EU Competition Law - Competition Law - Lecture Slides, Slides of Competition Law and Policy

Download EU Competition Law - Competition Law - Lecture Slides and more Slides Competition Law and Policy in PDF only on Docsity! EU Competition Law Docsity.com Introduction to the European Union • Background information on EU institutions: • EU consists of 27 Member States • EU and three other countries are part of European Economic Area (EEA) • • EU competition law applies to all countries in the EEA Docsity.com In the news... Glass-Maker Fine Shatters Record | Four Car-Glass Makers Receive €1_4 Billion Fine The European Commission fined four car-glass makers approximately €1.4 billion for having allegedly formed a market-sharing cartel. One of the companies, Saint-Gobain, was fined €896 million, which breaks a previous penalty record. The case involved discussions between 1998 and 2003 by Saint-Gobain and two competitors regarding prices, shared markets and customers. An anonymous tip led to the investigation. Docsity.com Consequences of Non-Compliance • Non-compliance has serious consequences: • Fines up to 10% of annual worldwide turnover • Liability in damages under national law • Voiding of contract • Criminal liability • Substantial expenditure of time and money • Bad publicity • Investigations by other competition authorities Docsity.com Consequences of Non-Compliance (cont’d) • Non-compliance has serious consequences: • Fines up to 10% of annual worldwide turnover • Liability in damages under national law • Voiding of contract • Criminal liability • Substantial expenditure of time and money • Bad publicity • Investigations by other competition authorities Docsity.com Overview of EU Competition Law • Aspects of primary importance to business: • Article 101 TFEU makes illegal any agreement or concerted practice between undertakings that significantly restricts competition within EEA • Article 102 TFEU makes it illegal for dominant company to abuse its dominant position in market EU competition law deals with anti-competitive agreements between companies and unilateral conduct of individual companies with dominant position Docsity.com Overview of EU Competition Law (cont’d) • Aspects of primary importance to business: • Article 101 TFEU makes illegal any agreement or concerted practice between undertakings that significantly restricts competition within EEA • Article 102 TFEU makes it illegal for dominant company to abuse its dominant position in market EU competition law deals with anti-competitive agreements between companies and unilateral conduct of individual companies with dominant position Docsity.com Article 101 TFEU: Purpose and Rationale • Article 101 prohibits agreements that disrupt free- market principles and hinder competitiveness • • Article 101 promotes independent decision- making over - • Pricing • Whether to sell in one country or several Decisions should be based on desire to attract new customers and retain existing ones Agreements that restrict two or more companies’ commercial options are likely to violate Article 101 Docsity.com Consequences of Article 101 Violation • Anti-competitive agreement is legally void and unenforceable • • Consequences: • It can totally disrupt commercial relationships – e.g., where agreement is basis of core business functions • It can also attract substantial fines and lawsuits Docsity.com Recognising "Red Flags" • Competition law issues typically arise in these contexts: 1.Relationships with competitors 2.Relationships with customers 3.Relationships with licensees 4.Behavior of a dominant company 5.Internal filing and drafting documents Docsity.com Relationships with Competitors • Relationships with competitors pose highest risk • • Keep in mind: • Be aware of competition laws when speaking or dealing with a competitor • Meeting/talking with competitor may raise inference of agreement to restrain competition • Competitor contacts receive utmost scrutiny from authorities Inform the Legal Department of any contacts that you are planning to have with competitors Docsity.com Red Flag: Price-Fixing (cont’d) • Agreement between competitors on pricing is almost always illegal • • Price-fixing is prohibited in both horizontal and vertical relationships Agreement between competitors to set minimum prices is blatant price-fixing Indirect agreements may also be illegal, e.g. to – •Compare price lists before publication •Exchange detailed information on each other’s production costs •Agree on any other term of sale Docsity.com Pop Quiz! • Three companies dealing in lawn-mowers, a Belgian, Dutch and German company, agree that their customers will only be offered 15 days of credit instead of the normal 90 days of credit. Are these companies infringing on Article 101? A.Yes. B.No. Docsity.com Red Flag: Market-Sharing • Market-sharing: Agreement between competitors to divide up customers or geographical areas where they will not compete against each other • • Agreement to limit one competitor’s attempts to make sales is almost certain to be illegal Market-sharing in EU is particularly serious because it isolates geographical markets and hinders integration of EU countries into a single market Docsity.com Red Flag: Bid-Rigging • Bid-rigging: Agreement amongst competitors to collaborate over their response to invitations to tender • • Typically, colluding companies agree which company will win current tender • Next time there is a tender, another company will win, etc. Bid-rigging is a very serious cartel offense Docsity.com Red Flag: Information-Sharing • Competitors sometimes agree to exchange or share information • • Some information-sharing is legal and enhances competition Sharing confidential business information is serious violation, e.g. – •Information on prices, rebates and other price-related information •Production or distribution costs •Forecast capacity •Investment plans Content of information is decisive factor – not medium of exchange Docsity.com Pop Quiz! • The four members of the German trade organization for manufacturers of trucks agree to set up an information-exchange system to monitor sales of trucks in Germany and Austria. The trade organization designs a specific form to be filled out by manufacturers’ dealers every time the sale of a truck is registered. The dealer form contains information on the brand, the location of the dealer and the value of the sale. The trade organization compiles the information and provides it in a monthly report to the members. The information made available to the members identifies each individual member’s sales in different regions of Germany and Austria and provides a calculation of each member’s market share. • Is the behaviour of the truck manufacturers or trade association infringing Article 101? A. Only the truck manufacturers. B. Only the trade association. C. Yes, both. D. No, neither. Docsity.com Verticals Block Exemption Regulation • Set rules for vertical agreement exemptions • • If agreement falls within Verticals BER, parties can generally be sure that it is legal • • Some clauses are never exempt: • Resale price maintenance • Market-partitioning or absolute territorial restrictions on distributors • Restrictions on a producer’s ability to sell spare parts • Non-compete clauses lasting more than five years • Post-termination clauses lasting more than one year • Certain requirement contracts Docsity.com Pop Quiz! • Choco-ice has a market share of 25% of the ice cream market in the United Kingdom. It requires its retailers to buy 90% of their ice cream needs for eight years. It this clause exempted by the Verticals BER? A.Yes. B.No. Docsity.com Red Flag: Resale Price Maintenance • Resale price maintenance: Agreement between suppliers and distributors and/or retailers on how much they may charge their customers • • Commission has imposed substantial fines Setting recommended prices or maximum sales prices is generally not illegal if manufacturer allows distributor/retailer to determine price Docsity.com Red Flag: Market-Partitioning (cont’d) • Market-sharing agreements between competitors are illegal • • Market-sharing agreements may also be vertical – i.e., between suppliers and their distributors • Producers may restrict distributors from selling outside an allocated territory • Producers may not prevent distributors from responding to unsolicited orders from customers outside designated territory Commission has imposed large fines on distributors that took steps to prevent trade from one EU Member State to another Docsity.com Pop Quiz! • Teleco manufactures televisions that it sells through its distributors. It has a market share of 25%. It enters into a series of contracts where it grants exclusive distribution agreements to distributors in each EU Member State. It prevents the distributors from selling actively into each other’s territories but allows passive sales. Is this exempted by the Verticals BER? A.Yes. B.No. Docsity.com Relationships with Licensees • Technology Transfer BER applies to transfers of intellectual property rights – e.g., patents, know- how and software copyright • • It creates safe harbor for certain licensing agreements: 1. Agreements between competitors where combined market share of parties does not exceed 20% 2. Agreements between non-competitors where market share of each party does not exceed 30% Agreements falling under Technology Transfer BER will be exempt from EU competition rules Docsity.com Article 82 EC: Abuse of Market Dominance • Article 102 is a companion of Article 101 • Directed at unilateral conduct of companies dominant in their market • Targets abuse of dominant position Abuse of a dominant position: Anti-competitive business practice undertaken to maintain or increase market position •Includes unfair pricing, restriction of production output, and imposing discriminatory terms on trading partners Violations of Article 102 can result in serious fines and other penalties Docsity.com Article 82 EC: Abuse of Market Dominance (cont’d) • Article 102 is a companion of Article 101 • Directed at unilateral conduct of companies dominant in their market • Targets abuse of dominant position Abuse of a dominant position: Anti-competitive business practice undertaken to maintain or increase market position •Includes unfair pricing, restriction of production output, and imposing discriminatory terms on trading partners Violations of Article 102 can result in serious fines and other penalties Docsity.com What Is a Dominant Position? • Dominant company has economic strength to behave independently of its competitors, customers and consumers • • Company with market share under 30% is not dominant • • Company market share of more than 40% is generally considered dominant Between 30% and 40%, question of dominance depends on other factors, e.g. – •General competitive outlook of market structure •Number of competitors in market Market share over 50% generally creates legal presumption of dominance Docsity.com Market Dominance Red Flags • Red Flag: Tying • Dominant company may not make sale of one product conditional on purchase of another unless objectively justified • Company may not use dominance in tying market on tied market • Tying is prohibited even when apparently beneficial to consumers Red Flag: Loyalty Discounts • Dominant company may not offer its customers special discounts to discourage alternatives • Any discount arrangement must be based on fair grounds Docsity.com Market Dominance Red Flags (cont’d) • Red Flag: Tying • Dominant company may not make sale of one product conditional on purchase of another unless objectively justified • Company may not use dominance in tying market on tied market • Tying is prohibited even when apparently beneficial to consumers Red Flag: Loyalty Discounts • Dominant company may not offer its customers special discounts to discourage alternatives • Any discount arrangement must be based on fair grounds Docsity.com Market Dominance Red Flags (cont’d) • Red Flag: Exclusivity • Dominant company may not force customers to purchase all/most of their requirements from it Red Flag: Refusal To Supply • Dominant company must supply everyone, absent non-discriminatory and objectively justified criteria for it not to do so • Can apply to supplying a competitor Red Flag: Long-Term Agreements • Dominant company’s entrance into long-term, no-termination contracts can be abuse of dominance Docsity.com Market Dominance Red Flags (cont’d) • Red Flag: Discriminatory Business Terms • Dominant company may not discriminate amongst customers, absent fair and objectively justified grounds • • Red Flag: Predatory Pricing • Dominant company may not sell products at prices below cost to drive competitors out of business Red Flag: "English Clauses" • English Clause: Agreement between dominant company and customer that customer will not accept offer from another supplier until dominant company has declined to match it Docsity.com Pop Quiz! • SuperClean lowers the price of its household bleach product to a level where it is producing a loss. At the same time, it raises the price of its window-cleaning product, a market on which it is dominant. Two of SuperClean’s competitors on the household bleach market are forced out of that market. SuperClean subsequently raises the price of bleach to 10% above what it was originally charging. Which of the following red flags does SuperClean’s conduct signal? A. Tying. B. English Clause. C. Predatory pricing. D. Exclusivity arrangement. E. Refusal to supply. Docsity.com Investigation and Enforcement • Under Regulation 1/2003, Commission can - • Enter and seal premises inside the EU • Examine private homes and cars of personnel inside the EU • Examine and copy companies' business documents • Download from computers and copy email files • Question individuals on site • Impose fines for failure to cooperate with investigation Docsity.com In the news... France Clamps Down on Cartel | Competition Council Imposes Record Fine on J] Stee] Companies France's Competition Council imposed its largest ever fine on 11 steel-trading companies, including subsidiaries of ArcelorMittal and Kléckner, for a price-fixing cartel of “unprecedented proportions.” The Competition Council ordered the companies to pay a total of €575 million after finding they had entered into illegal practices through the French industrial federation to control prices and block foreign competition in the steel-trading market. Docsity.com "Dawn Raids" • Commission officials have power to conduct inspection visits • • Inspections can occur without any warning at any time Survival tips: •Cooperate, be friendly and stay alert •Inform management, Legal Department and external counsel •Ensure that search stays within its scope •Don’t destroy documents while investigation is going on •Keep accurate minutes Docsity.com "Dawn Raids" – Documents (cont’d) • We may not be legally required to hand over all requested documents • • Communications with external counsel are protected by legal professional privilege • • If Commission officials request privileged documents from you – • Refuse to provide documents based on attorney-client privilege • If officials insist, request that documents be placed in sealed envelope until legal status can be ascertained Docsity.com Enforcement - Leniency Programme (cont’d) • If you participate in or learn of anticompetitive discussions – • Competitor may disclose all your discussions, writings, etc., to competition authorities in exchange for leniency o Do not trust any of your competitors! • Report incident as soon as possible to management and/or Legal Department to give our company a chance to be first to apply for leniency o Report it orally to avoid creating documents that could be seized by competition authorities Docsity.com Pop Quiz! • You are new to your job and realize that your predecessor was regularly exchanging prices with the company’s competitors. Which of the following presents your best course of action? A. Continue your predecessor’s activities if it would be helpful for the company. B. Stop exchanging prices with competitors and inform your Legal Department as quickly as possible. C. Phone the authorities directly to report the conduct. Docsity.com Careful Communication • Consider carefully your language in both internal and external communications • • Ill-considered language can be very damaging • It can make legal activity appear illegal • It can colour authorities’ or complaining parties’ views as to intent • • Be careful with both written and oral communications Competition law authorities are looking to careless statements in email as proof of anti-competitive conduct or intent Docsity.com Pop Quiz! • Which of the following phrases would be appropriate in either internal or external communications? A.To be destroyed after reading. B. It has been agreed not to make any notes. C. During the negotiations, the customer told me that our competitor’s price for this quarter is 200. D.My source told me that our competitor’s price for this quarter is 200. Docsity.com Rules for Multi-Party Agreements • Avoid any suggestion that a collection of competitors has reached a view on a particular issue • Do not record anything implying that prices are based on something other than the company's independent business judgment • State clearly the source of any pricing information • Ensure that you keep accurate records of all competitor contacts and review notes with Legal Department Docsity.com Rules for Dominant Companies • Avoid giving any customer the impression that it is getting special treatment • Avoid – o "This will enable us to dominate the market" o "We have virtually eliminated the competition" • Avoid suggesting that company has a strategy to drive out competitors Docsity.com