Understanding EU Competition Law: Article 101 and Agreement Restrictions, Lecture notes of Competition Law and Policy

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Dawn raids and cartel busting Cristina de Jonge 9 July 2018 2 The purpose of competition law  Enhancing consumer welfare  Ensuring an efficient allocation of resources  Protecting the interests of consumers, by taking direct action against offending undertakings (e.g. requiring dominant firms to reduce their prices)  Promoting economic equity rather than economic efficiency by protecting small undertakings against more powerful rivals (small undertakings should be given a fair chance to succeed)  Achieving single market integration (by EU competition law) Applicability of the EU Relevant Legislation  Regulations  General applicability  Fully binding  Direct applicability  Full (both horizontal and vertical) direct effect (usually)  Decisions  Individual applicability (usually)  Fully binding  Direct enforceability  Direct effect (only vertical – C-156/91 Hansa Fleisch [1992], para 13- 15) 5 Applicability of the EU Relevant Legislation  Guidelines and notices  Not mandatory  Must be taken into consideration by national courts  The guidelines and notices indicate the Commission’s view on various matters  However, in certain circumstances, the general guidelines and notices may produce legal effects:  In adopting such rules of conduct and announcing by publishing them that they will henceforth apply to the cases to which they relate, the institution in question imposes a limit on the exercise of its discretion and cannot depart from those rules under pain of being found, where appropriate, to be in breach of the general principles of law, such as equal treatment or the protection of legitimate expectations. It cannot therefore be precluded that, on certain conditions and depending on their content, such rules of conduct, which are of general application, may produce legal effects (Joined Cases C-189/02 Dansk Rørindustri [2005], para 211) 6 The Structure of Competition Law  Main policy areas:  Antitrust The following are prohibited:  Agreements between two or more undertakings which restrict, by object or effect, the competition (article 101 of TFEU) e.g. cartels  Abuse of dominant position (article 102 of TFEU)  Mergers Mergers are examined in order to determine the extent to which they restrict effective competition in the EU  Articles 103 and 352 of TFEU  Merger Regulation  State Aid Government interventions are controlled so that they do not interfere with the smooth functioning of the internal market or harm the competitiveness of EU companies  Articles 103 – 109 of TFEU 7 Relations between EU and National Competition Law  Parallel application  a national authority or court must not take a decision which runs counter to the decision taken by the Commission  where a national court applies national competition law to agreements, decisions or practices which may affect trade between Member States, they also have to apply Community competition rules  it is the Community concepts which the national competition authority or national court must overlay upon its national law 10 Relations between EU and National Competition Law  Convergence rule  Where an agreement may affect trade between Member States, the application by a national authority of the national competition law must not operate to prohibit an agreement:  If it does not restrict competition within the meaning of Article 101 (1) of TFEU  If it fulfils the conditions of Article 101 (3) of TFEU or  If it is covered by a block exemption  Where an agreement has no effect on trade between Member States, the convergence rule is not engaged and there is no restriction on the application of the national competition law 11 Relations between EU and National Competition Law  Cooperation  The Commission has a ‘duty of sincere co-operation’ with the national court (Case C-2/88 Zwartveld [1990], para 10)  Equally, national courts may be obliged to assist the Commission in the fulfilment of its tasks and to avoid adopting measures that could jeopardise the Commission’s function 12 Relevant institutions in competition related matters  Institutions tasked with applying Romanian competition law  Competition Council  National Courts 15 Article 101 (1) TFEU – Prohibition of cartels 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: 16 Article 101 (1) TFEU – Prohibition of cartels  directly or indirectly fix purchase or selling prices or any other trading conditions  limit or control production, markets, technical development, or investment  share markets or sources of supply  apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage  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 17 Concept of undertaking  A corporate group can be treated as a single undertaking for the purpose of the competition law? 20 YES - the conduct of a subsidiary may be imputed to the parent company in particular where, although having separate legal personality, that subsidiary does not decide independently upon its own conduct on the market, but carries out, in all material respects, the instructions given to it by the parent company (Case C-97/08 P Akzo Nobel NV and Others v Commission [2009]) Concept of undertaking 21  Is the State or a State entity undertaking for the purposes of the competition rules? YES - The power of the State which is exercised in the political sphere is subject to democratic control. But there is no justification, when the State is acting as an economic operator, for relieving its actions of all control. (Case C- 205/03 P FENIN v Commission, Opinion of Advocate General Poiares Maduro) Concept of undertaking  Scenario  Public corporation governed by French law, but financially autonomous  Responsible under the French Civil Aviation Code for the Paris airports (Aéroports de Paris – ADP)  ADP grants concessions to two airline catering providers, allowing them to occupy premises on land within the airport perimeter and to use the airport’s facilities as necessary to provide their catering services to airlines using the airport  Catering companies pay the following fees:  A fixed amount for the use of the land  A commercial fee computed as a proportion of the turnover of their business  Is the aforementioned French public corporation an ‘undertaking’? 22 Concepts of agreement, decision and concerted practice  Agreements  The concept ‘agreements’ in Article 101 (1) of TFEU is not confined to legally binding contracts  An ‘agreement’ shall be deemed to exist if the undertakings in question have expressed their joint intention to conduct themselves on the market in a specific way  The agreement may be written or oral, may be inferred from all the circumstances, and can consist in the continuing business relationship between the parties  Action taken by an undertaking without any agreement or concert with another undertaking does not infringe Article 101 (1) of TFEU 25 Concepts of agreement, decision and concerted practice  A ‘gentlemen’s agreement’ is an ‘agreement’? 26 YES - A ‘gentlemen’s agreement’, as the expression of a morally binding commitment, is an ‘agreement’ within the meaning of Article 101 (1) of TFEU (Case T-53/03 BPB plc v Commission [2008]) Concepts of agreement, decision and concerted practice  Decision by associations of undertakings  The concept of ‘association’ within Article 101 (1) of TFEU is not limited to any particular type of association  The concept of ‘decision’ includes the rules and regulations of the association in question, decisions binding upon members and recommendations, or codes of conduct or anything which accurately reflects the association’s desire to coordinate its members’ conduct in accordance with its statutes  An act of an association can be regarded as a decision even if it is not binding on the members, at least if the members comply with it 27 Types of agreements  Horizontal Agreement = an agreement between undertakings at the same level of supply, usually an agreement between competitors 30 P1 P2 P3 H H HH D1 D3D2 Types of agreements  Examples of horizontal agreements:  Market allocation  Customer allocation  Price fixing  Output restrictions  Information exchange  Covenants not to compete  Joint ventures and  Other forms of co-operations between undertakings 31 Types of agreements  Vertical agreement = an agreement or concerted practice entered into between two or more undertakings that meets two conditions (Commission Regulation No. 330/2010, article 1 (a)):  Each undertaking operates at a different level of the production or distribution chain for the purposes of the agreement and  The agreement relates to the conditions under which the parties may purchase, sell or resell certain goods or services 32 P1 D1 D2 FC V V V Restriction of competition  Prevention, restriction or distortion of competition  by object OR  by effect  The objective assigned to Article 101 (1) of TFEU is to prevent undertakings, by restricting competition between themselves or with third parties, from reducing the welfare of the final consumer (Case T-168/01 GlaxoSmithKline Services Unlimited v Commission [2006])  It is irrelevant if the envisaged plan was put into action  It does not matter if the action had the desired effect  The mere intention to distort competition can trigger prosecution and ultimately fines 35 Restriction of competition by object  Two stage examination: it is appropriate to consider first ‘the object’ of the agreement before considering its ‘effects’  The ‘object’ of the agreement is to be found by an objective assessment of the aims of the agreement in question, being unnecessary to investigate the parties’ subjective intentions  Article 101 (1) of TFEU may apply even if an agreement was never put into effect, if the respective agreement clearly has the object of restricting competition and potentially affects the trade between Member States 36 Restriction of competition by object  ‘Hard-core’ restrictions: objects restrictive per se  Restrictions of competition which are seen as being particularly serious and normally do not produce any beneficial effects  […] there is no need to take account of the concrete effects of an agreement once it appears that it has as its object the prevention, restriction or distortion of competition within the common market (Case T-395/94 Atlantic Container Line v Commission [2002])  Examples of hardcore horizontal restrictions / cartels:  fixing purchase or selling prices or any other trading conditions  allocating markets or customers  restricting output or sales for maintaining prices 37 Restriction by effect  Appreciable effect on competition  An agreement shall fall outside Article 101 (1) of TFEU if it is not capable of having an appreciable effect either on competition or on trade between Member States – also know as the de minimis principle  When assessing the ‘appreciable’ effect on competition, the following might be considered:  Market shares / power  Market structure  Parallel networks of agreements  Nature of the project  Trade restrained 40 How can cartels be identified ?  Talks between competitors at social occasions (e.g. business lunch, golf, sauna)  Official meetings of trade / industry associations  Written agreement on production quotas, allocation of demand, non-competition clauses, common price-list for their products  Creation of a joint venture for distribution and co- ordination of production  … 41 How can cartels be identified? Scenario 1:  The managers of 8 bananas suppliers engaged in bilateral discussions on the phone every Wednesday about the factors relevant for setting the quotation prices for the upcoming week and/or their views about price trends and/or indications of quotation prices for the up-coming week for the Northern European region.  Actual prices were dependent on quotation prices  There was certain interdependence among quotation prices of 3 of the bananas suppliers 42 Is this a cartel? YES - Such conduct lead to coordination of their quotation prices (Case COMP/39188 – Bananas, Commission Decision of 15.10.2008) How can cartels be identified? 45 Scenario 3:  You are the sales manager of a manufacturer of cosmetic products. During the trade association’s meeting the new benchmarking study is discussed. It is agreed that each manufacturer of cosmetic products shall provide to the secretary of the trade association, which is independent of any of the trade association’s members, detailed information about (a) the number and structure of its sales force, (b) its financial management (methods of collection of outstanding accounts, number of outstanding bills), (c) terms of payment and (d) logistic costs, which each manufacturer has agreed with the five main customers. The results are circulated on an individualised and anonymous basis. Was a cartel infringing competition law constituted between the trade association’s members? How can cartels be identified? NO:  Item (a) concerns a non price-related parameter of competition. The question to be asked is whether this information is suitable for reducing uncertainty about the market behaviour of competitors. Here, well justifiable that this is unlikely since data are not relevant for competitive strategy.  Information partly concerns cost structure (items b, c, d), although only indirectly. The question to be asked is does the information constitute a major part of the costs as a whole. Well justifiable that this is not the case here. 46 How can cartels be identified? 47 Scenario 4:  Following dawn raids to 4 competitors activating in a certain services sector, the competition authority takes over as evidence:  Email sent by the general manager of Competitor 1 to its employees about plan of exchange of the contracts with the customers from 3 regions with the contracts from other 3 regions concluded by Competitor 2  Emails of Competitor 2 towards its employees about similar plan regarding the contracts concluded by Competitor 1, Competitor 2 and Competitor 4, in view of meeting to take place at Competitor 1  Not signed handwritten note of the general manager of the Competitor 2, which was also president of the trade association, regarding prices for supply of services to be applied in the future, elimination of small undertakings from the market, allocation of the capital market on districts  All competitors reduced their activity in the regions to be exchanged  Competitor 1 fully exited just from one region  The prices for services of all the competitors have shortly increased reaching similar levels around the value in the handwritten note „Hub and Spoke” Cartel  Example of “Hub and Spoke” Cartel 50 PROHIBITED: Disclosure of (sensitive) information of a retailer to another retailer! Supplier Legal exceptions: authorisation of horizontal agreements  Exemptions are possible under certain circumstances:  block exemption regulations – NOT applicable to cartels / hardcore restrictions, but to certain cooperation agreements  self-assessment by undertakings, in case the agreement is not covered by block exemption regulations, but all the requirements under Article 101 (3) TFEU are met and the pro-competitive effects outweigh the anti-competitive effects  Requirements under Article 101 (3) TFEU:  Contribution to improving the production / distribution or to promoting technical / economic progress (efficiency gains)  Allowing consumers a fair share of the resulting benefits  Restriction(s) must be indispensable to the attainment of these objectives  No possibility of eliminating competition in respect of a substantial part of the products in question 51 Legal exceptions: authorisation of horizontal agreements  ‘De minimis’ principle (1)  Commission Notice on agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the Treaty on the Functioning of the European Union (De Minimis Notice) (2014/C 291/01)  Agreements do not appreciably restrict competition if the aggregate market share held by the parties to the agreement does not exceed:  10% on any of the relevant markets – in case of agreements between undertakings which are actual or potential competitors  15% on any of the relevant markets – in case of agreements between non- competitors  10% on any of the relevant markets – in cases where it is difficult to classify the agreement as being between competitors or non-competitors  5% on any of the relevant markets – in case of cumulative foreclosure effect of parallel networks of agreements having similar effects on the market 52 Inspections / dawn raids in the European Union  Which are the relevant jurisdictions and enforcement bodies?  Two levels of jurisdiction  By the European Commission  Enforcement of European competition law  By national (competition) authorities  Enforcement of European and/or national competition law  General convergence, but powers can still differ. Need to consider both levels 55 Inspections / dawn raids in the European Union  Where can the Commission inspect?  Any premises, land and means of transport of undertakings:  Business premises in the broad sense  Within the limits of the inspection decision / order - the undertakings and addresses listed in the decision must be checked, but beware of the Minoan Lines exception (Case T-66/99 Minoan Lines v Commission [2003])  Other premises, land and means of transport, including the homes of directors, managers and other members of staff:  “If a reasonable suspicion exists that books or other records related to the business and to the subject-matter of the inspection, which may prove a serious violation of Article 81 or Article 82 are being kept [there]” (art. 21(1) of Regulation 1/2003) and  Subject to prior authorisation by a national judicial authority 56 Inspections / dawn raids in the European Union  What can the Commission inspect?  “The books and other records related to the business, irrespective of the medium on which they are stored” (art. 20(3,b) of Regulation 1/2003):  Includes confidential information  Any medium: printed documents, notebooks, diaries, electronic files, e-mails, deleted e-mails, unsent draft e-mails, …  Targeted search (key words)  Two limits:  Subject matter and purpose as stated in the inspection decision: documents must be relevant. The Commission decides whether this is the case  Legal professional privilege 57 Inspections / dawn raids in the European Union  What can the Commission ask?  “To ask any representative or member of staff (…) for explanations on facts or documents relating to the subject-matter and purpose of the inspection and to record the answers” (art. 20(2,e) of Regulation 1/2003)  Any representative/member of staff: not only representatives designated by the undertaking  Explanations on facts or documents:  No right to silence but  Privilege against self-incrimination: questions must not invite an admission of guilt  Typically: questions about meaning of documents (abbreviations, references) 60 Inspections / dawn raids in the European Union  What can the Commission ask? (2)  “May interview any natural or legal person who consents to be interviewed for the purpose of collecting information relating to the subject-matter of an investigation” (art. 19 of Regulation 1/2003)  Interview requires consent  On-the-spot questions during a dawn raid do not require consent (obligation to answer) but must be limited to “facts or documents relating to the subject-matter and purpose of the inspection”  A secretary might be asked:  Where particular types of files are kept  What languages are used in a particular office – so that the office can be raided by officials able to speak the appropriate language 61 Inspections / dawn raids in the European Union  The Commission:  Must consult the competent authority of the Member State in whose territory the inspection is to be carried out, before taking a decision to carry out an inspection (in case of inspections ordered by decision of the Commission)  Must give notice of the inspection to the competition authority in the Member State in whose territory the inspection is to be conducted in good time before the inspection is carried out (in case of inspections under authorisation)  Cannot, by decision, order an inspection of other premises, without prior authorisation from the national judicial authority of the Member State concerned 62 Sanctions  For cartels:  Automatic nullity of the anticompetitive agreements  Criminal sanctions for the management:  In Romania – prison from 6 months to 5 years or fine in case the management acted intentionally  Damages  Fines – usually very high  EU Fines  maximum 10% of total turnover in the preceding business year (Art. 23 of Regulation 1/2003)  Fines in Romania  from 0.5% to 10% of total turnover in the preceding business year (Art. 55 of the Competition Law 21/1996) 65 Sanctions – Latest highest fines 66 2017: EUR 68 Million – price fixing in the used battery sector by Campine, Eco-Bat Technologies, Recylex și Johnson Controls 2016: EUR 2.93 Billion – price fixing and trading conditions imposed to customers in the automotive sector by MAN, Volvo/Renault, Daimler, Iveco și DAF 2014: EUR 138 Million – collusion on the smartcard chips market by Infineon, Philips Samsung și Renesas (JV of Hitachi & Mitsubishi) 2012: EUR 1,47 Billion – price fixing on the TV screens market by Samsung, Philips, Panasonic 2016: EUR 6.32 Million – price and margin fixing by 41 companies activating on the doors and heating devices market (including Dedeman, Arabesque, Porta KMI, Ariston) 2015: EUR 33,4 Million – agreement not to compete and on behavior restrictions on the supply to retail market by Mega Image, Metro Cash&Carry, Real Hypermarket, Selgros and 21 suppliers 2013: EUR 12,2 Million – discounts fixing and fixing of trading conditions by 14 undertakings members ROREC and ECOTIC 2011: EUR 193,8 Million – cartel regarding elimination of the Eco Premium petrol form the Romanian market by OMV, MOL, Lukoil, Rompetrol and ENI UE Romania Sanctions  For providing incorrect, incomplete or misleading information or refusing to submit to inspection / dawn raids:  EU Fines  maximum 1% of the total turnover in the preceding business year (Art. 23 of Regulation 1/2003)  Fines in Romania  from 0.1% to 1% of the total turnover in the preceding business year (Art. 53 of the Competition Law 21/1996) 67