Competition law II.

Restriction of Competition Agreements are not prohibited unless they prevent, restrict, or distort competition. The agreement must affect the free play of competition to “an appreciable extent”. EU law is not concerned with agreements concluded between parties that hold a weak position on the market. Commission note on agreements of minor importance (2001). The notice uses market share thresholds to quantify what is not likely to be an appreciable restriction of competition. The market share held by the parties to the agreement must not exceed 10 per cent of the relevant market.

An appreciable effect on trade between member states The concept of trade is not limited to traditional exchange of goods and services across borders. It is a wider concept, covering all cross-border economic activity, including establishment. National cartels tend to reinforce compartmentalization and make it more difficult for undertakings from other member states to penetrate the market. In principle agreements are not capable of appreciably affecting trade between M.S. when the market share of the parties on any relevant market does not exceed 5 per cent and the annual EU turnover does not exceed 40 million Euro.

The application of Article The first criterion is that the agreement leads to an improvement in the production and the distribution of goods and services, as well as to a promotion of technical and economic progress. This first condition refers to efficiency gains, including cost and qualitative efficiencies. These efficiencies could be resulted from: 1) development of new production technologies and methods, 2) economies of scale and scope, 3) better production planning. Parties can not rely on broader public policy benefis achieved by the agreement. It is submitted that the Commission must evaluate an agreement under an economic point of view. Political considerations are non to be taken into account.

However, in the past the Court of Justice adopted a teleological interpretation, taking into account of certain “policy-linking” clauses, such as environmental protection, employment, culture, health, consumer protection, industrial policy and the elimination of regional disparities. The same attitude was adopted by the Commission. In its decision Ford/Volkswagen (1993), the Commission noted, in exempting the agreement, that the joint venture would lead to the creation of a number of jobs and substantial foreign investment in Portugal. It is estimated to lead, inter alia, to creation of about jobs and indirectly create up to another jobs, as well attracting other investment in the supply industry.

It therefore contributes to the promotion of the harmonious development of the EU and the reduction of the regional disparities which is one of the basic aims of the Treaty. The second criterion requires that the agreement allows consumers a fair share of the benefit. The parties must establish that there is a pass-on of the cost and quality efficiencies to final, or intermediate, consumer. Indeed, consumer is interpreted broadly to include not only final consumers but also intermediate consumers, including wholesalers and retailers, that purchase products in the course of their trade or business.

Where consumers are forced to pay a higher price without attaining other benefits from the agreement, this criterion will not be satisfied. As to the other benefits, one could designate the improvement in distribution and the offer of more qualitative products. The third criterion requires that the agreement must only contain restrictions which are indispensable to the achievement of the benefits shown to result from the agreement. This condition is an application of the general principle of proportionality. The Commission states that restrictions that are black listed in block exemptions regulations, such as the fixation of the prices, or the conferment of absolute territorial protection, violate this principle.

The forth criterion requires that the agreement must not lead to the elimination of competition. The Commission states that ultimately the protection of rivalry and the competitive process is given priority over potentially pro-competitive efficiency gains which could result from restrictive agreements. In other terms, when competition is eliminated the competitive process is brought to an end and short term efficiency gains are outweighed by longer-term losses stemming inter alia from expenditure incurred by the incumbent to maintain its position (rent seeking), misallocation of resources, reduced innovation and higher prices.

Enforcement of EU competition The Commission may take a number of decisions, including decisions ordering terminations of infringements, imposing fines, or accepting commitments. It can impose behavioural or structural remedies. The Commission pursues an increasingly aggressive policy towards the detection and punishment of cartels. It operates a “leniency policy” whereby participants in cartels are given immunity or a reduced penalty in exchange for providing the Commission with information about the cartel and their co-conspirators. The Commission imposes heavy fines on undertakings found to have committed serious breaches on the competition rules.

For each undertaking participating in the infringement, the fine shall not exceed 10 per cent of its total turnover in the preceding business year. The Commission takes into account a number of factors, such as the knowledge and intention of the parties, the nature and gravity of the infringement, the duration of the infringement, the degree of cooperation with the Commission, uncertainty about the illegality of the conduct concerned and the willingness of the infringer to accept undertakings to remedy the situation.

Commission decisions can be challenged before the Court in an action for annulment. The Court has unlimited jurisdiction in respect of fines imposed by the Commission in competition cases. Since 1989 actions in competition case have gone first to Court of First Instance with an appeal on a point of law to the ECJ. As the Commission is not a tribunal, the supervision by the Court must satisfy the requirement for a fair and public hearing before an independent and impartial tribunal if the competition proceedings are to comply with the European Convention of Human Rights.

The ECJ (2004) stated that “examination by the EU judicature of the complex economic assessments made by the Commission must necessarily be confined to verifying whether the rules on procedure and on the statements of reasons have been complied with, whether the facts have been accurately stated and whether there has been any manifest error of appraisal or misuse of power”. Review under Treaty entails ensuring that the Commission has properly interpreted the law. The great leaps forward which the Commission has made in the interpretation of the EU competition rules have usually been confirmed by the Court: for example, the finding that Article 101 applied equally to horizontal and vertical restraints, the extension of the abuse concept to cover mergers and the development of the doctrine of collective dominance. The Court is committed to interpreting the EU law in a way which gives effect to the objectives of the Treaties.