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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

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

 

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

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 4

 

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

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 raising price by 5%, switching – profitability of

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 6

 

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

 

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, agreement is

null and void – not enforcable

   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) 8

Anticompetitive agreements -

C

artels

• • • • • • Similar,

independent companies

markets or customers join together to fix prices/ limit production/share Instead of competing - rely on agreed course of action

Reduces incentives

prices to provide new/better products and services at competitive Result: consumers end up

Illegal

and highly secretive

Heavy fines €1,3 billion

]

paying more

for less quality [single company - over

€896 million

; all members of cartel - over

Leniency policy

for fine reduction – “whistle-blowers” (See

Commission Notice on Immunity from fines and reduction of fines in cartel cases, 2006)

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

2008) – 4 wallpaper manufacturers (price increase 2005 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?) 10

Anticompetitive agreements – General Exemptions

       An agreement that technically infringes under

Article 101(3) Article 101(1)

may be

exempted

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

Block exemptions

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 11

Anticompetitive agreements - Guidelines

Vertical Agreements

 Commission provided

guidelines

(and consider

de minimis

) for the assessment of vertical agreements  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 12

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

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 agreements

below 30% safe harbour generally OK, if no hard core e.g. RPM, or MFN, e-platform restraint, but consider excluded clauses 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 14

Anticompetitive agreements Ukraine

General prohibition, unless exemption applies: (i) general: up to

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:

notification/authorization, NO self-assessment there is ex-ante

• • • • •

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

 

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

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) 17

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 no significant competitors

40 % 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

member states; 2012 – possible multibillion-dollar fines, dawn raids in 10 “destination clause”; “take or pay” clause”, unfairly high prices to its customers in Central and Eastern Europe 18

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 19

 

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

•

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

20 mln

- Electrabel-acquiring control without prior approval (2009) 21

Merger control -Thresholds

Primary thresholds: €5 billion -

parties’ combined worldwide turnover; AND

€ 250 mln -

each of at least

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

Merger control -Thresholds

Alternative thresholds: €2.5 billion -

parties’ combined worldwide turnover; AND

€100 mln -

each of at least

parties has EEA-wide turnover; AND in at least

EEA member states:

€100

mln - combined turnover, and

€25 mln

- at least

parties each has turnover

UNLESS 2/3 rule

= notification is mandatory

ex ante

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” 24

• •

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 + market share (individual or combined) exceeds

35% EUR 1 mln

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

 

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

State aid

Advantage in any form whatsoever conferred on a undertakings by national public authorities.

Intervention by the state/ through state resources variety of forms

selective basis to

(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 notification

procedure (preliminary investigation v. in-depth investigation)

Recover

y of incompatible state aid

Ex post monitoring

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 28

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 minimis

aid, 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

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 30

• • •

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).

 

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

Fines in theory

  The European Commission has the power to impose a fine on a business if it breaches Article 101 TFEU.

company’s worldwide turnover The fine cannot exceed 10% of the

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

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 33

Fines in Practice

      10

highest cartel fines:

 2012:

€1, 470, 515, 000

(TV and computer monitor tubes case)  2008: 2007: 2010:

€1,383,896,000 €832,422,250 €799,445,000

(Car glass case) (Elevators and escalators case) (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) 34

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

(for non-notification), up to

10%

for non compliance with AMC decision prohibiting concentration; up to

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 35

 

S ection 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

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

National Competition Authorities (NCA) Cases moving from national to EU level and vice versa Commission and NCAs also share information and work together (e.g. for national dawn raids) 37

EU Competition Authority



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.

(“OECD”),

Organisation for Economic Cooperation and Development World Trade Organisation Conference

on Trade and Development (“WTO”) and

United Nations

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 Verkhovna Rada of 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 40

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 (?) 41

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

Any Questions?

Thanks for your attention!