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Kyiv Institute of International Relations
Prepared by Riccardo Croce, Partner, and Hanna Stakheyeva, Associate
EU Competition and Regulatory Department<docid>
Lecture 1 - 25 March 2014
European Competition Law:
Main Pillars
2
Table of Contents
Section 1. European Competition Pillars
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
3
Section 1. European Competition Law Pillars Anticompetitive agreements/actions Abuse of dominance Merger Control State aid
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
Table of Contents
4
European Competition Pillars
Competition: a mechanism of the market economy which encourages companies to offer consumer goods and services at the most favourable terms for consumers
Goals: Essential to complete a single market Encourages efficiency Increases productivity, quality, choice Creates better conditions for investors and innovators Reduces prices (increases consumer benefit) Requires companies to act independently of each other, but
subject to the competitive pressure of others
5
European Competition Law Pillars Anticompetitive (horizontal and vertical) agreements: businesses with/out
market power that operate at same/vertically related level must avoid hard-core restraints, concerted actions [2+]
Cartels: competing businesses must not enter into anti-competitive agreements (price, market/customer allocation, bid rigging), or inappropriate info exchanges
Abuse of dominance: businesses must not abuse their dominant market position (40%) in a way that affects trade [1+]
Merger control: businesses must not implement acquisitions, mergers and joint ventures above a certain thresholds (or gun-jumping fines) [2+]
State aid: national authorities must not grant state aids that distort competition and trade in the EU
+ Private Enforcement/ Litigation
6
Basic ConceptsUndertaking/ company:
“every entity engaged in economic activity, regardless of legal status of entity and way it is financed” (Höfner & Elser v Macrotron, ECJ 1991)
Offering goods or services = economic activity (Commission v. Italy, ECJ 1998)
[ + all football's governing bodies, i.e. FIFA, UEFA, fitness centres; universities]
Competitors:
Companies active on the same relevant market
Relevant market:
a) product - “catalogue” of goods/substitutes
SNIP test: Small but significant and non-transitory increase in price – profitability of raising price by 5%, switching
b) geography - area of activity with homogeneous conditions
of competition: pricing, transport cost, trade flows, etc.
See Commission's Notice for the Definition of the Relevant Market, 1997
7
Section 1. European Competition Pillars Anticompetitive agreements/actions Abuse of dominance Merger Control State aid
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
Table of Contents
8
Anticompetitive agreements Article 101(1) TFEU prohibits agreements between businesses [2+] or
concerted practices which could affect trade between MS, and which have as their object or effect prevention/ restriction/ distortion of competition
If so, agreement is null and void – not enforcable
Agreement doesn’t have to be in writing or be legally binding Agreement re supply of goods/services – but also know-how/patents – across
EU borders-with effect on EU or re foreign businesses’ entry into EU market (extra-territoriality)
Restriction on competition can be by object or effect Effects depends on relevant market, market context, market power,
appreciable effect of agreement, and whether there is a vertical or horizontal restriction (cartel v. RPM)
9
Anticompetitive agreements - Cartels
Similar, independent companies join together to fix prices/ limit production/share markets or customers
• Instead of competing - rely on agreed course of action
• Reduces incentives to provide new/better products and services at competitive prices
• Result: consumers end up paying more for less quality
• Illegal and highly secretive
• Heavy fines [single company - over €896 million; all members of cartel - over €1,3 billion]
• Leniency policy for fine reduction – “whistle-blowers”
(See Commission Notice on Immunity from fines and reduction of fines in cartel cases, 2006)
10
Anticompetitive agreements - Cartels: examples
EUR 141,7 mln - car parts suppliers - 5 cartels for supply of wire harnesses to Toyota, Honda, Nissan and Renault (2013)
EUR 280 mln - German authority fines sugar cartelists (2014)
EUR 17 mln – 4 wallpaper manufacturers (price increase 2005-2008)
UK’s universities face an investigation by the Office of Fair Trading (OFT) into “anti-competitive” practices (nearly all charge £9,000 a year despite widely varying degree quality – cartel?)
11
Anticompetitive agreements – General Exemptions
An agreement that technically infringes Article 101(1) may be exempted under Article 101(3) if the benefits that it provides outweigh its anti-competitive effects
Improve production/ distribution, promote technological progress, consumer benefit share
Price fixing, market sharing and bid rigging will almost never be exempt Self-assessment since 2004: the parties must evaluate whether their
agreement could infringe Article 101(1). Guidance notes on horizontal and vertical agreements have been published by the European Commission
Block exemptions will also apply to certain types of agreements, such as vertical agreements but consider also TTBE (for tech licensing with/out raw material) (market share below 30%).
Covers both vertical and horizontal agreements This presentation focuses on vertical agreements
12
Anticompetitive agreements - Guidelines Vertical Agreements
Commission provided guidelines for the assessment of vertical agreements (and consider de minimis)
When assessing whether a vertical agreement is exempted, you should:
define relevant market to work out the market shares of supplier and buyer; if the market shares are under 30%, the agreement will be exempted as
long as none of the hard-core restrictions apply;
if the market shares are over 30%, you should assess whether the agreement can be exempted under Article 101(3) TFEU, i.e. it must:
• contribute to improving production/distribution/promote economic or technical progress
• allow consumers a fair share of benefits• not impose vertical restraints that are not indispensable• not enable businesses to eliminate competition
13
Anticompetitive agreements - Block Exemption Vertical Agreements Certain types of obligations are excluded from block exemptions, e.g.:
Non-compete obligations beyond 5 years
Post-agreement termination obligations on the buyer not to manufacture, purchase, sell, re-sell goods or services
Sale of competing goods in a selective distribution system
If outside of block exemption, you have to self-assess
Hard-core restrictions ( resale price maintenance, fixed/minimum resale prices, restricting territories etc.) are outside of the BER
14
Anticompetitive agreements - Examples Vertical Agreements Agency agreements: an agent is a person who is allowed to negotiate or
conclude contracts on behalf of a principal Genuine agency agreements do not generally infringe Article 101 TFEU
because the agent acts as an extension of the principle’s business, not a new business, typically takes no risk
Issues could arise where there are territorial exclusivity clauses or restrictions on dealing with other products or services
Distribution agreements below 30% safe harbour generally OK, if no hard-core e.g. RPM, or MFN, e-platform restraint, but consider excluded clauses e.g. non’compete
Non-compete agreements: allowed if the restrictions are directly related and necessary to the implementation of a concentration. If they are not, they could infringe Article 101 TFEU if they have an appreciable effect on competition. Non-compete obligations will be problematic if their duration is indefinite or exceeds five years
15
Anticompetitive agreements - UkraineGeneral prohibition, unless exemption applies: (i) general: up to 5% combined market share OR if below 12 mln euro WW turnover – up to 20% (vertical arrangements) and up to 15 % (horizontal) market share); SME; (ii) BE: specialization (up to 25% market share)
In line with the EU approach, BUT for procedure: there is ex-ante notification/authorization, NO self-assessment
• Law On Protection of Economic Competition, 2001
• AMCU Resolution On Procedure for Filing Applications with the AMC for Obtaining its Approval for the Concerted Practices, 2002
• AMC Resolution on Standard Requirement to Concerted Practices for their General Exemption from Notification Requirement, 2002
• AMC Resolution on Standard Requirement to Concerted Practices concerning Specialization of Production, 2008
• Regulation on the Procedure for Leniency Application, 2012
16
Section 1. European Competition Pillars Anticompetitive agreements/actions Abuse of dominance Merger Control State aid
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
Table of Contents
17
Abuse of Dominance
• Article 102 TFEU - no abuse of dominant position by [1+] company, special responsibility
• Covers:
- Unfair prices/predation
- Limiting production/markets
- Supplementary obligations in contracts, exclusionary conduct
• Exemption: Market share below 40%, but not always (no strong competitors)
18
Dominance“position of economic strength […] to prevent effective competition being maintained […], power to behave […] independently of its competitors, its customers and ultimately of consumers”
• confers special responsibility
• not likely if market share of company = below 40 %
• no significant competitors
Microsoft competition case-Complain from competitor in 1993 – blocking competitors by licensing practices; including its Windows Media Player within the Microsoft Windows platform (tying )-Investigation by EC; fine €497 + €280.5 mln fine [€1.5 million per day from 16 December 2005 to 20 June 2006] for failure to comply with its obligations = provide info + additional €899 mln fine for non-compliance with EC decision
Gazprom investigation - 2012 – possible multibillion-dollar fines, dawn raids in 10 member states; “destination clause”; “take or pay” clause”, unfairly high prices to its customers in Central and Eastern Europe
19
Dominance - Ukraine
• Abuse of dominant position is anti-competitive and automatically prohibited
• No exemptions
• No notification requirement (guidance possible – non-binding recommendation)
• Monopoly if holds market share in excess of 35% (unless strong competitors)
• Collective dominance: 2-3 companies together with market share that exceeds 50%
• Investigations by AMC similar to the investigation into anticompetitive agreements
Law On Protection of Economic Competition, 2001
20
Section 1. European Competition Pillars Anticompetitive agreements/actions Abuse of dominance Merger Control State aid
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
Table of Contents
21
Merger Control• EU Merger Control Regulation – no concentration [2+] without prior approval
• Covers: - Mergers; - Take-overs; - Joint ventures (FF).
• Key - lasting change in control (de facto/ de jure control)
• Exemptions: if control is acquirer by credit, financial institutions (i) holding securities on temporary basis, (ii) reselling; by insolvency receiver,; intragroup transactions.
• Procedure: Regulation 139/2004; Regulation 802/2004; one stop-shop principle
• EUR 20 mln - Electrabel-acquiring control without prior approval (2009)
22
Merger control -ThresholdsPrimary thresholds:
€5 billion - parties’ combined worldwide turnover;
AND
€ 250 mln - each of at least 2 parties has EEA-wide turnover,
UNLESS
all parties generate at least 2/3 of their individual EEA-wide turnover in one and the same EEA Member State (EU + Iceland, Lichtenstein
+ Norway).
= notification is mandatory ex ante
23
Merger control -ThresholdsAlternative thresholds:
€2.5 billion - parties’ combined worldwide turnover;
AND
€100 mln - each of at least 2 parties has EEA-wide turnover;
AND
in at least 3 EEA member states:
€100 mln - combined turnover, and
€25 mln - at least 2 parties each has turnover
UNLESS
2/3 rule
= notification is mandatory ex ante
24
Merger Control: example
Case No COMP/M.5518 - FIAT/ CHRYSLER, 2009
Fiat SpA (Italy) acquires 20% in Chrysler LLC (USA)
“Despite Fiat’s stake of only 20 percent, which it may increase in future, Fiat holds rights in the decision-making process of the U.S. firm that will enable it to exercise sole control”
25
Merger control - UkraineThresholds:
• Combined WW asset/turnover value of parties (groups) exceeds EUR 12 mln; and
• Each of the parties WW assets/turnover in excess of EUR 1 mln;
and
• Value of assets/turnover in Ukraine of either of the parties exceeds EUR 1 mln.
+ market share (individual or combined) exceeds 35%
No monopolisation or substantial restriction of competition test)
Ex-ante notification + stand-still obligation = European approach + filing fee + review period 45 calendar days ( while 25 working days EU)
Formal guidance possible (non-binding preliminary opinion)
Law on Protection of Economic competition, 2001
AMC Regulation on Procedure for Filing Applications with the AMC for Obtaining Prior Approval for Concentration of Undertakings, 2002
26
Section 1. European Competition Pillars Anticompetitive agreements/actions Abuse of dominance Merger Control State aid
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
Table of Contents
27
State aidAdvantage in any form whatsoever conferred on a selective basis to undertakings by national public authorities.- Intervention by the state/ through state resources - variety of forms (e.g. grants, interest and tax reliefs, guarantees, government
holdings of all or part of a company, or providing goods and services on preferential terms, etc.);
- gives the recipient an advantage on a selective basis, e.g. to specific companies or industry sectors/regions
- competition has been or may be distorted- affect trade between Member States
General prohibition of State aid (Article 107 TFEU)
Ex ante notification procedure (preliminary investigation v. in-depth investigation)
Recovery of incompatible state aid
Ex post monitoring
28
State aidCompatible state aid (no notification needed) (Art. 107(2):- aid having a social character, granted to individual consumers, without
discrimination related to the origin of the products concerned;- aid to make good the damage caused by natural disasters - aid covered by a BE (aid measures defined by the EC)- de minimis aid ( below €200,000 per undertaking over period of 3 years)
May be considered to be compatible (Art. 107(3)):- aid to promote the economic development of areas with abnormally low
standard of living/ underemployment;- aid to remedy a serious disturbance in the economy of a State;- aid to facilitate the development of certain economic activities or of certain
economic areas,- aid to promote culture and heritage conservation
where such aid does not affect trading conditions and competition
29
State aid – Legal FrameworkCouncil Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty, OJ L 83, 27.03.1999
Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty, OJ L 140, 30.04.2004
Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid, OJ L 352, 24.12.2013
Commission Regulation (EC) No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Article 87 and 88 of the Treaty (General block exemption Regulation) OJ L 214, 9.8.2008
Full set see http://ec.europa.eu/competition/state_aid/legislation/compilation/index_en.html
30
State aid- exampleSA.36516 Aid for wind farm Zuidermeerdijk - VWW II (Netherlands), 14.02.2014
Objective – environmental protection
Legal basis - Art. 107(3)(c) TFEU Certain econ. activities/areas
Aid instrument – direct grant
Decision – no objection
SA.18042 Tax exemption for biofuels (Spain), 06.06.2006
Objective – environmental protection
Legal basis - Art. 107(3)(c) TFEU Certain econ. activities/areas
Aid instrument – tax rate reduction for biofuel producers
Duration 14.01.2004 – 31.12.2012
Decision – no objection
31
State aid - Ukraine• No state aid law
• Draft law + Regulation “On approval of an Action Plan for the implementation of an institutional reform in the field of monitoring and control over granting State aid to undertakings”, 2013
• EU-Ukraine Association Agreement (pending) introduces state aid system in Ukraine:
- within 3 years of the Agreement’s entry into force, Ukraine must adopt its law on state aid and establish an independent body to monitor/control/authorise any aid that Ukraine grants to companies.
- within 5 years - Ukraine and the EU are obliged to send each other a report containing information on the total amount of aid, the types of aid and the spheres of state aid which have been granted (official website- transparency).
32
Section 1. European Competition Pillars Anticompetitive agreements/actions Abuse of dominance Merger Control State aid
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
Table of Contents
33
Fines in theory The European Commission has the power to impose a fine on a business if it
breaches Article 101 TFEU. The fine cannot exceed 10% of the company’s worldwide turnover
The basic amount of the fine is based on the company’s value of sales. The gravity of the infringement is assessed, and the fine is increased for each year of infringement
Value of sales: turnover for goods and services affected by the infringement, usually in the last full year of the business’ participation
The basic amount of the fine is up to 30% of the value of sales Upward adjustments to the basic amount can be made if there is a:
repeat infringement refusal to co-operate with the Commission leader of the cartel
Fines of up to 1% of group annual turnover may be imposed if a company fails to submit to the inspections, answer a question relating to relevant facts/documents, or breaks a seal placed on documents/premises
34
Fines in Practice10 highest cartel fines: 2012: €1, 470, 515, 000 (TV and computer monitor tubes case) 2008: €1,383,896,000 (Car glass case) 2007: €832,422,250 (Elevators and escalators case) 2010: €799,445,000 (Airfreight case) 2001: €790,515,000 (Vitamins case) 2008: €676,011,400 (Candle waxes case) 2010: €648,925,000 (LCD case) 2009: €640,000,000 (Gas case) 2010: €622,250,782 (Bathroom fittings case) 2007: €539,185,000 (Gas insulated switchgear case)
35
Fines - UkraineAnticompetitive agreements: fines up to 10% of parties turnover
Abuse of dominance: fines up to 10% of parties turnover (leniency – full immunity only) + mandatory division of a dominant company
Mergers: up to 5% (for non-notification), up to 10% for non-compliance with AMC decision prohibiting concentration; up to 1% for submitting false/incomplete information
+ • Third party damages claims (amount of compensation in
commercial court – up to twice the amount of the actual damage sustained)
• Invalidation of transaction/agreement
36
Section 1. European Competition Pillars Anticompetitive agreements/actions Abuse of dominance Merger Control State aid
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
Table of Contents
37
Competition Authorities in Europe There is one European Competition Authority in charge of the
National Competition Authorities of the 28 Member States the European Commission Directorate General for Competition
(EC, DG COPM) http://ec.europa.eu/competition/index_en.html There are 28 National Competition Authorities (NCA)
Cases moving from national to EU level and vice versa Commission and NCAs also share information and work together (e.g. for
national dawn raids)
38
EU Competition Authority
39
Competition Networks European Competition Network (“ECN”): Commission and NCAs in all EU
Member States cooperate with each other through the ECN
International Competition Network (“ICN”): Commission also provides antitrust agencies from developed and developing countries with focused network for addressing practical antitrust enforcement and policy issues of common concern
Commission also participates in the competition related activities at international level, e.g. Organisation for Economic Cooperation and Development (“OECD”), World Trade Organisation (“WTO”) and United Nations Conference on Trade and Development
40
Competition Authority - Ukraine
Law On Antimonopoly Committee of Ukraine, 1993
AMCU + territorial offices
Chairman (term of office – 7 years) and 8 state commissioners
Chairman: appointed and dismissed by the President of Ukraine by approval of the Verkhovna Rada of Ukraine
State Commissioners: be appointed and dismissed by the President of Ukraine by recommendation of the Prime Minister of Ukraine submitted on the basis of the proposals of the Chairman of the AMC
41
AMCUPowers during investigations:
Request information, explanation, material and other data from undertakings under investigation;
Request oral and written explanation from undertakings under investigation, third parties, officials, individuals
Request expert opinions
Seize and retain evidence (documents, computers..)
Cooperates:- mostly with CIS competition authorities within the Interstate Council for
Antimonopoly Policy- On bilateral treaties (with Bulgaria, Hungary, Latvia) and- On multilateral treaties ( OECD, UNCTAD, ICN)
Relation with EU: Agreement on Partnership and Cooperation 1998, DCFT (?)
42
Section 1. European Competition Pillars Anticompetitive agreements/actions Abuse of dominance Merger Control State aid
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
Table of Contents
43
Any Questions?
44
Thanks for your attention!