Transcript General slides are available here.

Prof. Dr. iur. Dr. rer. pol. h.c. Carl Baudenbacher
President of the EFTA Court
University of St.Gallen HSG
ADMINISTRATIVE AND PROSECUTORIAL
ENFORCEMENT OF COMPETITION LAW
Fifth Annual Conference on Competition Enforcement in the CEE Member
States, 21 February 2014 in Bratislava
I. Types of Competition Law Enforcement
1. Public enforcement
a. Administrative model
In an administrative enforcement system in the narrow
sense of the word, a public authority conducts the
investigation and issues a decision based on its results.
The decision may be challenged in court by the firms
concerned.
I. Types of Competition Law Enforcement
1. Public enforcement
a. Administrative model
Origin in Fin-de-siècle Austria-Hungary.
“The solution of [....] the problem of combating
harmful cartels is [....] to not be found either on the
basis of private law nor of criminal law, but in an
administrative regulation of business associations.”
(Adolf Menzel, Die Kartelle und die Rechtsordnung,
1894).
I. Types of Competition Law Enforcement
1. Public enforcement
b. Prosecutorial model
In a prosecutorial system, investigation and prosecution
are separated from adjudication.
The U.S. is the main example. The DoJ or the FTA
conduct the investigations and then prosecute the
involved firms before a federal court.
But there is the tradition of plea bargaining.
In Europe, there are (some sort of) prosecutorial
models in Austria and in Sweden.
I. Types of Competition Law Enforcement
2. Private enforcement
The paradise of private enforcement is the U.S.
Over 80 % of the actions are brought by private parties
in civil proceedings.
There are also special framework conditions, such as
the possibility to obtain treble damages (Section 4
Clayton Act), the possibility for attorneys to charge
contingency fees, the possibility to bring class actions
which are subject to the opt-out principle and the
pretrial discovery which facilitates the obtaining of
evidence.
I. Types of Competition Law Enforcement
3. Criminal enforcement
Criminal enforcement is part of U.S. law.
There is no criminal enforcement on the European
level. What the former Director General of DG
Competition, Philip Lowe, stated some years ago is still
valid: Europe is culturally not ready for that.
In certain EU and EEA Member States (France, Ireland,
United Kingdom, Norway), violations of competition
law may lead to criminal sanctions. In France, for
example, participation in a cartel can be punished by
imprisonment up to four years.
II. Status Quo: Administrative Enforcement in EU/EEA Law
The European Commission acts as an investigator,
prosecutor and decision-maker.
Decision-making includes the issuance of cease and
desist orders and the imposition of fines.
The model has been extended to the EEA where the
EFTA Surveillance Authority (ESA) has the same position
in cases in which it has competence under Article 56
EEA.
The same type of enforcement dominates in the
European States.
II. Status Quo: Administrative Enforcement in EU/EEA Law
In the EU, decisions of the Commission may be
appealed to the General Court which will hear the case
on points of fact and of law and further to the ECJ on
points of law.
In EFTA, there is a one tier system with the EFTA Court.
In most European States, a similar system of judicial
review exists.
III. Criticism of the Current Enforcement System in EU/EEA Law
Critics deplore the lack of independece of the
agencies; fines, they say, have almost become taxes.
EU from 1995 to 1999: Barely 300 million Euros.
EU from 2005 to 2009: Barely 10 billion Euros.
Fines may amount to 10 % of the group turnover.
Compare: The German Stock Index DAX 30’s return on
sales is 3 – 7 %.
Former Commissioner Neelie Kroes: We collect more
than the U.S. agencies.
III. Criticism of the Current Enforcement System in EU/EEA Law
The claim was made by cartel lawyers and in-house
counsel that such an enforcement model was
incompatible with Article 6 ECHR.
A switch to a prosecutorial model with a court of law as
the decision-maker was deemed to be indispensable.
Such calls for action were made in particular in
Germany and in the UK.
But they seemed to succeed at first in a country which
does not have a reputation for being particularly tough
on cartels and abuse of dominance – Switzerland.
IV. The Swiss Government’s 2012 Draft for a New CartA
1. CartA 1995/2003
The Competition Commission (ComCo) acts as an
investigator and as a decision-maker.
It consists of 7 “independent” members (university
professors of law/of economics) and 5 representatives
of associations. All members work part-time.
Decisions may be appealed to the Federal
Administrative Court (facts and law) and further to the
Federal Supreme Court (law).
Fines may be imposed upon first infringement since the
amendment of the CartA in 2003.
IV. The Swiss Government’s 2012 Draft for a New CartA
2. Proposed change of the enforcement system (I)
In 2008, a study commissioned by the Government
proposed to reduce the number of members of the
ComCo
and
to
eliminate
the
lobbyists
(professionalization).
In March 2010, the Government concluded that the
representatives of associations on the ComCo had to
go.
However, they refused to leave.
The Government then decided to shift from an
administrative to a prosecutorial system.
IV. The Swiss Government’s 2012 Draft for a New CartA
2. Proposed change of the enforcement system (II)
No publicly available analysis was made. The idea had
been launched one year before in a paper of the
umbrella association of Swiss industry.
In antitrust matters a new Competition Authority shall
have the competence to investigate.
It may ask a newly created Federal Competition Court
to take a decision.
IV. The Swiss Government’s 2012 Draft for a New CartA
2. Proposed change of the enforcement system (III)
The Government advanced two main arguments:
(1) Change is required by Article 6(1) ECHR:
“Right to a fair trial
1. In the determination of [….] any criminal charge
against him, everyone is entitled to a fair and public
hearing within a reasonable time by an independent
and impartial tribunal established by law.”
(2) Change will lead to more effective enforcement.
IV. The Swiss Government’s 2012 Draft for a New CartA
3. Role model function for EU/EEA law?
Some said that the ultimate goal was not to change the
enforcement model in Switzerland, but in the EU.
Switzerland has a tradition of being an exporter of law.
- Direct democracy
- Debt brake
- Fat Cat Initiative (curbing excecutive pay excesses)
- Prosecutorial model of competition law enforcement?
V. Comments on the 2012 Government Draft for a new Swiss CartA
1. Article 6(1) ECHR argument (I)
Falsified by ECtHR Menarini (2011):
An administrative system of law enforcement is not
incompatible with Art. 6 ECHR, as long as the decisions
of the competition authority are subject to the review
of a judicial body with unlimited jurisdiction and
provided that the judicial body does in fact exercise
this unlimited jurisdiction (para. 59). In that case, a
fine imposed for a violation of (national) competition
rules was of a criminal law nature and related to a
criminal charge under Article 6(1) of the ECHR.
V. Comments on the 2012 Government Draft for a new Swiss CartA
1. Article 6(1) ECHR argument (II)
EFTA Court Norway Post, paragraph 100:
“Article 6(1) ECHR requires that subsequent control of
a criminal sanction imposed by an administrative body
must be undertaken by a judicial body that has full
jurisdiction. Thus, the Court must be able to quash in
all respects, on questions of fact and of law, the
challenged decision [….]. Therefore, when imposing
fines for infringement of the competition rules, ESA
cannot be regarded to have any margin of discretion in
the assessment of complex economic matters which
goes beyond the leeway that necessarily flows from the
limitations inherent in the system of legality review.”
V. Comments on the 2012 Government Draft for a new Swiss CartA
1. Article 6(1) ECHR argument (III)
In light of this case law, the first argument was varied.
Supporters of the prosecutorial model now claim that
the system change is necessary for reasons of fairness.
That is an empty formula. It means putting cartels and
dominant firms in a better position.
V. Comments on the 2012 Government Draft for a new Swiss CartA
2. More effective enforcement argument (I)
Unproven assertion.
No comparative analysis was made in the Government’s
dispatch, there is in particular no discussion of the
framework conditions of antitrust enforcement in the
U.S.
Mixed experience of EU Member States (Austria and
Sweden) with a prosecutorial enforcement system is
not even mentioned.
V. Comments on the 2012 Government Draft for a new Swiss CartA
2. More effective enforcement argument (II)
Annual Report of the Austrian Federal Competition
Authority 2011:
The proceedings before the Cartel Court which were
triggered by applications of the FCA often drag on for
years without there being comprehensible reasons for
their excessive length.
The report mentions cases brought in 2004, 2007 and
2009 without there being a judgment by the end of
2011.
V. Comments on the 2012 Government Draft for a new Swiss CartA
2. More effective enforcement argument (III)
The Report of the Swedish Competition Authority for
2011 mentions one single judgment, the abuse case
TeliaSonera.
The Competition Authority brought the application on
21 December 2004; the Stockholm City Court decided
on 2 December 2011. The court proceedings in Sweden
took 5 years (plus two years because of a reference to
the ECJ).
3. Role model function for EU/EEA law
Open question.
VI. Latest Developments in Switzerland
1. Federal Supreme Court PubliGroupe
In June 2012, the Supreme Court in PubliGroupe
adopted the Menarini/Norway Post approach.
It made reference to these judgments.
VI. Latest Developments in Switzerland
2. State Council
On 21 March 2013, the State Council decided to throw
out the Federal Competition Court.
ComCo shall be downsized to 5 Commissioners.
In substance, two new rules were approved:
A prohibition of hard core cartel clauses (concerning
prices, quota, territory, customers) with the possibility
of justification (economic efficiency).
A rule obliging sellers of brand-name products to supply
Swiss firms or consumers at the prices and conditions
applied abroad.
VI. Latest Developments in Switzerland
3. Federal Administrative Court GABA (Dec. 2013) (I)
a. Facts
Licensing agreement between GABA, the Swiss
manufacturer of Elmex red toothpaste and its Austrian
licensee GEBRO contained a clause banning passive
sales from Austria.
ComCo imposed a 4,8 mio CHF fine on GABA and of
10’000 CHF on GEBRO.
GABA argued that the clause regulated only the
production and distribution of Elmex red in Austria, but
did not ban sales to Switzerland.
VI. Latest Developments in Switzerland
3. Federal Administrative Tribunal GABA (Dec. 2013) (II)
b. Territorial application
The CartA “applies to practices that have an effect in
Switzerland, even if they originate in another country”
(Art. 2[2] CartA). The provision contains no additional
requirement such as direct, immediate, substantial,
appreciable or foreseeable effect.
The Tribunal held that the Swiss market was affected. A
special intensity of the effects was deemed to be not
necessary for the Act to apply. Effects must be assessed
under the substantive rules of the CartA.
VI. Latest Developments in Switzerland
3. Federal Administrative Tribunal GABA (Dec. 2013)
(III)
b. Territorial application
The Tribunal referred to the Minn-Chem Inc. v. Agrium
Inc. judgment of the U.S. 7th Circuit of 27 June 2012
which found that the notions of „direct“, „substantial“
and „foreseeable“ constituted no jurisdictional
prerequisites, but substantive elements.
VI. Latest Developments in Switzerland
3. Federal Administrative Tribunal GABA (Dec. 2013) (IV)
b. Territorial application
Compare Article 1 (2) of the Hungarian C.A.:
“[….], this Act shall also apply to market practices of
undertakings carried out abroad if they may have
effects on the territory of the Republic of Hungary.”
Article (3) of the Romanian C.A.
“The provisions of this law shall apply to the acts and
deeds provided for in par. (1) when committed [….]
outside the Romanian territory, when they have effects
within the Romanian territory.”
VI. Latest Developments in Switzerland
2. Federal Administrative Tribunal GABA (Dec. 2013) (V)
b. Territorial application
Compare Article 1 (2) of the Polish C.A.:
“The Act regulates the rules and measures of
counteracting practices restricting competition and
practices violating collective consumer interests, as
well as anticompetitive concentrations of undertakings
and associations thereof, where such practices or
concentrations cause or may cause effects in the
territory of the Republic of Poland.”
VI. Latest Developments in Switzerland
3. Federal Administrative Tribunal GABA (Dec. 2013) (VI)
b. Territorial application
Compare Art. 2 (4) of the Slovak C.A.:
“This Act shall also apply to activities and actions that
have taken place abroad, provided that they
lead, or may lead, to restriction of competition in the
domestic market.”
Compare Article 1 (5) of the Czech C.A.:
“This Act shall also apply to actions of undertakings,
occurred abroad, which distort or may distort
competition in the territory of the Czech Republic.”
VI. Latest Developments in Switzerland
3. Federal Administrative Tribunal GABA (Dec. 2013) (VII)
b. Territorial application
Compare Article 2 (1) of the Bulgarian C.A.:
“This Act shall apply to:
1. undertakings and associations of undertakings which
operate on the territory of the Republic of Bulgaria, or
beyond it, should they explicitly or tacitly prevent,
restrict, distort, or may prevent, restrict or distort
competition in Bulgaria; [….]”
VI. Latest Developments in Switzerland
3. Federal Administrative Tribunal GABA (Dec. 2013) (VII)
c. Standard of review
With regard to the standard of judicial review, the
Tribunal sided with ECHR Menarini and EFTA Court
Norway Post.
It emphasised that it does not only have the competence
to review the challenged decision on issues of fact and
law, but that is also uses it.
VI. Latest Developments in Switzerland
3. Federal Administrative Tribunal GABA (Dec. 2013) (VII)
d. Appreciability
The Tribunal held that in the case at hand it was
sufficient
for
ComCo
to
establish
qualitative
appreciability. Since there was an absolute ban of passive
sales from Austria, no market analysis needed to be made
in order to assess quantitative appreciability.
The existence of interbrand-competition was deemed to
be irrelevant.
VI. Latest Developments in Switzerland
4. National Council (I)
On 28 January 2014, the Ways and Means Committee of
the National Council rejected the draft law by 16 to 9
votes.
This amounts to a motion that the National Council
shall no even treat the proposal.
The National Council has scheduled deliberations for
March 2014.
VI. Latest Developments in Switzerland
4. National Council (II)
There is a correlation between the GABA case and this
decision.
1) The interpretation of the notion of appreciabilty by
the Federal Administrative Tribunal may have
anticipated the cartel prohibition.
2) The Tribunal’s construction of the effects doctrine
may make the obligation to contract for foreign sellers
of brand-name products superfluous.
VII. Conclusions regarding the Enforcement Model
1. The concept of legality review in EU/EEA law
Art. 263(1) TFEU:
“The Court of Justice of the European Union shall
review the legality [….] of acts [….] of the Commission
[….].”
Art. 36 SCA:
“The EFTA Court shall have jurisdiction in actions
brought [….] against a decision of the EFTA Surveillance
Authority [….].”
VII. Conclusions regarding the Enforcement Model
2. What is the position of the ECJ on judicial review? (I)
The ECJ has so far not held that competition fines are
of a criminal nature, but it has taken steps to ensure
that the procedural guarantees of the ECHR and of the
Charter with regard to criminal proceedings are
respected. In the recent Cases KME Germany v
Commission and Chalkor v Commission, the ECJ limited
itself to relying on Article 47 of the Charter of
Fundamental Rights of the European Union, and it did
not make reference to the ECHR’s Menarini judgment.
The ECJ held that the Commission does have a margin
of discretion when it has to make complex economic
and technical assessments.
VII. Conclusions regarding the Enforcement Model
2. What is the position of the ECJ on judicial review? (II)
In Cases KME Germany v Commission and Chalkor v
Commission, the ECJ has, however, emphasized that
“that does not mean that the Courts of the European
Union must refrain from reviewing the Commission’s
interpretation of information of an economic nature.
Not only must those Courts establish, among other
things, whether the evidence relied on is factually
accurate, reliable and consistent but also whether that
evidence contains all the information which must be
taken into account in order to assess a complex
situation and whether it is capable of substantiating the
conclusions drawn from it” (KME, para 94; Chalkor,
para. 54.)
VII. Conclusions regarding the Enforcement Model
2. What is the position of the ECJ on judicial review? (III)
Commentators have still concluded that the ECJ appears
to give the Commission more leeway than the EFTA Court
gives the EFTA-Surveillance Authority.
In Schindler, the ECJ confirmed its Chalkor and KME
approach.
But it also noted that the ECtHR held in Menarini that,
given that the fine imposed by the Italian Competition
Authority was high, the penalty, because of its severity,
fell within the criminal sphere.
However, the ECJ refrained from taking a position on the
matter.
VII. Conclusions regarding the Enforcement Model
2. What is the position of the ECJ on judicial review? (IV)
Advocates General seem to encourage the ECJ to openly
adopt the EFTA Court’s approach.
AG Kokott, Opinion of 18 April 2013 in Schindler, fn. 18.
AG Wathelet,
Opinion of 26 September 2013 in
Telefónica v. Commission, fn. 63.
AG Mengozzi, Opinion of 30 January 2014 in Mastercard v.
Commission, fn. 102 and 105.
VII. Conclusions regarding the Enforcement Model
3. Will the criticism of the European competition law
enforcement model come to an end? (I)
Most probably not.
Case law does not answer the question of whether a
one-tier competition authority is sufficient or whether
a two-tier system with Chinese walls is needed.
In reality, both forms of organisation exist.
Critics continue to argue that no matter what the
European Courts have stated, judicial review is de
facto limited.
VII. Conclusions regarding the Enforcement Model
3. Will the criticism of the European competition law
enforcement model come to an end? (II)
“Denk ich an Brüssel in der Nacht, dann bin ich um den
Schlaf gebracht.”
“Thinking of Brussels at night, just puts all thought of
sleep to flight.”
(Inhouse-counsel of a major convicted European cartel
offender.)
VII. Conclusions regarding the Enforcement Model
3. Will the criticism of the European competition law
enforcement model come to an end? (III)
REIN WESSELING/MARC VAN DER WOUDE: “[T]he crux is not
whether the system has the ‘external characteristics’
of a system that complies with the necessary
guarantees but rather how the system operates in
practice.”
Swiss lawyers have, therefore, tried to convince the
Parliament
to
explicitly
oblige
the
Federal
Administrative Court to carry out a comprehensive
review in the Cartel Act itself.
In my view, such an obligation would miss the point.
VII. Conclusions regarding the Enforcement Model
4. What does it mean that the Commission and ESA
don’t have any margin of discretion in the assessment
of complex economic matters which goes beyond the
leeway that necessarily flows from the limitations
inherent in the system of legality review? (I)
Does is mean that when it comes to the review of factfinding, there is a margin of discretion?
Probably yes, at least in certain cases.
VII. Conclusions regarding the Enforcement Model
4. What does it mean that the Commission and ESA
don’t have any margin of discretion in the assessment
of complex economic matters which goes beyond the
leeway that necessarily flows from the limitations
inherent in the system of legality review? (II)
“[A]lthough the Court may not replace ESA’s
assessment by its own and, accordingly, it does not
affect the legality of ESA’s assessment if the Court
merely disagrees with the weighing of individual
factors in a complex assessment of economic evidence,
the Court must nonetheless be convinced that the
conclusions drawn by ESA are supported by the facts.”
EFTA Court Norway Post, para. 101.
VII. Conclusions regarding the Enforcement Model
5. Compare the review of FTA decisions by U.S. courts
The legal issues are for the courts to resolve, although in
considering them the courts must give some deference to
the FTA’s informed judgment that a particular practice is
unfair. The FTA’s findings of fact are conclusive if
supported by substantial evidence. When we review the
FTA’s findings, we may not make our own appraisal of the
testimony, picking and choosing for ourselves among
uncertain and conflicting inferences. Rather, under the
substantial-evidence
standard,
we
uphold
the
Commission’s findings if supported by such relevant
evidence as a reasonable mind might accept as adequate
to support a conclusion.
U.S. 6th Circuit, RealComp (2011).