Adoption of EC Modernisation Regulation

31 March 2003

Richard Eccles

The European Council has adopted its modernisation Regulation which radically reforms the EC implementation system of Article 81 of the EC Treaty, replacing the forty years’ old implementing regulation 17 of 1962. The new Regulation will enter into force on 1 May 2004, the date on which ten countries of Central and Eastern Europe and the Mediterranean are expected to accede to the EU.

The main purpose of the reform is to give direct applicability at national level to the exemption criteria of Article 81(3), so that national courts and competition authorities of the Member States will be able to apply Article 81 in its totality, giving or declaring exceptions from Article 81 by reference to Article 81(3) in appropriate cases. This significant reform is made possible by the fact that there is now forty years case law on the principles Article 81(3) exemptions, on which national courts and authorities can draw.

Individual exemption decisions under Article 81(3) as currently known will no longer be given. However, so called “block exemption” regulations declaring Article 81(1) inapplicable by virtue of Article 81(3) will generally continue in force, and the Commission will have power to declare Article 81(1) inapplicable where the conditions of Article 81(3) are satisfied, but only where the Community public interest so requires, and only where the Commission is acting on its own initiative, rather than in response to a request or notification by the parties. It remains to be seen, in what situations the Commission considers it appropriate to make such a decision. Existing individual exemption decisions under Article 81(3) will continue to apply for the remainder of their term but existing applications for negative clearance and notifications for exemption will lapse on the entry into force of the new Regulation. Existing comfort letters, informal statements by the Commission on the closure of a file, may continue to serve as useful evidence in relation to any subsequent national authority or national court investigation of the relevant agreement or conduct. However, with the direct applicability of Articles 81(1) and (3) and with existing notifications lapsing on entry into force of the new Regulation, no further comfort letters will be issued by the Commission under the new regime.

The new regime will simplify the process of competition law enforcement and remove the exclusive jurisdiction which has until now always been held by the European Commission on the application of Article 81(3). The new system will remove from companies and businesses the cost and burden of having to notify an agreement to the European Commission in order for Article 81(3) to be applied. The new system introduced by the Regulation will, however, have at least two distinct drawbacks. First, businesses will no longer be able to seek the relative legal certainly afforded by an exemption decision or comfort letter pursuant to an individual notification as at present, in respect of significant joint ventures or strategic alliances which, whilst in some cases not constituting mergers or concentrations within the meaning of the EC Merger Control Regulation, nonetheless may involve significant investment by the parties. Normally the parties and any financial institutions providing the necessary finance, would which to be able to obtain some degree of protection or comfort in respect of competition law prior to making the investments involved. Second, the European Commission has in the past generally achieved some constructive solutions to competition law problems through imposing conditions or attaching obligations on Article 81(3) exemption decisions. Parties will in future be unable to seek such decisions, at least at EC level, and the Commission will only grant decisions on the applicability of Article 81 where the Community public interest so requires, and only on the Commission’s own initiative, or pursuant to a complaint. Particularly where an Article 81 issue arises for a national court, the national court may not be able positively to impose conditions or obligations concerning a decision under Article 81, for example in England, but could only declare that a particular agreement did or did not infringe Article 81.

The reforms will enable the European Commission to concentrate on pursuing serious anti-trust infringements, including cartel cases, in which there have been significant increases in the number of cases and in the levels of fines typically imposed by the Commission, in the last two or three years. The Commission will also play a greater role as guardian of the EC Treaty in co-ordinating and ensuring consistency in the application of EC competition law in the various Member States. The new Regulation contains various provisions to ensure the supremacy of EC competition law over national competition law. These include the following: First, national authorities and national courts would have a duty to apply Article 81 or Article 82 where there is an actual or potential effect on trade between Member States (even if national competition law is also applied). Second, national competition law may not lead to the prohibition of agreements which may affect trade between Member States, where such agreements do not restrict competition within the meaning of Article 81(1) EC or fulfil the conditions of Article 81(3). This point is surprising because an agreement may be de minimis for EC purposes but nonetheless relatively significant at national level.

Further, in order to ensure the consistent application of Articles 81 and 82, initiation by the EC of proceedings for the adoption of a decision under those provisions relieves the national competition authorities of their competence to apply Articles 81 and 82, and when national courts rule on agreements or practices under Articles 81 or 82 which are already the subject of an EC decision, they cannot take any decisions which are contrary to a decision adopted or contemplated by the Commission, and national courts must assess whether to stay their proceedings in such circumstances.

By contrast, national courts and authorities are not precluded from adopting and applying on their own territory stricter national laws which prohibit or sanction unilateral conduct engaged in by undertakings, as compared with Article 82 EC. Further, national authorities and courts are not precluded from applying national merger control laws or from applying national laws that “predominantly pursue an objective different from that pursued by Articles 81 and 82”, even if Articles 81 or 82 apply. The provision concerning the applicability of national merger control laws is important, because in some Member States, for example, the UK, the statutory definition of a merger is wider than that of a concentration under EC law, so that the same transaction, whilst being a merger under national law could be subject at EC level to Article 81 (and possibly Article 82) rather than the EC Merger Control Regulation.

The Commission is expected to adopt a series of notices and setting out guidelines on the application of the new regime, which are likely to be issued in draft form in February and/or March 2003. These will cover co-operation between national courts and the European Commission (updating the existing notices in this area), a summary of the principles of Article 81(3), complaints to the Commission taking into account the principle of decentralisation (where appropriate) in the application of the EC law, declarations by the Commission of the application of Article 81 in individual cases, and most importantly, the meaning of an effect on the trade between Member States; this will determine when the national authorities can apply national competition law without EC competition law taking precedence.