UNFAIR COMPETITION LAWS Satu Pitkänen

EU COMPETITION LAW EU Treaty Art 101 (former Art 81): Controls the activities between parties affecting trade between the Member States through restricting or distorting competition Art 102 (former Art 82): Prohibition of abuse by one or more undertakings of a dominant position Reg. 139/2004 Merger control Art 107: Prohibition of state aids granted to undertakings

? Companies X and Y are manufacturers of tyres for the wheels of road vehicles. They agree on a price scheme for their products. Your comments?

AGREEMENTS RESTRICTING OR DISTORTING COMPETITION ART 101(1): “The following shall be prohibited... all agreements between undertakings, decisions... and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market...” Case law: Consten/Grundig (Cases 56 & 58/64), Bayer/GB ([1976]1 CMLR D98)

or concerted practices SCOPE OF ART. 101 UNDERTAKINGS Independent firms undertake => Caught by ART 101 ACTIVITIES agreements, decisions or concerted practices + TRADE KRITERIA which may affect trade between EU states + and COMPETITION CRITERIA affect competition and + GEOCRAPHIC CRITERIA have influence within the EU

INTERPRETATION 1. Undertakings Independent companies and individuals => Not included Agents and principals Parent companies and their subsidiaries ACTIVITIES + TRADE CRITERIA + COMPETITION CRITERIA + GEOGRAPHIC CRITERIA

Agreements, decisions Horizontal agreements Vertical agreements UNDERTAKINGS Agreements, decisions Horizontal agreements Vertical agreements Also “gentlemen’s agreements” Agreements may be literal or verbal, even implied Unilateral decisions, promises, recommendations ACTIVITIES + TRADE CRITERIA + COMPETITION CRITERIA + GEOGRAPHIC CRITERIA

Agreements likely to breach Art. 101(1) Price fixing Fixing other trading conditions Sharing markets or sources of supply Applying dissimilar conditions of equivalent transactions with other trading parties Making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which have no connection with the subject of such contracts

Parallel behaviour Normal parallel market behaviour is acceptable UNDERTAKINGS Parallel behaviour Normal parallel market behaviour is acceptable E.g. on oligopolistic market the companies must respond to market conditions due to Price changes in raw materials Changes in their competitor’s prices Concerted practices Parallel behaviour without an acceptable reason, ‘conscious parallelism’: Cooperation between undertakings without an explicit agreement or a concerted plan It is enough that each party should have informed the other of the attitude they intended to take so that each could regulate his conduct safe in the knowledge that his competitors would act in the same way ACTIVITIES + TRADE CRITERIA + COMPETITION CRITERIA + GEOGRAPHIC CRITERIA

E.g. Obvious conscious parallelism: UNDERTAKINGS E.g. Obvious conscious parallelism: Participation in a meeting …dealing with the fixing of price and sales-volume targets …during which information is exchanged between competitors about the prices which they intend to charge, their profitability thresholds, the sales volumes they judge to be necessary or their sales figures => The participant undertakings could not fail to take account of the information thus disclosed in determining their conduct on the market ACTIVITIES + TRADE CRITERIA + COMPETITION CRITERIA + GEOGRAPHIC CRITERIA

APPLICATION CRITERIA 1. Trade criteria 2. Competition criteria UNDERTAKINGS APPLICATION CRITERIA 1. Trade criteria May affect trade between the Member States 2. Competition criteria Restricting or distorting competition is 1) the object of the activity or 2) the effect of the activity If the object is anti-competitive, it is not necessary to show that the effect is restrictive ACTIVITIES + TRADE CRITERIA + COMPETITION CRITERIA + GEOGRAPHIC CRITERIA

3. Geographic criteria Effects theory: UNDERTAKINGS ACTIVITIES 3. Geographic criteria Effects theory: EU has authority over anti-competitive measures implemented in the EU Anti-competitive measures of EU companies outside the EU are not caught by EC Law + TRADE CRITERIA + COMPETITION CRITERIA + GEOGRAPHIC CRITERIA

DE MINIMIS DOCTRINE Agreements having minimal effect do not fall within Art. 101 If the aggregate share of the parties to an agreement between competitors does not exceed 10% of the relevant markets, or If in the case of an agreement between non-competitors, the parties’ market share doesn’t exceed 15 % of the relevant markets However, if more than 30% of the relevant market is covered by parallel agreements, then the market share of the parties to one such agreement must not exceed 5 % UNLESS the agreement contains clauses which amount to price fixing, limiting on productions or sales, and territorial restrictions => they are always prohibited

Modified from: Joutsamo, Aalto, Kaila, Maunu 1996, 625 EXCEMPTIONS ART. 101(3) Improvements in production or distribution of goods CONSUMER BENEFITS or + Promoting technical or economic progress RESTRICTIONS ARE INDISPENSABLE + COMPETITION IS NOT ENTIRELY ELIMINATED EXCEMPTED FROM ART. 101(1) Modified from: Joutsamo, Aalto, Kaila, Maunu 1996, 625

BLOCK EXEMPTIONS Issued by the Commission in the form of regulations Exclude a generic type of agreement from the ambit of Art. 101(1) Normally automatically In some cases opposing procedure: approved if not opposed by Commission within 6mths Motive Streamlining the service to customers, sharing risk, saving costs, pooling know-how, facilitating the launch of innovative products, promoting competition on an international scale

Mechanism of block exemptions Application based on a market share test Vertical agreements: 30% Horizontal agreements: 20-25% Not excempted: Non-compete clauses in excess of 5 years ‘Hard-core restrictions’ Minimum and fixed resale price maintenance Restrictions on active or passive selling by members of a selective distribution network Agreements on output limitation Territorial allocation

Examples of block exemptions Vertical agreements (exclusive distribution, exclusive purchasing, franchising) Vertical agreements in the motor vehicle sector Specialisation agreements Research and development Technology transfer agreements

CONSEQUENCES IF AGREEMENT IS WITHIN ART. 101(1) An agreement Which is caught by Art. 101(1) and Not within a block exemption Does not satisfy the conditions of Art. 101(3) will be AUTOMATICALLY VOID

ABUSE OF A DOMINANT POSITION ART. 102: Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States Case law: United Brands (case 27/76)

ABUSE OF A DOMINANT POSITION ART. 102 PRODUCT MARKET + GEOGRAPHIC MARKET DOMINANT POSITION TEMPORAL MARKET + = TRADE CRITERIA ? = + Case United Brands ABUSE PROHIBITED BY ART. 102 Modified from: Joutsamo, Aalto, Kaila, Maunu 1996, 656

1. Product market criteria Interchangeability Cross elasticity of demand / supply 2. Geographic market criteria Substantial part of common market Transport costs, potential customers Consumer’s willingness to travel in search for substitutes 3. Temporal market criteria Significance of a particular time of the year 4. Trade criteria Affects trade between the Member States

DOMINANCE Undertakings are in a dominant position when they have the power to behave independently without taking into account, to any substantial extent, their competitors, purchasers and suppliers (The Commission in case United Brands) Relevant factors: Relative market share Brand loyalty Superior technology Economies of scale Access to raw materials and outlets Barriers to entry Legal provisions

ABUSE Imposing unfair purchase or selling prices Imposing unfair trading conditions Tying in 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 Discriminatory treatment Refusal to supply Limiting production, markets, technical development to the prejudice of consumers Predatory pricing Exclusive reservation of activities Import and export bans

ENFORCEMENT OF ART. 101 AND 102 European Competition Network Comprises all the national competition authorities and the Commission Aims at consistency in the application of EC competition rules Cooperate and exchange information Role of the Commission: Watchdog Overrides national authorities May take over, duty to consult Parallel investigations are avoided Duty to cooperate with national courts May undertake “Dawn raids” Companies may seek informal guidance from the Commission

The Commission may investigate companies Suspected of Abusing a dominant position or Engaging in a conspiracy to restrict free trade On its own initiative or On request of Member States On request of juridical or natural persons with legal standing Undertakings Must comply with the requests for information Must admit Commission officials to their premises Applied the presumption of innocence Confidentiality must be guaranteed Commission may ask a national competition authority to carry out an inspection on its behalf

Enforcement of competition provisions If an act is caught by Art. 101(1) It is prohibited without the need of a prior decision unless it Satisfies the conditions of Art. 101(3) or Falls within a block exemption If an act is within the scope of Art. 102 It is prohibited The Commission may Order termination of the infringement Impose penalties 10% of the sum of the undertaking’s total turnover in the preceding business year Leniency reductions A company which provides evidence of a cartel to enable the Commission to pursue the case, can receive immunity or reduction from fines

CONCENTRATION Regulation 139/2004 Merger of two or more previously independent undertakings, or Acquisition of one or more persons already controlling at least one undertaking, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more undertakings Control means: Decisive influence on the composition, voting or decisions of the organs of an undertaking

Concentration has community dimension: If a) The combined aggregate world-wide turnover of all the undertakings concerned is more than € 5,000 million, and b) the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than € 250 million, unless each of the undertakings concerned earn more than 2/3 of its aggregate Community-wide turnover within a single Member State In certain cases the concentration has Community dimension on lower conditions

Control of concentrations The Commission has a duty to require information and investigate suspected infringements of the competition provisions Companies must make a notification to the Commission before measures potentially leading to concentration (fines up to 10% of the turnover) The Member State is allowed to request that the Commission take action The general principle: One-stop merger control => either the Commission or national authorities

Enforcement of Regulation 139/2004 The Commission or national authorities declare the concentration incompatible with the common market If it as a result of the creation or strengthening of a dominant position Significantly impedes competition in common market or in a substantial part of it The company may appeal to the ECJ or to a national court

US COMPETITION LAW Sherman Antitrust Act forbids Contracts, agreements and conspiracies that restrain interstate or international trade E.g. Price fixing, market division, joint refusals to deal Monopolies and attempts to monopolize commerce or trade either between the states of the U.S. or in international commerce affecting the U.S. E.g. discriminatory pricing, dumping, tying clauses