Prohibition of Anticompetitive Agreements Jūratė Šovienė Council Member
Summary Introduction Competition like a social good Prohibition of anticompetitive agreements main notions types of anticompetitive agreements exemptions liability leniency enforcement Jūratė Šovienė. Prohibition of anticompetitive agreements 2
Competition like a social good Jūratė Šovienė. Prohibition of anticompetitive agreements 3
Why competition? Lower prices Better products Choice Efficiency Innovations New technologies Economic growth Competitiveness Jūratė Šovienė. Prohibition of anticompetitive agreements 4
Competition benefits Consumers Business Society Jūratė Šovienė. Prohibition of anticompetitive agreements 5
Benefits of competition: EU aviation market Until the 1990s EU reforms heavily regulated State Aid lessening dominated by national flag carriers any airline - any route bilateral agreements between MS fare discussions were no longer bilateral http://www.oft.gov.uk/ Jūratė Šovienė. Prohibition of anticompetitive agreements 6
Benefits of competition: EU aviation market Between 1992 and 2002: lower prices: fell 66 % flight frequency: frequency increased by 78 % regional growth greater safety: accidents per revenue hour fell by around 50 % http://www.oft.gov.uk/ Jūratė Šovienė. Prohibition of anticompetitive agreements 7
Harm caused by competition restrictions EC Commission: the annual direct cost to consumers ranges from 13 to over 37 billion only for hard core cartels! Cartel overcharges*: 25% median 17-19% - domestic 30-33% - international *J.M. Connor, R.H. Lande. How High Do Cartels Raise Prices? Implicationsfor Reform of the Antitrust Sentencing Guidelines Jūratė Šovienė. Prohibition of anticompetitive agreements 8
Why competition restrictions? Competition is a risk: to win or to lose? A businessman is tempted not to compete but to collude Some interventions of government are likely to distort competitive markets, have a negative impact on market effectiveness. Jūratė Šovienė. Prohibition of anticompetitive agreements 9
. Why competition laws? Competition as a social good is protected by Treaty on the Functioning of the European Union 101-107 Articles (ex EU Treaty 81-87 Art.), by national competition laws, etc. Competition laws: limit the freedom of the market players to protect the process of competition prevent policy makers (government) from distorting markets Jūratė Šovienė. Prohibition of anticompetitive agreements 10
Competition laws Prohibit agreements restricting competition Prohibit abuse of dominant position in the market Control mergers which may reduce competition in a market, usually by creating or strengthening a dominant player Control state aid and other state (policy makers) activities restricting competition Jūratė Šovienė. Prohibition of anticompetitive agreements 11
The Sources of Competition Law The Sources of EU Competition Law: Treaty on the Functioning of the European Union 101-107 Articles (TFEU) (ex EU Treaty 81-87 Art.), EU Council Regulations EU Commission decisions, notices, guidelines, annual reports EU Judgments: General Court (ex Court of First Instance) Court of Justice of the European Union The Sources of National Competition Law (Lithuania): Constitution (Art. 46) Law on Competition Government resolutions Competition Council decisions, resolutions, guidelines National judgments: Vilnius Regional Administrative Court Supreme Administrative Court of Lithuania Courts of general competence (for private enforcement) Jūratė Šovienė. Prohibition of anticompetitive agreements 12
Prohibition of anticompetitive agreements Jūratė Šovienė. Prohibition of anticompetitive agreements 13
TFEU Article 101 1. 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 and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which: (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. 2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void. 3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of: - any agreement or category of agreements between undertakings, - any decision or category of decisions by associations of undertakings, - any concerted practice or category of concerted practices, 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. Jūratė Šovienė. Prohibition of anticompetitive agreements 14
Anticompetitive agreements Contractual relations between undertakings are an essential feature of a market economy. Relations between competing undertakings can be detrimental to the market, where competition is restricted. EC Competition law (TFEU 101 Art., ex 81 Art.) establishes: prohibition nullity exemptions of competition restrictive agreements. The goal of prohibition is to prevent any possibility of interaction between market players which restrict competition. Jūratė Šovienė. Prohibition of anticompetitive agreements 15
Competition < > the concept inherent in the provisions of the Treaty relating to competition that each economic operator must determine independently the policy which he intends to adopt on the common market including the choice of the persons and undertakings to which he makes offers or sells. < > this requirement of independence does not deprive economic operators of the right to adapt themselves intelligently to the existing and anticipated conduct of their competitors, it does however strictly preclude any direct or indirect contact between such operators, the object or effect whereof is either to influence the conduct on the market of an actual or potential competitor or to disclose to such a competitor the course of conduct which they themselves have decided to adopt or contemplate adopting on the market. (EUCJ Cases Suiker Unie, 40-48, 50, 54-56, 113, 114/73, par.173; Anic Partecipazioni, C-49/92 P, par. 116) Jūratė Šovienė. Prohibition of anticompetitive agreements 16
Elements of infringement (corpus delicti) at least two undertakings agreement (decision, concerted practice) object or effect the restriction of competition affect trade between Member States (relevant only for application of TEFU Art. 101) Jūratė Šovienė. Prohibition of anticompetitive agreements 17
Concept of undertaking (1) Every entity engaged in an economic activity, regardless of its legal status and the way in which it is financed (EUCJ Case 41/90 K.Hofner and F.Elser v. Macrotron GmbH, 1991, p.21) Economic activity is any activity consisting in offering goods and services on a given market (Commission v. Italy, 1987) Jūratė Šovienė. Prohibition of anticompetitive agreements 18
Concept of undertaking (2) Every entity:! Economic concept, not legal Legal form of the entity is irrelevant: All kinds of companies Persons: Self employed Liberal professions Exception: employees (Opinion of GA Jacobs, case C-67/96 Albany) Associations: Exception: trade/labor unions representing their members (employees) Public bodies: As regards the possible application of the competition rules of the Treaty, a distinction must be drawn between a situation where the State acts in the exercise of official authority and that where it carries on economic activities of an industrial or commercial nature by offering goods or services on the market (Case 118/85 Commission v Italy, p.7; Case C-343/95 Servizi ecologi porto di Genova, p.16). Jūratė Šovienė. Prohibition of anticompetitive agreements 19
Concept of undertaking (3) The following public or quasi-public bodies have, applying these criteria, been found to be undertakings: a German State-run employment agency, the European Broadcasting Union; independent customs agents in Italy; the association of public broadcasting institutions in Germany; a voluntary old-age pension scheme for agricultural workers in France; medical aid organizations providing ambulance services in Germany; the Spanish post office; public television broadcasting organizations; CISAC (International Association of Collecting Societies of Authors and Composers) Jūratė Šovienė. Prohibition of anticompetitive agreements 20
Single economic unite doctrine Two or more separate legal undertakings can be treated as one undertaking: if the undertakings form an economic unit within which the subsidiary has no real freedom to determine its course of action on the market, and if the agreements or practices are concerned merely with the internal allocation of tasks as between the undertakings (ECJ Case 15/75, Centrafarm v. Sterling Drug, p.1147) Agreements between two undertakings within a single economic unit are not caught by the prohibition of Article 101 (ECJ Case C-73/95 Viho Europe BV v. Commission) The parent company can be held liable for the infringement committed by its subsidiary if two conditions are fulfilled. The parent must, 1) have the power to exercise decisive influence over the subsidiary and must, 2) have actually exercised this power (ECJ Case 48, 49, 51-57/69 Dyestuffs, p. 125-146; ECJ AEG v. Commission, 1983) Jūratė Šovienė. Prohibition of anticompetitive agreements 21
Forms of co-operation caught agreements decisions by associations of undertakings concerted practices other? Jūratė Šovienė. Prohibition of anticompetitive agreements 22
The concept of agreement (1) Agreements of undertakings At least two independent undertakings, and Joint intention to conduct themselves in the market in the specific way Commission: An agreement exits if parties reach a consensus on a plan which limits or is likely to limit their commercial freedom by determining the lines of their mutual action or abstention from action in the market. (Polypropylene, 1986) form is irrelevant level of detail is irrelevant the subjective intent of the parties is irrelevant Jūratė Šovienė. Prohibition of anticompetitive agreements 23
The concept of agreement (2) Decisions by associations of undertakings The decision should have the object or effect of influencing the commercial behavior of the association s members. form is irrelevant level of detail is irrelevant the subjective intent is irrelevant Jūratė Šovienė. Prohibition of anticompetitive agreements 24
The concept of agreement (3) Concerted practice A form of co-ordination where undertakings, without concluding any sort of agreement or establishing a plan of action, knowingly substitute practical co-operation between them for the risks of competition. (ICI v. Commission, 1972) Elements: 1) some form of direct or indirect contact between undertakings; 2) subsequent parallel behavior in the market; 3) causality between two. (Commission v. Anic Partecipazioni, 1999) Jūratė Šovienė. Prohibition of anticompetitive agreements 25
The concept of agreement (4) Other forms of agreements : public declarations, e.g. on pricing intentions, profitability thresholds, sales figures, etc; boycotts; etc. Unilateral conduct: does not fall within the scope of prohibition BUT: some actions, which at the first glance may seem to be unilateral, may fall within the scope of prohibition. (VW Passat case, BMV Belgium SA case, etc.) Jūratė Šovienė. Prohibition of anticompetitive agreements 26
Types of agreements Horizontal agreements between competitors undertakings operating at the same economic level in respect of research, development, production, purchase, or sale of the same goods/services. Vertical agreements between undertakings operating at different economic levels in the chain of supply (research, development, production, purchase, or sale) of the same goods/services. Jūratė Šovienė. Prohibition of anticompetitive agreements 27
Types of agreements Agreements restricting competition by object: Restrictions which by their very nature constitute a restriction of competition (EUCJ Case 19/77 Miller International Schallplatten v. Commission) Determination is dependant not on the subjective intent of the parties but on its terms, the legal and economic context in which it was concluded and the conduct of the parties (EUCJ Case 96-102, 104, 105, 108 and 110/82 NV IAZ International Belgium and others v. Commission, par.23-25) Agreements restricting competition by effect: if an agreement does not restrict competition by object the consequences of the agreement should then be considered (EUCJ Case 56/65 Societe Technique Minieri v. Maschinenbau) Jūratė Šovienė. Prohibition of anticompetitive agreements 28
Horizontal anticompetitive agreements Agreements between competitors are typically anticompetitive People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. Adam Smith. The Wealth of Nations, 1776 Some types of horizontal agreements may be pro competitive R&D agreements specialization agreements purchasing agreements commercialization agreements agreements on standards environmental agreements Jūratė Šovienė. Prohibition of anticompetitive agreements 29
Cartels (1) Cartels competition restrictions by object (per se): price fixing establishment of output restriction or quotas, limitation of investments market sharing Jūratė Šovienė. Prohibition of anticompetitive agreements 30
Cartels (2) Price fixing: amount of a price increase amount of rebates common selling prices target prices recommended prices agreement on an element of the price alleged fair trade practices on prices etc. Jūratė Šovienė. Prohibition of anticompetitive agreements 31
Cartels (3) Establishment of output restriction or quotas, limitation of investments: agreement to curtail production; agreement to share quotas; agreement on delivery quotas in the certain market; agreement, that the establishment of new investments must be subject to prior approval of all the parties (competitors); etc. Jūratė Šovienė. Prohibition of anticompetitive agreements 32
Cartels (4) Market sharing: by allocating customers: the form of respecting other parties customers; by allocating territories: respect for home market rule, by allocating lines of commerce: refrain from producing/selling certain products in favour of the other party. Jūratė Šovienė. Prohibition of anticompetitive agreements 33
Cartels (5) Collusive tenders (Rigged bids): exchanges of information prior to tendering procedures; concerted actions on price tenders; concerted actions on participation in tenders; designation of the winners/losers; etc. Jūratė Šovienė. Prohibition of anticompetitive agreements 34
Other horizontal anticompetitive agreements Discrimination: Collective boycotts Non-objective differences (prices, delivery) to similar transactions Tying Exchange of information: Etc. about prices, production and development costs, market shares, etc. Jūratė Šovienė. Prohibition of anticompetitive agreements 35
Vertical agreements restricting competition Generally pro competitive, except where one or both parties have market power (more than 30%). The following types of agreements may require investigation: Exclusive distribution agreements Exclusive purchasing agreements Franchising agreements Selective distribution agreements The following types of agreements restrict competition by object: Resale price maintenance Parallel trade impediment Jūratė Šovienė. Prohibition of anticompetitive agreements 36
Resale price maintenance price fixing clauses indirect practices intended to push distributor/ supplier to respect a fixed price level recommended or maximum prices if they amount to a concerted practice aimed at fixing prices etc. Jūratė Šovienė. Prohibition of anticompetitive agreements 37
Parallel trade impediment absolute territorial protection prevention of exports prevention re-exports etc. Jūratė Šovienė. Prohibition of anticompetitive agreements 38
Exemption (TFEU Art. 101.3) The provisions of the above mentioned, however, be declared inapplicable in the case of: agreement, decision and concerted practice of undertakings or associations of the same, (a) which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while (b) allowing consumers a fair share of the resulting benefit, and which does not: (c) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (d) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. Jūratė Šovienė. Prohibition of anticompetitive agreements 39
Burden and standard of proof Burden: For the infringement on the person or authority alleging the infringement. For the exemption on the undertaking claiming the benefit of the exemption. Standard: Balance of probabilities superior evidentiary weight that, thought not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other (Black s law Dictionary, 1999, p.1201) ECJ: evidence produced by the Commission must be sufficiently precise and coherent to prove the infringement (Judgment of 28/03/1984, CRAM / Commission, p.20) Jūratė Šovienė. Prohibition of anticompetitive agreements 40
Consequences of the competition law infringements penalties up to 10% of gross annual income invalidity of agreements procedural costs disruption of business loss of reputation sanctions on individuals disqualification of public procurement tenders civil damage actions Jūratė Šovienė. Prohibition of anticompetitive agreements 41
Leniency program Leniency immunity/amnesty from fines to the first undertaking who self reports a cartel prior to the official investigation. for the second, third, etc. partial immunity. Leniency programs use the natural instability of a cartel: illegal agreement secret agreement distrust The importance of Leniency programs: facilitate proving cartels preventive effect save resources Jūratė Šovienė. Prohibition of anticompetitive agreements 42
Enforcement of competition laws Public enforcement: National competition laws and EU competition laws (TFEU Art. 101-102) are applied by: National competition authorities National review court of first instance National court of appeal EU competition laws (TFEU Art. 101-102) are applied by : European Commission European Court of First Instance Court of Justice of European Union Private enforcement: by any person (citizen or business) who suffers harm as a result of a breach of antitrust rules National review court of first instance National court of appeal Jūratė Šovienė. Prohibition of anticompetitive agreements 43
Public enforcement Lithuania: Case handling procedure Complaint/ ex officio/leniency. Decision to start the investigation, Decision to make a search (court order required) Case handlers investigate the case + Lawyer Statement of Objections + Legal conclusions Reply to Statement of Objections Oral Hearing - FINAL DECISION of the CC Vilnius Administrative Court The Supreme Administrative Court Jūratė Šovienė. Prohibition of anticompetitive agreements 44
Lithuania: Judicial System For private enforcement: Courts of general jurisdiction Vilnius Regional Court The Court of Appeals The Supreme Court civil cases: hear damages actions for breach of the EC and national antitrust rules For public enforcement: Special administrative courts Vilnius Regional Administrative Court The Supreme Administrative Court administrative cases: hear complaints against CC decisions (to terminate an investigation, to apply commitments, to impose fines, etc.), CC failure to perform duties. Jūratė Šovienė. Prohibition of anticompetitive agreements 45
Public enforcement. Hearing of competition cases: some peculiarities the lodging of a complaint against the decision of CC shall not suspend the implementation of the decision, unless the Vilnius Regional Administration Court decides otherwise control of legality of the CC final decision active role of judge principle of expeditiousness Jūratė Šovienė. Prohibition of anticompetitive agreements 46
Thank you for your attention! The views expressed are purely those of the author and may not in any circumstances be regarded as stating an official position of the Competition Council or any other institution. Jūratė Šovienė Council Member Competition Council of the Republic of Lithuania Vienuolio g. 8, LT-01104 Vilnius, Lithuania http://www.konkuren.lt/ tel.: + 370 5 212 65 89 fax: + 370 5 212 64 92 e-mail: jurate@konkuren.lt Jūratė Šovienė. Prohibition of anticompetitive agreements 47