Covers both vertical and horizontal agreements • This presentation focuses on vertical agreements

  12. Anticompetitive agreements - Guidelines Vertical Agreements • Commission provided guidelines for the assessment of vertical agreements (and consider de minimis) • When assessing whether a vertical agreement is exempted, you should: • define relevant market to work out the market shares of supplier and buyer; • if the market shares are under 30%,the agreement will be exempted as long as none of the hard-core restrictions apply; • if the market shares are over 30%, you should assess whether the agreement can be exempted under Article 101(3) TFEU, i.e. it must: • contribute to improving production/distribution/promote economic or technical progress • allow consumers a fair share of benefits • not impose vertical restraints that are not indispensable • not enable businesses to eliminate competition

  13. Anticompetitive agreements - Block Exemption Vertical Agreements Certain types of obligations are excluded from block exemptions, e.g.: • Non-compete obligations beyond 5 years • Post-agreement termination obligations on the buyer not to manufacture, purchase, sell, re-sell goods or services • Sale of competing goods in a selective distribution system If outside of block exemption, you have to self-assess Hard-core restrictions ( resale price maintenance, fixed/minimum resale prices, restricting territories etc.) are outside of the BER

  14. Anticompetitive agreements - Examples Vertical Agreements Agency agreements: an agent is a person who is allowed to negotiate or conclude contracts on behalf of a principal • Genuine agency agreements do not generally infringe Article 101 TFEU because the agent acts as an extension of the principle’s business, not a new business, typically takes no risk • Issues could arise where there are territorial exclusivity clauses or restrictions on dealing with other products or services • Distribution agreementsbelow 30% safeharbourgenerally OK, if no hard-core e.g. RPM, or MFN, e-platformrestraint, butconsiderexcludedclauses e.g. non’compete • Non-compete agreements: allowed if the restrictions are directly related and necessary to the implementation of a concentration. If they are not, they could infringe Article 101 TFEU if they have an appreciable effect on competition. Non-compete obligations will be problematic if their duration is indefinite or exceeds five years

  15. Anticompetitive agreements - Ukraine General prohibition, unless exemption applies: (i) general: up to 5% combined market share OR if below 12 mln euro WW turnover – up to 20% (vertical arrangements) and up to 15 % (horizontal) market share); SME; (ii) BE: specialization (up to 25% market share) In line with the EU approach, BUT for procedure: there is ex-ante notification/authorization, NO self-assessment Law On Protection of Economic Competition, 2001 AMCU Resolution On Procedure for Filing Applications with the AMC for Obtaining its Approval for the Concerted Practices, 2002 AMC Resolution on Standard Requirement to Concerted Practices for their General Exemption from Notification Requirement, 2002 AMC Resolution on Standard Requirement to Concerted Practices concerning Specialization of Production, 2008 Regulation on the Procedure for Leniency Application, 2012

  16. Table of Contents Section 1. European Competition Pillars • Anticompetitive agreements/actions • Abuse of dominance • Merger Control • State aid Section 2. Fines +Practical examples Section 3. Competition Authority Section 4. Questions

  17. Abuse of Dominance Article 102 TFEU - no abuse of dominant position by [1+] company, special responsibility Covers: - Unfair prices/predation - Limiting production/markets - Supplementary obligations in contracts, exclusionary conduct Exemption: Market share below 40%, but not always (no strong competitors)

  18. Dominance “position of economic strength […] to prevent effective competition being maintained […], power to behave […] independently of its competitors, its customers and ultimately of consumers” confers special responsibility not likely if market share of company = below 40 % no significant competitors Microsoft competition case Complain from competitor in 1993 – blocking competitors by licensing practices; including its Windows Media Player within the Microsoft Windows platform (tying ) Investigation by EC; fine €497 + €280.5 mln fine [€1.5 million per day from 16 December 2005 to 20 June 2006] for failure to comply with its obligations = provide info + additional €899 mln fine for non-compliance with EC decision Gazprom investigation - 2012 – possible multibillion-dollar fines, dawn raids in 10 member states; “destination clause”; “take or pay” clause”, unfairly high prices to its customers in Central and Eastern Europe

  19. Dominance - Ukraine Abuse of dominant position is anti-competitive and automatically prohibited No exemptions No notification requirement (guidance possible – non-binding recommendation) Monopoly if holds market share in excess of 35% (unless strong competitors) Collective dominance: 2-3 companies together with market share that exceeds 50% Investigations by AMC similar to the investigation into anticompetitive agreements Law On Protection of Economic Competition, 2001

  20. Table of Contents Section 1. European Competition Pillars • Anticompetitive agreements/actions • Abuse of dominance • Merger Control • State aid Section 2. Fines +Practical examples Section 3. Competition Authority Section 4. Questions

  21. Merger Control EU Merger Control Regulation – no concentration [2+] without prior approval Covers: - Mergers; - Take-overs; - Joint ventures (FF). Key - lasting change in control (de facto/ de jure control) Exemptions: if control is acquirer by credit, financial institutions (i) holding securities on temporary basis, (ii) reselling; by insolvency receiver,; intragroup transactions. Procedure: Regulation 139/2004; Regulation 802/2004; one stop-shop principle EUR 20mln- Electrabel-acquiring control without prior approval (2009)

  22. Merger control -Thresholds Primary thresholds: €5 billion - parties’ combined worldwide turnover; AND € 250 mln - each of at least 2 parties has EEA-wide turnover, UNLESS all parties generate at least 2/3 of their individual EEA-wide turnover in one and the same EEA Member State (EU + Iceland, Lichtenstein + Norway). = notification is mandatory ex ante

  23. Merger control -Thresholds Alternative thresholds: €2.5 billion - parties’ combined worldwide turnover; AND €100 mln - each of at least 2 parties has EEA-wide turnover; AND in at least 3 EEA member states: €100 mln - combined turnover, and €25 mln - at least 2 parties each has turnover UNLESS 2/3 rule = notification is mandatory ex ante

  24. Merger Control: example Case No COMP/M.5518 - FIAT/ CHRYSLER, 2009 Fiat SpA (Italy) acquires 20% in Chrysler LLC (USA) “Despite Fiat’s stake of only 20 percent, which it may increase in future, Fiat holds rights in the decision-making process of the U.S. firm that will enable it to exercise sole control”

  25. Merger control - Ukraine Thresholds: Combined WW asset/turnover value of parties (groups) exceeds EUR 12 mln; and Each of the parties WW assets/turnover in excess of EUR 1 mln; and Value of assets/turnover in Ukraine of either of the parties exceeds EUR 1 mln. + market share (individual or combined) exceeds 35% No monopolisation or substantial restriction of competition test) Ex-ante notification + stand-still obligation = European approach + filing fee + review period 45 calendar days ( while 25 working days EU) Formal guidance possible (non-binding preliminary opinion) Law on Protection of Economic competition, 2001 AMC Regulation on Procedure for Filing Applications with the AMC for Obtaining Prior Approval for Concentration of Undertakings, 2002

  26. Table of Contents Section 1. European Competition Pillars • Anticompetitive agreements/actions • Abuse of dominance • Merger Control • State aid Section 2. Fines +Practical examples Section 3. Competition Authority Section 4. Questions

  27. State aid Advantagein any form whatsoever conferred on a selective basis to undertakings by national public authorities. Intervention by the state/ through state resources variety of forms (e.g. grants, interest and tax reliefs, guarantees, government holdings of all or part of a company, or providing goods and services on preferential terms, etc.); gives the recipient an advantage on a selective basis, e.g. to specific companies or industry sectors/regions competition has been or may be distorted affect trade between Member States General prohibition of State aid (Article 107 TFEU) Ex ante notificationprocedure (preliminary investigation v. in-depth investigation) Recovery of incompatible state aid Ex post monitoring

  28. State aid Compatible state aid (no notification needed) (Art. 107(2): aid having a social character, granted to individual consumers, without discrimination related to the origin of the products concerned; aid to make good the damage caused by natural disasters aid covered by a BE (aid measures defined by the EC) de minimis aid ( below €200,000 per undertaking over period of 3 years) May be considered to be compatible (Art. 107(3)): aid to promote the economic development of areas with abnormally low standard of living/ underemployment; aid to remedy a serious disturbance in the economy of a State; aid to facilitate the development of certain economic activities or of certain economic areas, aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition

  29. State aid – Legal Framework Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty, OJ L 83, 27.03.1999 Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty, OJ L 140, 30.04.2004 Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimisaid, OJ L 352, 24.12.2013 Commission Regulation (EC) No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Article 87 and 88 of the Treaty (General block exemption Regulation) OJ L 214, 9.8.2008 Full set see http://ec.europa.eu/competition/state_aid/legislation/compilation/index_en.html

  30. State aid- example SA.36516 Aid for wind farm Zuidermeerdijk - VWW II (Netherlands), 14.02.2014 Objective – environmental protection Legal basis -Art. 107(3)(c) TFEU Certain econ. activities/areas Aid instrument – direct grant Decision – no objection SA.18042 Tax exemption for biofuels (Spain), 06.06.2006 Objective – environmental protection Legal basis -Art. 107(3)(c) TFEU Certain econ. activities/areas Aid instrument – tax rate reduction for biofuel producers Duration 14.01.2004 – 31.12.2012 Decision – no objection

  31. State aid - Ukraine No state aid law Draft law + Regulation “On approval of an Action Plan for the implementation of an institutional reform in the field of monitoring and control over granting State aid to undertakings”, 2013 EU-Ukraine Association Agreement (pending) introduces state aid system in Ukraine: within 3 years of the Agreement’s entry into force, Ukraine must adopt its law on state aid and establish an independent body to monitor/control/authorise any aid that Ukraine grants to companies. within 5 years - Ukraine and the EU are obliged to send each other a report containing information on the total amount of aid, the types of aid and the spheres of state aid which have been granted (official website- transparency).

  32. Table of Contents Section 1. European Competition Pillars • Anticompetitive agreements/actions • Abuse of dominance • Merger Control • State aid Section 2. Fines +Practical examples Section 3. Competition Authority Section 4. Questions

  33. Fines in theory • The European Commission has the power to impose a fine on a business if it breaches Article 101 TFEU. The fine cannot exceed 10% of the company’s worldwide turnover • The basic amount of the fine is based on the company’s value of sales. The gravity of the infringement is assessed, and the fine is increased for each year of infringement • Value of sales: turnover for goods and services affected by the infringement, usually in the last full year of the business’ participation • The basic amount of the fine is up to 30% of the value of sales • Upward adjustments to the basic amount can be made if there is a: • repeat infringement • refusal to co-operate with the Commission • leader of the cartel Fines of up to 1% of group annual turnover may be imposed if a company fails to submit to the inspections, answer a question relating to relevant facts/documents, or breaks a seal placed on documents/premises

  34. Fines in Practice 10 highest cartel fines: 2012: €1, 470, 515, 000 (TV and computer monitor tubes case) 2008: €1,383,896,000 (Car glass case) 2007: €832,422,250 (Elevators and escalators case) 2010: €799,445,000 (Airfreight case) 2001: €790,515,000 (Vitamins case) 2008: €676,011,400 (Candle waxes case) 2010: €648,925,000 (LCD case) 2009: €640,000,000 (Gas case) 2010: €622,250,782 (Bathroom fittings case) 2007: €539,185,000 (Gas insulated switchgear case)

  35. Fines -Ukraine Anticompetitive agreements: fines up to 10% of parties turnover Abuse of dominance:fines up to 10% of parties turnover (leniency – full immunity only) + mandatory division of a dominant company Mergers: up to 5% (for non-notification), up to 10% for non-compliance with AMC decision prohibiting concentration; up to 1% for submitting false/incomplete information + Third party damages claims (amount of compensation in commercial court – up to twice the amount of the actual damage sustained) Invalidation of transaction/agreement

  36. Table of Contents Section 1. European Competition Pillars • Anticompetitive agreements/actions • Abuse of dominance • Merger Control • State aid Section 2. Fines +Practical examples Section 3. Competition Authority Section 4. Questions

  37. Competition Authorities in Europe There is one European Competition Authority in charge of the National Competition Authorities of the 28 Member States the European Commission Directorate General for Competition (EC, DG COPM) http://ec.europa.eu/competition/index_en.html There are 28 National Competition Authorities (NCA) • Cases moving from national to EU level and vice versa • Commission and NCAsalso share information and work together (e.g. for nationaldawnraids)

  38. EU Competition Authority

  39. Competition Networks European Competition Network (“ECN”): Commission and NCAs in all EU Member States cooperate with each other through the ECN International Competition Network (“ICN”): Commission also provides antitrust agencies from developed and developing countries with focused network for addressing practical antitrust enforcement and policy issues of common concern Commission also participates in the competition related activities at international level, e.g. Organisation for Economic Cooperation and Development (“OECD”), World Trade Organisation (“WTO”) and United Nations Conference on Trade and Development

  40. Competition Authority - Ukraine Law On Antimonopoly Committee of Ukraine, 1993 AMCU + territorial offices Chairman (term of office – 7 years) and 8 state commissioners Chairman: appointed and dismissed by the President of Ukraine by approval of the VerkhovnaRadaof Ukraine State Commissioners: be appointed and dismissed by the President of Ukraine by recommendation of the Prime Minister of Ukraine submitted on the basis of the proposals of the Chairman of the AMC

  41. AMCU Powers during investigations: Request information, explanation, material and other data from undertakings under investigation; Request oral and written explanation from undertakings under investigation, third parties, officials, individuals Request expert opinions Seize and retain evidence (documents, computers..) Cooperates: mostly with CIS competition authorities within the Interstate Council for Antimonopoly Policy On bilateral treaties (with Bulgaria, Hungary, Latvia) and On multilateral treaties ( OECD, UNCTAD, ICN) Relation with EU: Agreement on Partnership and Cooperation 1998, DCFT (?)

  42. Table of Contents Section 1. European Competition Pillars • Anticompetitive agreements/actions • Abuse of dominance • Merger Control • State aid Section 2. Fines +Practical examples Section 3. Competition Authority Section 4. Questions

  43. Any Questions?

  44. Thanks for your attention!

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