An Expert's View about Law and Compliance in the United States

Posted on: 22 Apr 2010

Many states in the world have been down-graded by the actions of multinationals which tend to influence commerce in most jurisdictions and the world over. Can EC Competition assist?

1 INTRODUCTION Major sectors of the world?s economy have been dominated by large private corporations some of which have bigger annual turnover than the GDP of many small states1.Certainly, the financial status of these corporations, coupled with their global reach and control of new technologies contribute to their tremendous influence in the society 2. Abusive practices by such businesses may have more impact on international trade than the activities of the smaller state governments3. More economic activity has to be stimulated to keep this enormous clout in check and the most veritable means of achieving this significant desire is through what the United States (hereinafter referred to as US) and European Union (hereinafter referred to as EU) economies term ANTITRUST4 and/or COMPETITION LAW5 respectively. Competition serves as the best stimulant of economic activity6 with a view to ensuring both an optimum allocation of resources and maximum consumer welfa 7re. ?Yet, society continuously strives to overcome capital?s tendency to concentrate and the desire of most entrepreneurs to eliminate their competitors. Defending competition process seems to be the only effective way of doing this 8? . ?Arguably, the European Union has promoted ?all forms of competition? in all sectors, which has been further legitimated from an economic perspective by two factors: ...its support for the integration of the internal market, by monitoring behaviour within the common market....,benefits for customers who are in a position to take advantage of lower prices for be 9tter quality products...? 1 J. Fairhurst Law of the European Union (5th edn: Pearson, Longman, 2006) p.524. 2 E. Bannerman, The Future of EU competition Policy of 28 January, 2002, available on assessed on 25 march, 2009. 3 Ibid, 524 4 The word ?antitrust? dates from the late-1800s when powerful companies dominated industries working together as ?trusts? to stifle competition. Thus, laws aimed at protecting competition have long been tagged ?Antitrust?. See also ?competition counts? available on assessed on 26 March, 2009. 5 Modernised in 2004 by Council Regulation (EC) No 1/2003 of 16 December, 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 EC, the European Competition Law was conceived in 1957 as a means to optimise the allocation of resources amongst member states on the Community Market. See also Frédérich Jenny, ?Droit européen de la concurrence et efficience économique?, (1993) 63 Reveu d?économie industrielle 193-20, as cited in G. Vallindas, ?New Directions in EC Competition Policy: The Case of Merger Control? (2006)12 E.L.J. 636 6 J. Fairhurst (op cit) p. 1 7 A.Albors-Llorens ?Competition Policy and the Shaping of the Single Market? in C. Barnard and J. Scotts (eds) The Law of the Single European Market (Hart, Oxford, 2002). 8 G. Vallindas, ?New Directions in EC Competition Policy: The Case of Merger Control? (2006)12 E.L.J. 636. 9 Ibid. 2 A third factor has been identified as ?globalised economic exchanges? whereby the competition has a direct consequence on both the enterprises and the economy as a whole as it is in constant competition with other leading economies of the world10. In this discourse, recourse will be made to the two fundamental competition articles of the European Commission Treaty (hereinafter referred to as EC Treaty) - Articles 81 and 82- as well as other relevant Articles in the treaty in other to analyse the view of competition policy set out in the above quotation. As such, a brief overview of the development of Competition law and policy within the EU will be explored accompanied by a subjective analysis of the effects of Articles 81 and 82 of the EC Treaty, together with other relevant articles of the Treaty. Other secondary legislations and soft laws will also be used to achieve the aim of this essay. There shall also be a comparison of the US and EU competition policies. The influence of the European courts- the European Court of Justice (hereinafter referred to as ECJ) and the Court of First Instance (hereinafter referred to as CFI) - and the European Commission (hereinafter referred to as Commission) in furthering the objectives of Competition law and policy set out, cannot be left out. Economic and social policy cohesion within the EU birthed the concept of the European Social Model. This concept shall also be looked into. Finally, I shall conclude by subjectively analysing roles of the ECJ and the Commission, in developing EU Competition Law. A BRIEF OVERVIEW OF THE DEVELOPMENT OF EU COMPETITION LAW AND POLICY Congress passed the first Antitrust Law-The Sherman Act- in 189011. ?The prolonged economic malaise of Europe appears to have led the Commission to conceive of competition policy as part of a broader strategy to deliver greater economic growth and sustainable employment 12? . The US Marshall Plan influenced the struggle for a peaceful and economic Europe, thus, the Rome treaty. 10 Ibid. 11 26 march, 2009. 12 M. Marquis, ?O2 (Germany) v Commission and the exotic mysteries of Article 81 (1) EC (2007)32 E.L. REV. 29. 3 The Rome treaty, however, laid the foundation for economic integration within Europe13. It was the principal focus of the Rome treaty of 1957 and it was a conscious decision after the failures of the more ambitious attempts at European integration of the mid-1950s14. Many economic advantages were expected to flow from the establishment of the European common market embracing an area that had been divided by national custom duties and quotas for over a century15. ?Herr Von der Groben16, believed that these rules also had a longer term function- to encourage the expansion of efficient firms and sectors of the economy at the expense of those good at supplying what the people want 7 to pay fo 1r? . But should small firms be assisted in competing with supermarkets, even if they are less efficient in providing what consumers want to buy and even charge more18? An analysis of the prohibition provisions of the Treaty appears indispensable. SURVIVAL OF THE FITTEST ?Antitrust has one objective: to protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down and quality up 19? . Thus, the consumer ends the market chain. ?In order to establish a system which ensures that competition in the common market is not distorted, Articles 81 and 82 must be applied effectively and uniformly in the community 20? . Both Articles have as their objective the protection of competition on the common marke 21t ; and 13 V. Korah, An Introductory Guide To EC Competition Law and Practice (9th edition, Hart, Oxford, 2007) 14 Paul craig, ?Evolution of the Single Market?. In Barnard and Scott (eds.) The Law of the Single European Market. (2002, Hart, Oxford). This includes the European Coal and Steel Community Treaty of 1951. 15 V. Korah An introductory guide to EC Competition law and Practice (9th edition, Hart, Oxford, 2007). 16 The first member competition commissioner and one of the drafters of the spaak report. 17 V. Korah op cit 18 ibid 19 M. Herdegen, ?Legal Challenges for transatlantic economic integration? (2008) 45 CMLR 1581. 20 Article 1, Council Regulation (EC) No 1/2003 O.J. 2003 L1/1 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty. 21 Article 9, Council Regulation (EC) No 1/2003 O.J. 2003 L1/1 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty. 4 seeks to achieve the same aim on different levels, through the maintenance of effective competition within the common marke 22t . W.P.J. Wils has identified the principal development of competition law as the Commission?s increased interest in enforcing Article 81 against cartels. This is reflected both in the significant increase in the number of cases and in the revision of its notices on fines and leniency to improve enforcement23. Marquis contends that the competition rules must be read in the light of Article 3 (1) (g) and ultimately, Article 2, EC Treaty24. The later establishes a common market, while the former refers to a system ensuring that competition in the internal market is not distorted. Article 4 (1) EC Treaty refers to the activities of the community and the member states which include adoption of an economic policy conducted in accordance with the principle of open market economy with free competition. Three elements are indispensable in the application of Article 81 (1) EC Treaty; a form of co-operation among undertakings, an anti-competitive object or effect and an effect on trade between Member States25. Article 81 (2) EC Treaty renders any of such null and void26 while they may, withal, benefit from the exemption offered by Article 81 (3) EC Treaty. Articles 81 and 82, EC Treaty are applicable to horizontal (Cartels) and vertical agreements27. ?In recent years, the balance of emphasis of EC competition policy towards agreements between firms has shifted, at least to some degree, from vertical to horizontal agreements and from legal form to economic effect 28? . 22 Case 6/72 Continental Can v Commission (1973) ECR 215. Also, S. Weatherill stated that the requirement contained in Article 3 and 81 of the EC Treaty that competition shall not be distorted implies the existence on the market of workable competition, that is to say the degree of competition necessary to ensure the observance of the basic requirements and attainment of the objectives of the Treaty, in particular the creation of a single market achieving conditions similar of a domestic market. 23 W.P.J. Wils Efficiency and Justice in European Antitrust Enforcement (Hart Publishing, Oxford, 2008) as cited in C. Murray et al., Smitchoff?s Export Trade: The Law and Practice of International Trade (11th edition, Sweet & Maxwell, London, 2007) 24 M. Marquis, op cit, p.3; See also Case 26/76 Metro-SB-GmbH & Co. KG v Commission (1997) ECR 1875. 25 A. Albors-Llorens op cit p.2. 26 Case C-56/65 Societe La Technique Miniere v Mashinenbau Ulm GmbH (1966) ECR 235. 27 Draft Commission Notice Guidelines on the effect on trade concept contained in Article 81 and 82 of the Treaty (OJ 2004 C 101/81);also available via assessed on 26 march, 2009. 28 J. Vickers ?Abuse of Market Power? (2005)115 The Economic Journal 244. 5 ?Under European law, economic factors are not merely an extra-legal justification for legal rules, but they are genuinely integrated with them 29? . ?Economic theory goes to the very foundation of competition law itself: 30 the latter could not exist without the former? . Effects of Articles 81 and 82 of the EC Treaty Article 81 EC Treaty Cartels are the most obvious example of illegal conduct infringing Article 81, EC Treaty which involves price-fixing and market-sharing31. ?Instead of competing with each other, cartel members rely on each other?s agreed course of action which reduces their incentives to provide new or better products and services at competitive prices 32? . ?In the context of cartels, there is no need to establish anti-competitive effects as the object is to restrict competition?33. Between 1990 and 2009, the Commission has taken decisions on a total of 659 undertakings with fines amounting to a total of ? 13,104,678,75034, the highest single fine being that on Saint Goben35 in 2008 amounting to ?896,000,00036, and a total of ?992,000,000 on a group car 7te 3l . The Commission has issued new guidelines on the method of setting fines38 which are geared towards imposing tougher fines on cartels complimented with a leniency and settlement plans. According to Neelie kroes39, 29 Richard Whish, Competition Law, 5th edition (Oxford University Press, 2003) p. 1; Wiley and Shepard, ?A Capture Theory of Antitrust Federalism?, (1986) 99(4) Harvard Law Review 713-715; as cited in G. Vallindas op cit , at p.2. 30 G. Vallindas op cit, at p.2. 31 31 March, 2009. 32 assessed on 31 March, 2009. 33 Case C- 251/99 Enichem v commission. 34 assessed on 31 March, 2009. 35 A cartel on car glass. 36 assessed on 31 March, 2009. 37 Otis, KHONE, Schindler and Thyssenkrupp in 2007. 38 Guidelines on the method of setting fines imposed pursuant to Article 23 (2) (a) of Regulation 1/2003 [2006] O.J. C210/2. The reaction of the Commission to the recent ECJ judgement involving sodium gluconate cartels where the court upheld the Commission decision imposing fines of a total of ?57.53 million for cartel behaviour is another example. See Press release IP/01/1335 ,MEMO/09/119 Commission welcomes European Court of Justice judgment in sodium gluconate cartel case; Case C-510/06 P Archer Daniels Midland Co. v Commission, judgement of 19 march, 2009, available on assessed on 26 March, 2009. 39 Director-General, Competition. 6 ?[T]he fight against cartels will remain a priority for the commiss 0ion 4? . ?The suggestions in this white paper are about justice for consumers businesses that lose their billions of euro each and every year as a result of companies breaking antitrust rules; these people have a right to compensation through an effective system that compliments enforcement 41....? One important lingering bit of formalism in the ?modernised? system of EC competition law concerns the way Article 81(1) is sometimes interpreted42. For many years, the ECJ ignored the whole question of economic theory in competition cases43 until its judgement in Société Technique Minière44. In applying Article 81 to an agreement, the first step is to consider the objective of the agreement in the light of its economic context to ensure whether its intended effect is appreciably to restrict competition45. Article 81(1) cannot be applied without taking account of the relevant economic circumstances surrounding a given agreement or a concerted practice46. This requires an examination of relevant market conditions 40 DG Competition Annual Management Plan, 2009 delivered on the 28th of November, 2008 and available on 26 March, 2009. 41 Press release IP/08/515 (3 April, 2008) on Commission?s White Paper on Damages Action for breach of the EC Antitrust Rules also available on 26 March, 2009 42 M. Marquis, op cit, p.3. 43 M. Glais, ?L?utilisation des travaux de la nouvelle économie industrielle par les autorités de la concurrence?, (2000) 37 Cashiers d?économie politique, pp. 197-223, as cited in G. Vallindas, op cit, at p.2. 44 Here, the exclusive distribution agreement at issue was to be assessed from two angles of economic evaluation-the intra-community trade criterion and the restriction of competition requirement under Article 81 (1) EC Treaty. See also Case 61/80 Cooperatieve Stremsel- en Kleurselfabriek v Commission (1981) ECR 851; Case 56/65, Société Technique Miniére v Maschinenbau Ulm (1966) E.C.R. 235; See also Cases 56 and 58/64 Etablissements Consten SA and Grundig GmbH v Commission (1996) ECR 299 where the court maintained that there is no need to take account of the concrete effects of an agreement once it appears that it has the object of prevention, restriction, or distortion of competition. 45 Ibid. 46 Case C-399/93 H.G. Oude Luttikhuis v Coberco (1995) ECR I-4515, 10; Joined Cases T-374, 375, 384, 388/94, European Night Services v Commission (1998) ECR II-3141, 136; Case T- 77/94, VGB and Verhaa v Commission (1997) ECR II-759, 140. Competition means the competition which would exist in the absence of the agreement. Compare with Cases 56 and 58/64 Etablissements Consten SA and Grundig GmbH v Commission (1966) ECR 299,(1966) CMLR 418 where the applicants maintained that the Commission has relied on a mistaken interpretation of the concept of an agreement which may affect trade between Member states and has not shown that such trade would have been greater without the agreement in dispute. The ECJ dismissed the complaint and held that ?the concept of an agreement which may affect trade between Member states is intended to define, in the law governing cartels, the boundary between the areas respectively held by Community and national laws. ?It is only to the extent to which the agreement may affect trade between Member states that the deterioration in competition caused by the 7 which must be evaluated within the framework of a counterfactual analysis47. However, a discussion on the economic test and relevant market shall be done later on. For a better understanding of the wording of Article 81 EC Treaty, I shall explain briefly forms of co-operation namely agreement, undertaking and concerted practice. ?The question whether an agreement has the object of preventing, restricting or distorting competition is a question of foreseeable effects of the agreement, not of the subjective intentions of the parties 48? . An agreement can be caught under Article 81 before it comes into effec 49t , whether or not the restrictive effect is complied with50 or enforced51, or the attempt to restrict competition succeeds52, or the parties had a common purpose or one or more of them was apathetic and unwilling53. Proof that the agreement had an actual impact on trade is not necessary54. An Undertaking covers any entity engaged in an economic activity regardless of its legal status and the way in which it is financed55. Liberal professionals can qualify as undertakings56 or advocates57. Any form of conduct between undertakings which without having been taken to the stage where an agreement properly so-called has been concluded, agreement falls under the prohibition of Community law contained in Article 85 (now Article 81); otherwise, it escapes the prohibition....what is particularly important is whether the agreement is capable of constituting a threat, either direct or indirect, actual or potential, to freedom of trade between Member states in a manner which might harm the attainment of the objectives of a single market between states?. 47 See also R. Whish, op cit, at p. 6. 48 C. Murray et al,: Schmitoff?s Export Trade: The Law and Practice of International Trade (11th edn, Sweet and Maxwell, London, 2007). 49 Commission Decision (EEC) 72/480 The WEA- Filipachi Music SA decision [1972] O.J. L308/52. 50 Case T- 141/89 Tréfileurope Sales v Commission (1995) ECR II- 791. 51 Case T- 43/92 Dunlop Slazenger v Commission (1994) ECR II- 441. 52 Joined 29, 30/83 Compagnie Royale Asturienne des Mines SA and Rheinzink GmbH v Commission. 53 Case T- 9/89 Huls AG v.Commission (1999) ECR II-499; Case T- II/89 Shell International Chemical Company Ltd (1992) ECR II-757. 54 Case C- 199/92 P Huls v. Commission (1999) ECR I- 4287, para.155; Cases C- 204, 205, 211, 213, 217 and 219/ 00 P Aalborg Portland As v. Commission (2004) ECR I- 123, paras. 81-86. Murray stated that in assessing the effect of an agreement upon competition, the agreement must be viewed in its economic and legal context, taking into account, all relevant facts. A Gentleman?s agreement to extend a cartel?s activities to the common market was held to amount to an agreement under Article 81 EC Treaty. See Cases 41, 44 and 45/69 ACF Chiemefarma v Commission (1970) ECR 661. 55 Case C-41/90 Hofner and Elsner v Macroton GmbH (1991) ECR I- 1979, para 21. 56 World-class opera singers in RAI/Unitel (1987) 3 CMLR 306. 57 Wouters ECJ C-309/99. 8 knowingly substitutes for the risks of competition, practical cooperation between them, amounts to a concerted practice58. A circular restricting parallel import was held to be an agreement though it was not a contractual document59. The inserting of a General sales condition clause in a contract to prevent parallel exports was held to be insufficient to find an anticompetitive objec 60t . However, Article 81(3) EC exempts conducts, from prohibitions under Article 81(1) EC, if consumers benefit from such and which do not impose on the undertaking concerned restrictions which are not indispensable to the attainment of its objects and afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question61. However, due to the circumscribed nature of this essay, I shall proceed to discuss Article 82 EC Treaty. Article 82 EC Treaty This Article prohibits an abuse of a dominant position and it relates to the position occupied by the undertaking at the time when the alleged abuse occurs62. It only prohibits abuse and not dominance63. Thus, a dominant position must have been abused64. The ECJ defined dominance as ?...relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition from being maintained on the relevant market...and behave 58 Case 48/89 ICI v Commission; See also Cases C-89, 104, 114, 116-7, 125-129/85 Ahlstrom O Sakyhtio v Commission (1993) ECR I-1307, (1993) 4 CMLR 407. Article 81 EC does not apply to an agreement unless its effects, both upon competition and upon inter-state are appreciable and not de minimis. See Commission Notice on Agreements of Minor Importance which do not appreciably restrict competition under Article 81(1) [2001] O.J. C 368/13, and Commission Notice: Guidelines on the effect of trade concept contained in Articles 81 and 82 EC [2004] O.J. C101/81; Commission Decision (EEC) 82/174 The Fire Insurance Decision [1982] O.J. L80/36 [1982]2 CMLR 159; Case 48/49 Imperial Chemical Industries Ltd v Commission (1972) ECR 619. 59 Case 32/78 BMW Belgium v Commission. 60 Case T-186/01 Glaxosmithklime services unltd v Commission, judgement of 27 September, 2006. 61 Paragraph a and b. 62 Joined Cases 40-48, 50, 54-56, 111, 113, 114/73 Cooperative Vereniging Suiker Unie UA v Commission (1975) ECR 1663, [1976] 1 CMLR 295. 63 C. Murray et al, op cit, p.9. 64 Case 6/72 Europemballage corporation & Continental Can co. Inc. V Commission (1973) ECR 215, [1973] CMLR 199. 9 to an appreciable extent independently of its competitors, customers and ultimately, consume 5rs 6? . Market share is the primary element in determining economic strength66. Large or small market shares may be important evidence of a dominant position67. The relevant market where dominance is to be tested need not be the same in which the alleged abuse is committed68. It means determining the scope of the competition rules in respect of restrictive practices and abuse of dominant position69. It combines the product and geog 70raphic market . Case-law identified a third one- temporal marke 71t- . Under the product market, the general approach is that of interchangeability72 and is addressed both from the demand and supply side. 65 Case 322/81 Nederlandsche Banden- Industrie Michelin NV v Commission (1983) ECR 3461, para. 37; Case 27/76 United Brands and United Brands Continental BV v Commission (1978)ECR 207; Case C-418/01 IMS Health GmbH & co OHG v NDC Health GmbH & co. KG (2004) 4 CMLR 1543. 66 United Brands ibid p. 207 67 Hoffman La-Roche opcit p. ; Case 247/82 Société alsacienne et Lorraine de telecommunications et d`electronique (Alsatel) v Novasam SA (1988) E.C.R 5987, [1990] 4 CMLR 434. See also United Brands case op cit., Case 62/86 AKZO Chemie v Commission (1991) ECR I-3353, [1993] 5 CMLR 215. Also, on the notice on market definition cited op cit, the commission begins by stating that a total market size and shares for each supplier can be calculated on the basis of their sales of the relevant products on the relevant area. In practice, the total market size and shares are often available from the market sources. Otherwise, the commission will task each supplier in the relevant market to supply them. The resources of an undertaking and its method of supply, production, research, packaging, transportation, selling and displaying its products are also relevant factors in evaluating economic strength. See also United Brands case op cit, at p. See also Joined Cases T-213/95 and T-18/96 Stitchting certificatie Kraanhuur bedrijf (SCK) and FNK & Another v Commission where the court stated that ?even if the market share of FNK members was ?only? 37 or 40% of the Netherlands market, the applicants were large enough and had sufficient economic power for their practices to be capable of having an appreciable effect on trade between Member States. 68 Case 62/86 AKZO Chemie v Commission (1991) ECR I-3359. 69 Regulation (EC) No 1/2003. In the event of the suspected infringement of competition rules, the first element to be considered is the relevant market. See the Commission Notice on the definition of relevant market for the purposes of community competition law [O.J. C 327 of 09/12/1997]. 70 Commission Notice on the definition of relevant market for the purposes of community competition law [O.J. C 327 of 09/12/1997]. 71 United brands case op cit. See also P.Craig and G. de Burca, EU Law-Text, cases and materials (4th edition Oxford, Oxford, 2008) p.1006. Once these have been defined, the Commission carries out a more detailed analysis of based on the concept of substitutability. A market is competitive if customers can choose between a range of products with similar characteristics and if the supplier does not face obstacles to supplying products or services on a given market. See the Commission Notice ibid. The relevant product market has also been defined in Case T-70/89 British Broadcasting Corp. & BBC Enterprises v Commission (1991) ECR II-535, [1991] 4 CMLR 669, as the market for a particular product which is sufficiently differentiated from other product markets so that its only to a limited extent, interchangeable with them and either not exposed to competition from other products or only exposed to such competition in a way which is hardly perceptible. 72 United brands case op cit, page 209; Michelin?s case op cit; Hoffman-La Roche?s case op cit. 10 The Geographic Market refers to a territory in which all traders operate in the same or sufficiently homogenous conditions of competition in relation to the relevant products and services without it been necessary for those conditions to be perfectly homogenous73. Markets may have a temporal element to them. Thus, a firm may possess market power at a particular time of the year during which competition from other products is low because other products are available only seasonally74. The Commission has adopted a narrower market definition than that of case-law to establish dominance75. Dominance relates to the economics to impede the maintenance of effective competition76 and to determine conduct regardless of competitive products77. It also includes situations where other firms are in a position of economic dependence on the dominant firm78. Where a dominant undertaking actually implements a practice whose object is to oust a competitor, the fact that the result was not achieved is not sufficient to exempt it from Article 82 EC prohibition79. What is an abuse? Several inexhaustible factors have been outlined in Article 82 EC to amount to an abuse. Affecting trade within the Common Marke 0t is the key element 8. Abuse of a dominant position may be reprimanded due to its effect on a different market even where there is no later dominance, especially where the dominant undertaking can control access to the other marke 81t. Four principal Article 82 cases are 82 Microsoft , France telecom83 British Airways84 and United brands85. In British Airways, the company was held 73 Case T-219/99 British Airways plc v Commission (2003) ECR II-5917, para. 108; Case T-83/91 Tetra Park 11 (1994) ECR II-755, para.91. This was confirmed on appeal. See also United brands case where it was stated that its banana market in France, Italy and UK were not the same with other EC States. 74 United Brands case op cit, at page 210. 75 S. Weatherill op cit, p.2. 76 Case 40/70 Sirena SrL v Eda SrL (1971) ECR 69, [1971] CMLR 260 77 Case 22/78 Hugin Kassaregister AB v Commission (1979) ECR 1869, [1979] 3 CMLR 345 78 Joined cases C-241, 242/91 Independent Television Publications (ITP) and Radio Telefis Eireann (RTE) v Commission [1995] ECR I-743, [1995] 4 CMLR 718 79 France Telecom op cit. Discriminate pricing, Refusal to Supply, Tying and bundling can amount to an abuse. See also United brands case op cit p. 207. 80 Hugins case op cit. In Hoffman-La Roche, op cit, an abuse was defined thus ?The concept of an abuse is an objective concept relating to the behaviour of an undertaking in a dominant position which is such as to influence the structure of a market where as a result 81 Craig and De Burca op cit, p.1021. 82 Case T-201/04 Microsoft corp. V Commission, judgement of 17 September, 2007. 11 to have abused its dominant position by offering travelling agents extra commissions when they promoted British Airways tickets86. An undertaking in a dominant position may be deprived of the right to adopt a course of conduct which is not in itself abusive but would be objectionable if taken by a non-dominant undertaking87. Thus, though it can protect his interest when attacked by competitors, it is not allowed to strengthen its position which can be held as an abuse88. There is also a position that obtaining or strengthening a dominant position, individually or collectively is not of itself prohibited by Article 82 EC89. Why do this judgements conflict? The acquisition by a dominant firm of a potential competitor might infringe Article 82 EC. Behaviour by a dominant undertaking that injures a competitor will not necessarily be injurious to consume 90rs. A dominant undertaking?s refusal to supply raw materials to manufacturers91 or finished goods to distributors92 or innovations93 can amount to an abuse under Article 82 EC. Article 82 EC does not only apply to private enterprises but also involves public bodies94, undertakings granted specific powers by statute or public 83 Case T-340/03 France telecom SA v Commission, judgement of 30 January, 2007, confirmed on appeal in Case C-202/07 France telecom SA v Commission, judgement of 2 April, 2009. 84 Case C-95/04 P British Airways plc v Commission, judgement of 15 March, 2007. See also P. Craig and G. De Burca, op cit, 85 Case 27/76 United Brands op cit p. 210 86 A.G. Kokott?s opined in this case that ?...Article 82 EC not designed...primarily to protect the immediate interests of individual competitors or consumers, but to protect the structure of the market and thus competition as such (as an institution) which has already been weakened by the presence of the dominant undertaking on the market, while indirectly protecting the consumers. The conduct of a dominant undertaking is not to be regarde as abusive only once it has concrete effects on the competitors or consumers but as soon as it runs counter to the purpose of protecting competition in the internal market from distortion because he bears a particular responsibility towards ensuring this objective?. See also case 85/76 Hoffman-La Roche & co. AG v Commission (1979) ECR 461.; France Telecom (case c-95/04) op cit. No 83. 87 Michelin?s case op cit para 57; Tetra pak case opcit on page 15, para 27;Case T-111/96 ITT Promedia NV v Commission (1998) ECR II-2937, para 138. 88 United Brands op cit, para 189; 89 Case T-17/93 Matra Hachette v Commission (1994) ECR II-595, paras. 123-4. An undertaking in a dominant position is obliged to modify its conduct so as not to impair effective competition on the market regardless of whether the Commission has adopted a decision to that effect. See Case C-12/03 P Commission v Tetra-Laval BV judgement of February 15, 2005, para 56. 90 Case C-7/97 Oscar Brooner GmbH & Co KE v Mediaprint Zeitungs-undzeitschriftenverlang GmbH & Co. 91 Cases 6 and 7/73 Istituto Chemioterapico Italiano SPA and Commercial Solvents v Commission (1974) ECR 223. 92 United brands op cit page 15. 93 Microsoft?s case op cit, . Microsoft had refused to supply interoperability information to its competitors in work group server operating systems market which excluded them and allowed Microsoft to strengthen its position in the market. The court finally held that this amounted to refusal to supply and as such, falls under Article 82 EC. 12 authorities95, subject to official authorisation96 or state supervision97 and non-profit making bodies98 engaged in economic activity. Economics and competition policy Numerous texts on competition policy have incorporated economics into law99. The establishment of the single market has an economic foundation and even from the contents of this essay, it is obvious that EC competition law is based on economic theory. The idea of a single market sprung up in a bid to ensure optimum allocation of resources for profit maximization while qualitative products with unlimited choices abound. The ECJ and the Commission are not innocent of this 100. Suffice it to say that the EC Treaty itself is the background of the economics logic. A single market, on its own, is an economic concept. An economic activity is defined as ?any activity consisting in offering goods and services on a given marke 101t? . The Commission, on addressing Article 81(3) expresses that for an agreement to be restrictive of competition by effect, there must be a reasonable degree of probability that it will produce negative effects on prices, output, innovation, or the variety or quality of goods and services102. Moreover, the Commission explicitly follows Metropole103 in its Guidelines on the application of Article 81(3), which states that the balancing of ?certain economic benefits? against the restrictive effects of an agreement is ?reserved for Article 81(3) 104? . Article 81(3) states that the provisions of Article 81(1) may be exempted from prohibition where an agreement ?contributes to improving the 94 Case 155/73 sacchi [1974] E.C.R. 409; Commission Decision (EEC) 82/86 [1982] O.J. L360/36, [1983] I CMLR 457. 95 Case 127/73 Belgische Radio en Televisie (BRT) V sv SABAM [1974] E.C.R 51 and 313; Case 26/75 General Motors Continental NV v Commission [1975] E.C.R. 1367. 96 Case 7/82 GVL v Commission (1983) E.C.R. 483. 97 Case T-128/98 Aeroports de Paris v Commission (2000) E.C.R. II-3927. 98 Belgische Radio op cit. 99 G. Vallindas op cit 100 This can be shown from the case-laws and commission decisions and notices mostly involving definition of various competition law concepts like relevant product market, dominance, abuse, to name but a few. 101 Wouters; Ambulance Groucker (para. 19) Wouters (2002) ECR I-1577. An abuse of a dominant position may consist in directly or indirectly imposing unfair purchase or selling prices which might be excessively high or low. See General Motors op cit; Commission Decision (EEC) 85/609 (1985) O.J. L 374/1 (ECS/AKZO). 102 Commission Guidelines on the application of Article 81(3) of the Treaty, [2004] O.J. C101/97 103 Case T-112/99, Metropole television (M6) v Commission [2001] E.C.R II-2459. 104 Commission Guidelines on Article 81(3) op cit, para 30 13 production or distribution of goods or to promoting technical or economic progress105. THE EC AND THE US SITUATIONS; WHICH IS MORE BUSINESS- PRONE? The US and EU competition policies, though they may be similar in some respects have a number of differences. Firstly, the European threshold for finding a dominant position (Art. 82 EC)106 is lower than the respective finding of monopoly in the US (Sherman Act, s. 2)107. Both jurisdictions make use of market shares to establish dominance. Consequently, a company having a similar market share is more likely to have a dominant position in the European Union than being subjected to monopolisation claim. Also, the US Supreme court requires an actual impact on the market so as to establish harm to the consumers108. However, in the EU, a likely impact on the market is sufficient to amount to an abuse of dominance109. A dominant firm in the EU has a special responsibility to other competitors on the market, towards ensuring that its conduct does not impair undistorted competition on the common market. On the contrary, there is a clear freedom for leading companies in the US to carry on business without taking their competitors into account110. 105 O. Odudu, ?A New Economic Approach to Article 81(1)?? (2002) 27 E.L.REV. 100. Odudu finds restriction of competition as a substantive element in Article 81(1) EC and allocative inefficiency are synonymous. See also Odudu, The Boundaries of EC Competition Law (OUP 2006), p.7 as cited in M. Marquis, op cit. In essence, Economic analysis provides the rules that are necessary for the proper functioning of market and therefore constitutes the basis for economic policy decisions. See also G. Vallindas op cit. at page2. 106 50% of the market share. 107 assessed on 26th March, 2009. The US uses 70% market share. See Town of Concord v Boston Edison Co 915 F.2d 17 (1st Cir. 1990) 43. See also Case C-62/86 AKZO Chemie BV v Commission [1991] E.C.R. I-3359, para. 60. 108 United States v Grimmel Corp 384 US 563 (1996) at [585]. The US authorities do not even attempt to assess the competitive significance of the conduct under challenge. See also Copperweld Corp v Independent Corp (Sup Ct) 467 US 752 (1984) at 796. 109 See Case T-203/01 Manufacture Francaise des Pneumatiques Michelin v Commission [2003] ECR II-407. 110 Microsoft case op cit; France telecom op cit; in the US, As long as there is no willful monopoly, US companies are free to do as they please on the market as long as they do not monopolise it. See United States v Colgate & Co 250 US 300 (1919) at 307. Here, the US Supreme Court makes it clear that ?...[I]n the absence of any purpose to create or maintain a monopoly, the Act does not restrict the long recognised right of trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal?. 14 While the EU favours fair competition111, the US authorities favour aggressive competition112. The fairness is also incorporated in the special responsibility of a dominant towards its competitors113. When the EU competition authorities talk about consumer welfare, they refer to the economic surplus for the consumers114. For the US antitrust authorities, total economic efficiency is the goal for competition policy, however it may be distributed115. The EU competition policy tends to be more interventionist in nature in the sense that its afore-mentioned attributes always attracts the intervention of the authorities on the market to maintain undistorted competition. The US authorities adopt a liberal approach and have faith in the free market forces 16 to regulate the marke 1t . The interventionism may lead to false acquittals whereby the legal conduct of an undertaking may amount to an abuse under Article 82 EC Treaty117. The US antitrust authorities prefer a liberal approach and as such strive to avoid reducing the competitive zeal of the companies by convicting behaviour which is harmless to consumers118. The US antitrust protects the large enterprises and have no legal obligation to protect small and medium-sized companies as against EC antitrust which has a special responsibility to ensure that their competitors are not ousted from the market through their conducts which 111 Article 3(1) (g) EC Treaty states that it requires a system ensuring that competition on the common market is not distorted. 112 United States v Microsoft Corp (Microsoft 111) 253 F.3d 34, Case No 00-5213. The US supreme court stated that ?...Competition is a ruthless process... injuries to rivals are by-products of vigorous competition, and the antitrust laws are not balm for rivals? wounds. See Ball Memorial Hospital Inc v Mutual hospital Insurance 784 F.2d 1325 (1986) at 1338. 113 D. De Smet, ?The diametrically opposed principles of US and EU antitrust policy? (2008) 29 E.C.L.R. 356 114 Ibid. P 22. They try to make sure that there will be sufficient benefits passed on to the society and thereby, promoting consumer redistribution. Article 2 EC Treaty seeks to achieve a sustainable development of economic activities and raise the economic and social cohesion within the EU. 115 R.H. Borx, The Antitrust Paradox: a policy at war with itself (Basic Books, New York, 1978) 90. 116 Spectrum Sports Inc v McQuillan 506 US 447(1993) 458.The court stated that ?it is not to protect business from the working of the market; it is to protect the public from the failure of the market. The law directs itself not against competitive conduct but against that which tends to destroy competition?. 117 Case T-65/89 BPB Industries Plc v Commission [1993] E.C.R.II-389, where the court stated that ?the conduct of an undertaking in a dominant position may be regarded as abusive...even in the absence of any fault?. In continental can?s case, the ECJ stated that ?... [Article 82 is] aimed at practices which may cause damage directly, but also at those which are detrimental to them through their impact on an effective competition structure? 118 The US Supreme Court, in Verizon 540 US 682 [2004] at [414] that ?... the means of legitimate competition are myriad... mistaken inferences and the resulting false condemnations are especially costly because they chill the very conduct antitrust laws are designed to protect? 15 include the small and medium-sized enterprises119. EU competition authorities, while analysing possible harm to consumers, need to maintain undistorted competition120. This they achieve by assessing harm in the short, medium or long term121. Due to their policy of actual concrete impact on the market, the US antitrust authorities only look at the present situation on the marke 122t . The European antitrust measures in the Microsoft case123 provoked sharp criticism in the U.S. mainly for requiring Microsoft to offer a version of the windows operating system without the middleware ?Windows Media Player? (?code removal 24? remedy 1) . The European Social Model Introduction ?European integration has created a constitutional asymmetry between policies promoting market efficiencies and policies promoting social protection and equality as economic policies have been Europeanized 119 The US Supreme Court stated that the antitrust laws were created for competition not competitors. See Brown Shoe Co. v United States 370 US 294 (1962) at 320. 120 D.De Smet ibid. P.22. 121 DG Competition discussion paper on the application of Article 82 of the Treaty to exclusionary abuses Brussels, December, 2005, available on assessed on 28 March, 2009. 122 See United States v E I du Pon de Nemours and Co 351 US 377 (1956) 426, where the US Supreme Court observed that ?...only actual competition can assure long-run enjoyment of the goals of a free economy?. 123 Microsoft v Commission op cit, at p. 124 T.O. Barnett (US Department of Justice), Issues Statement on European Microsoft Decision, 2007, available on assessed on 27 March, 2009. It is worthy of note that the CFI contended that Microsoft had a market share above 50% of the relevant market which amounted to a dominant position on its part (Decision in COMP/C-3/37,792-Microsoft at [323]). That meant that it had special responsibility towards ensuring undistorted competition on the market. It found Microsoft liable under Article 82 EC which confirmed the Commission decision on the matter and as such, a huge fine of Microsoft up to ?497 million, compulsory licensing and a full unbundling of Media player in its operating software windows was the consequence. The liberalist nature of the US antitrust favoured Microsoft somehow. Even though a monopoly was established (up to 95% of the market share), the US District courts stated that ?We do not have enough empirical evidence regarding the effect of Microsoft?s practice on the amount of consumer surplus created or consumer choice foreclosed by the integration of added functionality into platform software to exercise sensible judgement regarding that entire class of behaviour? (United states v Microsoft Corp 253 F.3d 34 DC Cir 2001, 94). The claim that bundling the windows internet explorer was detrimental could therefore not be proven and the unbundling was therefore not considered an option. We should remember that the US favours aggressive competition and would not likely have the position on this kind of matter with the EU competition that favours fair competition. 16 whi 25le social protection policies remained at the national leve 1l? . The supremacy of all EU rules poses a constraint for the national welfare states126. ?In December 2001, consequent upon their meeting a year earlier, the European council agreed to a set of social indicators covering four dimensions of social exclusion, namely financial poverty, employment, health and education, to be used by all EU states in biennial reports on social inclusion to the Spring European Council from 2003 onwards. This was to be achieved through an open method of coordination which involves, inter alia establishing policy guidelines127. ?Jacques Delors128 designated the term ?European Social Model? as an al 9ternative to the American form of pure-market capitalism 12? . What is more to it? An overview of the Concept of ESM vis-a-vis EU competition policy The ESM is been used to describe the European experience of simultaneously promoting sustainable economic growth and social cohesion130. It encompasses wide range of interventions for social purposes131. ?In the EU context, the social dimension... is designed to... mitigate the social consequences of economic development within the EU. Market integration impacts on social policy...particularly in terms of social and health services that have a market dimension where issues of competition ar 132ise? . The ESM could also be regarded as a political concept in the framework of a demand for legitimacy generated by the EU project per se133 and manifestation of a political struggle to push certain items unto the political 125 F. Scharpf, ?The European Social Model: Coping with the Challenges of Diversity? (2002) 40 JCMS 645. 126 Ibid p. 645 127 J. O?Connor, ?Policy coordination, social indicators and the social policy agenda in the European Union (2005) 15 J.E.S.P 345. 128 President of the European Commission in 1985. 129 M. Jepsen and A.S. Pascual, ?The European Social Model: an exercise in deconstruction? (2005) J.E.S.P. 231. 130 Ibid. 131 Kleinman and Piachaud, ?European Social Policy: Conceptions and Choices? (1993) 3 J.E.S.P. 1 as cited in J O?Connor op cit., p.26. 132 J. O?Connor ibid. 133 Jepsen & Pascaul op cit, 17 agenda134. The recent landmark decisions of the ECJ in Laval and Viking have intensified the debate over the role of European law in protecting the boundaries of the national welfare state135. Hostile reactions from the academia show that the court, in trying to police the hostility between the trans-national market and a national social space, is faced with an increasingly impossible task of reconciling the commitment of national polities to universal social services, and the idea of a European market committed to free entry of foreign providers136. ?A service and knowledge society will depend on the qualifications of the average citizen and not just of the elite; on his or her productive and integrative capabilities 137? . According to Marshall, educational policy influences future market processes by extending and improving qualifications useful in the labour marke 138t . In the run-up to the tripartite Social Affairs Summit at Hampton court on 24 October, 2005, the ETUC139 proposed a seven-point programme to emphasise its belief in the ESM140. The Commission identifies the ?share values? underlying the social and economic policies of the Member States141 which indicates that Europe has chosen to adopt a social market economy. These values are enshrined in the Treaties142 the activities and the legislation of the EU. The Commission aims to achieve coordination between national and European 134 Ibid. This could be evidenced in the Nice Conference of 2000 which had a political undertone although it is been characterised today as the bedrock of the ESM concept. 135Case C-438/05 Laval un partneri Ltd v Svenska Byggnadsarbetaref?rbundet (2007) E.C.R I- 11767; [2008] 2 C.M.L.R 9. 136 M. Dawson, ?The ambiguity of social Europe in the open method of co-ordination? (2009) 34 E.L. REV. 55. 137 J. Allmendinger and S. Leibfreid, ?Education and the Welfare State: the four worlds of competence production? (2003) 13 J.E.S.P 1. 138 T.H. Marshall, ?Citizenship and Social Class?, Class Citizenship and Social Development. Essays, (Garden City, New York, 1964) 65-122; as cited in Allmendinger and Liebfreid ibid. 139 European Trade Union Confederation. 140 They include further development of social policy and legislation, a strong framework to deal with delocalisation and restructuring, addressing demographic challenges in a forward looking way, provision and implementation of active labour market policies and life-long learning, equality for all, a sustainable legal framework for migration and mobility, a stronger external dimension of the social model. President of the EC, 2005 José Manuel Barroso highlighted core European values such as welfare state, social dialogue and the balance to be struck between economic efficiency and cohesion. See Cecile Barbier et al, ?observatoire Social Européen, Brussels (Digest) (2006)16 J.E.S.P. 141 This includes solidarity and cohesion, equal opportunities and the combating of any form of discrimination, sufficient occupational health and safety rules, access for all to education and healthcare, quality of life and quality in work, sustainable development and participation in civil society. 142 For instance, Article 2 EC Treaty. 18 economic and social policy areas within the EU143. The ECJ has held that social policy was not consistent with competition policy and Article 81 could not be applied to collective labour agreements about conditions of wo 44rk and employment 1. The Commission and the European courts A good number of case-laws and secondary legislation have been used extensively in the course of this essay to buttress the strong influence of the ECJ, the CFI and the Commission in European competition law and policy. The courts constitute the judicial arm of the EU and reserve the power to interpret the Treaty. In case of any lacuna in the Treaty, recourse could be had to case-law. National courts can refer cases of competition to 145 them. The Commission is the executive arm of the EU and proposes new laws for the governance of the EU. It is empowered under Article 85 EC to ensure the application of the principles laid down in Articles 81 and 82 EC. It also enforces competition policy in the EU. Guidelines and Notices used by the Commission to enforce competition policy are however without p 146rejudice to the decisions of the courts. Enforcement of competition policy In addition to the functions of the Commission already outlined, it is pertinent to note that the Commission has power to make final and interim orders for the termination of infringements147, enforced by periodic penalties in de 148fault and to impose fines in respect of breaches of Article 81 committed intentionally or negligently149. Exemptions for the antitrust rules were granted to forms of (transnational) corporations between undertakings which the commission 143 Cecile Babier op cit, p.28. 144 Case C-67/96, C-115-117 and 219 (97) Albany international BV v Stitchting, Bedrijfspensioenfonds Textielindustrie and others [1997] E.C.R I-5751. 145 In such an instance, the direction of the European courts in such cases have binding effect on the national courts and though they are not called judgements, they have the nature of judgements and will always serve as an authority to the national courts when handing matters of similar nature. 146 assessed on 28 March, 2009. 147 Article 7, Council Regulation (EC) 1/2003. 148 Article 24, Council Regulation (EC) 1/2003. 149 Article 23, Council Regulation (EC) 1/2003. 19 considered desirable to promote either integration or broader competition policy aims150. The prohibitions of Articles 81 and 82 EC have direct effect in national law151. It is the duty of national courts to give effect to the rights created by Article 81 EC152. Infringement of both Articles them gives a potential liability to fines and orders as to past and future conduct and to damages153. The Commission also has powers to investigate into alleged anti- competitive practices154. It can carry this out on its own or through complaint155. Conclusion It is obvious that the European courts-ECJ and CFI- have been very influential in the development of competition policy in the EU. The ECJ has been defending the cause of competition law right from its inception. It has gone a long way in adding more power to the elbow of the Treaty provisions of competition law and providing a stance for those areas that were not provided for within the Treaty. E.g. dominance. However, their judgments in some cases do not tally with the innovating spirit which competition develops. Their decision in the Microsoft case provoked sharp criticism from mostly American critics who urged European competition authorities to refrain from such a regulatory approach towards a dominant actor?s unilateral conduct, arguing that the imposed restraints on the improvement of products by adding feature could cause a chilling effect and may discourage competition. The Commission, on its part, has in an enormous way, depicted prowess in competition policy enforcement. They have vigorously fought cartels for years now and currently, cartels are seriously on the low side unlike the situation few years ago156. 150 This was prior to the enactment of Regulation 1/2003 which gave the commission the direct powers to grant exemptions under Article 81(3) EC Treaty. There are no more notifications under Article 81(3) EC Treaty. 151 Article 3 Regulation (EC) 1/2003 152 Case C-453/99, Courage v Crehan (2001) E.C.R. I-6297. See also Article 5, Regulation (EC) 1/2003. 153 Yeheskel Akin v Bochard Lines Ltd and others (2003) E.U.L.R. 287. There is also a cooperation between national authorities and the Commission; and between national courts and between European courts. 154 Article 17, Regulation (EC) 1/2003 O.J L1/1. 155 The complainant shall have legitimate interest. See the Article 5 (1),Regulation (EC) 773/2004. 156 For more on cartels, see 20 However, they should try to propose laws that will enhance the development of societal goals which will ultimately provide for the grass- roots who may not have the wherewithal to be on the market but can go to school, gain employment, eat 2-3 square meals a day and have a sense of belonging without being an undertaking in the market. ?At the current stage, there is no clear European Social Model promoted at the EU level. Rather, a conflict of laws between economically oriented actors promoting market-type solutions and socially oriented actors trying to find new perspectives for a productive approach to social policy linking them positively to economic and employment policies 157?. It should not be all about market; it should be for the people, by the people and for the people. 157 A.M. Guillén, and B. Palier, ?Does Europe Matter? Accession to EU and Social Policy Developments in recent and new member states? (2004) 14 J.E.S.P. 203.
Posted: 22 April 2010

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