LEB Slide Set 14 Competition Law Matti Rudanko

LEB Slide Set 14 2 A Constitution of Market Economy Well-functioning markets – an unwritten fundamental right? A prerequisite of freedom of contract and freedom of trade Monopolies and cartels prevent access to the market and create barriers to trade Also political power is being transferred to companies due to privatization and globalization

LEB Slide Set 14 3 Targets of Regulation by the Constitution The mutual power relations of actors Decision making mechanisms The relationships between authorities and other actors –Goal: balance Karl Marx – Adam Smith (the visible / invisible hand) – the modern competition law Efficiency has to be ensured: functioning competition

LEB Slide Set 14 4 The Objectives and Goals of Competition Law Well-functioning competition: efficiency of economy –Allocation of resources, innovations justice? –Transfers of income to monopolists –Interests of consumers (e.g. the Finnish Competition Act) Societal goals? Sound competition (fair play); improper business practices Integration objective (EU); cf. well-functioning competition

LEB Slide Set 14 5 Taloushallinnon juridiikka 5 Market Law /Competition Law Legal discipline Fields of law and targets Interests Objectives Market Law (in the broad sense) Trade policy legislation Competition Law: restrictions of competition Consumer protection: marketing etc. Improper Bus. Pract. Act B2B Marketing etc. private Sound and eff. comp., client interests Rationality of consumer behavior Fair comp., protection of competitors Reg. on Barriers to Trade (EU) dumping etc. public Balance of payments, employment etc.

LEB Slide Set 14 6 European and Finnish Competition Law EU competition law directly applicable in member states –Treaty on the functioning of the European Union, art. 101 and 102 (2008; replaces the Treaty Establishing the EEC; nb. also the Treaty on the European Union or Maastricht Treaty) –regulations Application by the national authorities possible –Duty of application when the restriction on competition affects trade between member states Principle of the priority of EU law New rules : –Mandatory reaction by national authorities –The Commission can take up any case –No individual exemption orders but block exemption regulations 6

Cartels 1 Art. 101 Treaty on the Functioning of the EU The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may –affect trade between Member States (the trade criterion / community dimension) and –which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which: LEB Slide Set 14 7

Cartels 2 (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. Any agreements or decisions prohibited pursuant to this Article shall be automatically void. LEB Slide Set 14 8

Exemptions from Cartel Rule Application The provisions of paragraph 1 may, however, be declared inapplicable in the case of an arrangement of or between undertakings –which contributes to improving the production or distribution of goods or to promoting technical or –economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. LEB Slide Set 14 9

10 Cartels 3 Procedural issues –EU: Commission – court of first instance –Finland: Competiton Authority – Market Court –Sanction fee (max 10 % of the turnover) Exemption for aiding the investigation of a restriction of competition (Finnish Competition Act) –Invalidity of the contract (term) and / or damages in a (general) national court –A legal commitment accepted by the Competition Authority (sect.10 Competition Act)

Abuse of a Dominant Position 1 Art. 101 Treaty on the Functioning of the EU Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may –affect trade between Member States. Such abuse may, in particular, consist in: –(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; –(b) limiting production, markets or technical development to the prejudice of consumers; (cont.) LEB Slide Set 14 11

Abuse of a Dominant Position 2 –(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; –(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. Definition: an undertaking can to a remarkable degree behave on the market independently of competitors, clients and consumers (formulation of the EU court) –No monopoly needed; the required market share varies Nb. definition of relevant markets (product / geographic) –Replaceableness of products, elasticity LEB Slide Set 14 12

LEB Slide Set The Basic Positions of Competition Law 1. Art Art. 102 A A B B A A AB C 3. Control of concentrations between undertakings

LEB Slide Set Control of Concentrations between Undertakings 1 Application –mergers –joint ventures –acquisitions: share deal (acquisition of corporate control / asset deal (acquisition of business) EU: Regulation 4064/89 (old merger regulation); Regulation of the Council (EU) 139/2004 on control of concentrations between undertakings ('EU merger regulation) Finland: Ch. 4 Competition Act

LEB Slide Set Control of Concentrations between Undertakings 2 Conditions of EU (Commission) intervention : EU: Community dimension / trade criterion: the exclusive authority of the Commission  Total global turnover more than 5 B€ and the turnover of two parties in EU territory 250 M€, and  The minimum turnover volume of each undertaking and the distribution of their turnover in EU member states are fulfilled  Otherwise the case can be brought to the authority with the most efficient means to examine the case (e.g. Kesko / Tuko case)

LEB Slide Set Control of Concentrations between undertakings 3 Sanctions: –Duty of notification to the Commission –Ban / conditions imposed by the Commission if a dominant position is created or strengthened The Finnish Competition Act:  total turnover more than 350 M€ and  the turnover of at least two parties in Finland more than 20 M€  certificate of non-intervention

LEB Slide Set The Application of Competition Law 1

LEB Slide Set The Application of Competition Law 2

LEB Slide Set The Application of Competition Law 3 1) 1983/83 exclusive sales agreements 1984/83 exclusive purchase agreements 417/85 specialization agreements 418/85 research and development (R&D) agreements 240/96 transfer of technology agreements 2349/84 patent licence agreements 556/89 know-how licence agreements 2) 4087/88 franchising agreements

LEB Slide Set The Application of Competition Law 4 The former block exemption regulations replaced with : Commission Regulation 2790/1999 (vertical agreements and concerted practices) Commission Regulation 2658/2000 (specialization agreements) Commission Regulation 2659/2000 (research and development agreements) Etc.