Regulation 1/2003 (the Regulation) took effect on 1 May 2004 and is intended to modernise the enforcement of competition law by devolving responsibility from the European Commission (the Commission) to the national competition authorities (“NCAs”) and courts of the EC Member States.
Since adopting the Regulation in November 2002, the Commission has published a number of notices clarifying the key operational features of the Regulation. While they do not have the force of law, the notices are nonetheless likely to be seen as extremely persuasive by NCAs and national courts.
This article sets out the principal substantive changes to the EC antitrust regime under the Regulation, as clarified in greater detail in the draft Commission notices.
Abolition of prior notification
The Regulation abolishes the system of prior notification to the Commission. Article 81(3) of the EC Treaty - which exempts certain agreements and practices that would otherwise infringe Article 81(1) – can now, in appropriate cases, apply automatically to those agreements and practices satisfying its requirements, without the need for a Commission decision confirming compliance. This means that businesses must assess for themselves whether or not the Article 81(3) requirements are satisfied in any particular case; the relevant NCA(s) and/or the Commission will only take a decision if a dispute arises. However the burden of proving that an agreement should benefit from an Article 81(3) exemption is now borne by the parties claiming such a benefit.
Application of EC law
Article 81(3) is now directly applicable, in addition to Articles 81(1) and (2), and 82. For the first time, NCAs and national courts have the power to declare that the exemptions criteria under Article 81(3) apply; this was previously the exclusive preserve of the Commission. This has caused concern that potential differences could arise in the interpretation and application of Article 81(3) between Member States.
Where it is not possible to grant an exemption, NCAs and national courts are permitted to make the following decisions under the Regulation:
require termination of the infringements
order interim measures
accept commitments from the infringing parties
impose fines, periodic penalties and other penalties provided for under national law.
In order to avoid variation in the application of EC law between Member States, the Regulation contains a number of safeguards, including the providing for the establishment of a network comprising the NCAs and the Commission, which will allocate cases and provide for information sharing. In addition, NCAs may not act where there are ongoing Commission proceedings and national courts may not determine issues either decided or being decided by the Commission.
Application of national law
Where a NCA or national court considers a case with a Community dimension, i.e. where trade between Member States is affected, it must apply EC competition law in tandem with the relevant national law. In order to prevent any conflicts between the two, the Regulation provides that national law cannot prohibit agreements which may affect trade between Member States but which do not infringe Article 81(1), or which meet the requirements of Article 81(3). Furthermore, when a national court rules on an agreement or practice under Article 81 or 82, it cannot take a decision which conflicts with an existing or contemplated Commission decision on the same subject.
Additional remedies available to the Commission
The Regulation grants the Commission powers to impose structural remedies (proportionate to the infringement committed) where there is no effective behavioural remedy; order interim measures; and accept commitments for specific periods without having to determine the legality of an agreement or practice.
Commission Guidelines on the Application of Article 81(3)
Under Article 81(3), an exemption will only apply to an agreement or practice which:
- contributes to improving the production or distribution of products or services or promoting technical or economic progress, while allowing customers a fair share of the resulting benefit
and which does not:
- impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives or
- afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.
In relation to the prohibition rule of Article 81(1), the Guidelines make clear that negative effects on competition are likely when an agreement strengthens the parties’ individual or joint market power or allows them to exploit it (para 25). Significantly, the degree of market power required for an Article 81(1) infringement is less than that for an Article 82 infringement (para 26). In addition, subject to the principle of proportionality, the concept of ancillary restraints, which originated in the assessment of restrictive terms agreed in relation to mergers and joint ventures, is stated to be of general application (paras 28-31). Under this principle, restrictions which are directly related and necessary to the legitimate purposes of the agreement are considered to fall outside Article 81(1), so as not to need Article 81(3) exemption.
The Guidelines also clarify a number of the general principles of Article 81(3). Benefits are generally confined to each relevant market (para 43), and initial sunk investments and time required to recoup efficiency enhancing investment must be taken into account. Of more concern to undertakings, however, is the potential for positions to change over time. Although the effect on competition of certain agreements must be assessed upon implementation, Article 81 may apply, or Article 81(3) cease to apply, at a later stage owing to market developments.
Commission Notice on Informal Guidance (“Guidance Letters”)
The Commission will consider issuing a Guidance Letter where:
- there is no existing clarification of the relevant issue within the EC legal framework.
- clarification is useful, taking into account:
- the economic importance of the goods and services to the consumer
- the extent to which the agreement or practice corresponds to the wide economic usage
- the size of investment relative to the size of the parties, and the extent to which the transaction relates to a structural operation, e.g. structural joint venture
The Commission will not consider a request for a Guidance Letter where the questions are identical or similar to issues raised in a case pending before the European Court of Justice (“ECJ”) or European Court of First Instance (“ECFI”), or where the agreement is subject to proceedings pending with the Commission, national court or NCA.
Where a Guidance Letter is issued, it will set out a summary of the facts and the principal legal reasoning on which it is based. The Guidance Letter will be without prejudice to an ECJ/ECFI assessment of the same question and will not preclude the Commission from examining the same agreement or practice under Regulation 1/2003, especially following a complaint. In addition, it will not be binding on NCAs or national courts.
Commission Guidelines on the Effect on Trade concept in Articles 81 and 82
These Guidelines set out the principles determining whether the jurisdictional criterion for Article 81 is fulfilled, that the agreement is likely to appreciably affect trade between Member States. The Guidelines are very important because they, in effect, determine when Articles 81 or 82 EC, rather than national competition law, apply.
Provided the agreement as a whole is capable of affecting trade between Member States, it is not necessary for each individual part of the agreement to be capable of doing so. In Article 82 cases, where a dominant undertaking conducts a coherent strategy of different practices, it is sufficient for one of those practices to be capable of affecting trade between Member States.
Trade between Member States
The concept of “trade between Member States” covers all cross-border economic activity, including establishment (para 19), and also includes cases where agreements or practices affect the competitive structure of the market (para 20).
The term “may affect” trade
It must be possible to foresee with a sufficient degree of probability on the basis of objective factors that the agreement or practice may have an influence, direct or indirect, actual or potential, on the pattern of trade (para 23). It is not necessary to calculate the actual volume of trade affected, it is sufficient that the agreement or practice is capable of having cross-border effects (para 27) either increasing or reducing trade (para 24). However, remote, hypothetical or speculative effects are not sufficient (para 43).
The concept of “appreciability”
A measurement either in absolute terms (turnover) or relative terms (market share) is capable of supporting a finding of appreciability (paras 47 and 48).
An effect on trade between Member States will generally not be appreciable where the parties’ market share within the EC does not exceed 5% and the EC turnover does not exceed €40 million. The measure of EC turnover varies according to the type of agreement as follows (para 52):
turnover of the undertakings concerned in the products covered by the agreement (horizontal agreements)
turnover of the supplier in the contract products (vertical agreements)
turnover of the licensees and licensor in products incorporating the licensed technology (licence agreements)
An agreement can by its very nature affect trade between Member States, i.e. because it concerns imports and exports or covers several Member States. In such cases there is a rebuttable presumption that such effects are appreciable where the relevant turnover of the parties exceeds €40 million, or the 5% market share threshold is exceeded (provided the agreement does not only cover part of one Member State).
An agreement covering a single member state may have an appreciable effect on trade between Member States provided certain conditions are met. In the case of horizontal co-operation agreements and non-full function joint ventures, individual assessment is required, e.g. for foreclosure effects (paras 83-85). In the case of vertical agreements, foreclosure effects, e.g. exclusive purchasing obligations must be shown (paras 86-88).
An agreement covering only part of a single member state will have an appreciable effect in one of two circumstances. The first of these is where an agreement forecloses access to a regional (as opposed to local) market, provided the volume of sales affected is significant in relation to the overall sales of the products in the member state in question (paras 90 and 91). Alternatively, there will be an appreciable effect where an agreement hinders competitors from other member states from gaining access to a part of a member State which constitutes a substantial part of the common market (para 92).
Similar principles as for anti-competitive agreements apply to abuses of dominant position covering the whole, or part, of a single Member State. Accordingly, where the undertaking is dominant in the whole of a Member State, it is usually immaterial whether the abuse covers only part of the national territory, unless the abuse is purely local in nature (para 96).
However, where an undertaking, which only operates in a single Member State, risks being eliminated by an exclusionary abuse, trade between Member States will not normally be affected (para 94). Finally, exploitative abuses, e.g. price discrimination, which only affect domestic customers will not normally affect trade between Member States (para 95).
As regards agreements involving undertakings in third countries, it is necessary to distinguish between agreements which have as their object a restriction of competition in the EC, and those which do not. In the latter case, the principles of Case C-306/96, Javico International apply (paras 108-109).