EUROPEAN BUSINESS ENVIRONMENT

 

 

 

 

 

 

 

 

 

EU Competition Policy

One of the founding principles of the European Union (EU) was, and still is, to foster trade among member states. This noble goal has seen the EU enacts legislation, directives, and resolution to ensure that businesses are allowed to compete freely both within and across the member states. The EU competition policy is pegged on the understanding that competition yields innovation, creativity and wide varieties of goods and services to the ultimate benefit of the consumer. As such, the Union has been hell-bent to ensure that the principles of a free market are fully upheld. Some of the famous anticompetitive legislation includes Article 101 and 102 of the Treaty on the Functioning of the European Union (hereinafter referred to as the TFEU). Article 101 is of particular interest in this case since it is the embodiment of competition rules that prohibit cartels and any other activity that is “incompatible with the internal market”. In its enforcement role, the court and the Competition Commission have been ruthless in ensuring that the competition principle embodied by the European Union is upheld and implemented. Such ruthlessness is seen in Comp/39125 and Case C-68/12 rulings.

Competition Policy Background

 The EU competition policy has evolved over the years. It dates back to the early 1950s when Germany, Italy, France, Belgium, Luxemburg and the Netherlands countries came together under the Treaty of Paris (Chalmers, Davies and Monti 2010). This Treaty created the European Coal and Steel Community which had its eyes set on establishing a common market. The six member countries would later be the founding members of the EU, then known as the European Economic Community. Article 65 in particular of the treaty prohibited any act that had in its effect the ability to distort the free market.

The anticompetitive principles contained in the Treaty of Paris were later captured in an expansive manner in the Treaty of Rome in 1957. Article 81 of the EC (formerly Article 85 in the Treaty of Rome) prohibited agreements and concerted practices that would distort competition between member states. Article 82 of the EC (formerly Article 86 of the Treaty of Rome) prohibited any abuse of a dominant position (Jones and Sufrin 2007). Article 101 and 102 are the successor statute of article 81 and 82 of the Treaty establishing the European Union (commonly referred to as the EC treaty).

An Overview Article 101 TFEU

Article 101 of the TFEU is one of the two central rules governing the EU antitrust policy. The other is the article 102. Article 101 has been very crucial in the European market since it touches on the most common anticompetitive behaviours – cartels. It prohibits collusive conduct between two or more independent undertakings. The common collusive conducts, especially those exhibited by cartels are price fixing and sharing of market.

According to article 101(1), “all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member states and which have their object or effect the prevention, restriction or distortion of competition within the internal market” are prohibited. The collusive conduct prohibited are those which can limit or control production, share markets or sources of supply, vary the conditions of trade between different partners or enter into contracts that are aimed at distorting the market. Any collusive conduct of such, pursuant to this article shall be declared null and void (Guersent 2010).

Article 101 (3) provides the exceptions in Article 101 (1) TFEU. According to 101 (3) TFEU, agreements which have no aim of distorting the market may be exempted from the prohibitions contained in 101 (1) (European Union 2010). Such agreements are those which have their effect on promoting trade and more importantly improving the general welfare of the consumer (Rompuy 2012). Some of the conditions that the EU will consider when evaluating whether a certain agreement qualifies to be exempted under Article 101(3) include efficiency gains, what the consumer stand to gain out of the agreement, whether there is any other favourable alternative option that can attain the same results, and the extent the agreement will stifle the competition.

Article 101 TFEU case laws

As a supranational institution, every rule that is passed at the continental level, must be equally enforced at the national level. This provisions demand that all the anticompetitive restrictions that the EU imposes at the union level should be equally be enforced by the national authorities (Motta 2004).  To that end, the EU and the national authorities have been ruthless in ensuring that EU trade is hinged on an open market platform. Infringement of Article 101 attracts a hefty penalty. There are several cases that have been so far enforced by the commission itself, the European Court of justice or still at the national level where the states have enforced anticompetitive rules to encourage healthy competition.

Comp/39125: Car glass case (Ref. IP/08/1685)

The car glass case involving four companies: Asahi, Pilkington, Saint-Gobain and Soliver are one of the outstanding cases of how the EU Commission has dealt with infringement on Article 101 TFEU (Kallaugher and Weitbrecht 2010). The case sent harsh signals to undertakings that have intentions of violating the provisions of article 101, and indicated that the antitrust commission can pull all stops to ensure that the competition principles of the EU are upheld. In this case, the antitrust commission fined the four companies a total of €1 383 896 000 for fixing prices, exchanging sensitive information, and sharing market for windscreens, rear windows, sidelights and sunroofs in new European cars.

The fact of the case is that in 2005, the Antitrust Commission started investigation into the car glass industry following information from an anonymous source that the four companies – Asahi, Pilkington, Siant-Gobain and Soliver were engaging in anti-competitive behaviour. The four companies were the major target since they controlled a market share of 90% of all the glass used in new cars in the European market, which was estimated to amount to €2 billion in the last year (2002) of infringement.

After a detailed investigation, which involved ambush inspection and cooperation from one of the perpetrators, Asahi, the antitrust commission found the four companies guilty of market sharing and exchange of sensitive information. The commission found out that the four companies held regular discussions between 1998 and 2003 to allocate the market of car glass supply between them and how they could keep their market share as stable as possible. The commission revealed that the said meetings were held at different airports and hotels across Europe. In these meetings, besides sharing the market, the companies also exchanged confidential and lucrative business information that is only common in a cartel like formation. Under the leniency program, the Japanese owned Asahi furnished the commission with the underhand dealings in the hope that it could be exempted from the fine.

After the conclusion of the investigation, the commission handed its worst fine ever. In defence of the harsh penalties, Neelie Kroes, the competition commissioner said that they were in line with the 2006 guidelines that require the fines to be proportionate to the economic effect of the infringement (European Union 2006).

In the fines that shied slightly short of €1.4bn, Saint-Gobain of France was the hardly hit at €880,000,000. The commission argued that the company deserved the heavy penalty because it was a repeat offender. The Asahi/AGC Flat Glass of Japan saw its fine reduced by 50 percent (€113 500 00) for cooperating with the commission to unearth the market manipulations. Pilkington of UK and Soliver of Belgium were fined €357,000,000 and €4 396 000 respectively. Although these companies, especially Saint-Gobain termed the fines as “excessive and disproportionate”, the commission felt that the fines were necessary to send a message to companies that the Union was not going to tolerate anticompetitive behaviours.

According to Townley (2011), the case earmarked a unique development where individuals can sue companies that have been found guilty to recover the damages. As a result, the Swedish car manufacturer, Volvo, brought charges against Pilkington for what it termed as inflated prices that came out of the cartel (Ruddick 2010). Other companies such as German company HUK-Coburg also considered taking action against the cartel for the inflated prices. The fact that individuals can bring a suit against the violators of Article 101 indicates how serious and grave anticompetitive behaviours can be. Saint-Gobain, for instance, decried that the fine would eat up to its net profit running for decades.

The ruling in this case has opened debate on the role of fines as deterrence to anticompetitive behaviours (Schinkel 2009). Before the ruling, some of the scholars had argued that the leniency employed by the competition commission had eroded the ability of the fines to act as deterrence. Guersent (2010) and Veljanovski (2011) observe that although the European Union has set very high fines, the leniency program has comprised the role of high fines as a deterrence measure. However, the heavy fine meted on the perpetrators in this case, especially Saint-Gobain opened generated some other feelings that heavy fines could cripple the perpetrators.

The ruling in this case has also opened questions on whether fines alone can effectively work as deterrence measure. Some have suggested that the European Union needs to consider jail terms on top of fines as the case in U.S. antitrust policy (Werden, Hammond, and Barnett 2012). According to Niels, Jenkins, and Kavanagh (2011, p. 478) the commission should also weigh the ability of the affected company to pay the fines.

Protimonopolný úrad Slovenskej republiky v Slovenská sporite??a a.s. (Case C-68/12)

The ruling in the above case is very interesting in so far as Article 101 TFEU is concerned. In the ruling, the Court of Justice of the European Union (hereinafter “the ECJ”) held that the fact that a competitor was operating illegally in a certain market was not an enough reason to form an agreement to exclude it. The ruling was in response to a preliminary ruling sought by a Slovak court in relation to what the court saw as an infringement of Article 101 TFEU.

In the fact of the case, the authorities of the Slovak Republic had imposed a fine on three Slovaks Banks that had conspired to terminate contracts with Akcenta (non-financial institution from Czech Republic) alleging that the non-financial institution was operating illegally in the Slovakia market. The termination of the contract saw Akcenta being denied a current account in Slovak banks, a condition that the non-financial institution required to operate in the Slovakia market. In the proceeding of the case, as the Antimonopoly Office of the Slovak Republic (2013) notes, it was apparent that the non-financial institution was competing with the banks to offer services. The three banks entered into an agreement that saw the banks terminate their relations with Akcenta in a coordinated manner.

When the Akcenta bank brought the matter to the Competition Authority of the Slovak Republic, the authority found the three banks liable for engaging in an anticompetitive behaviour and imposed the necessary fines accordingly. One of the banks, Slovenská, disagreed with the decision of the Competition authority and appealed to the Supreme Court of the Slovak Republic in alleging that there was no way AKcenta could be regarded as a competitor since it was operating illegally in the Slovak market. The Supreme Court referred the matter to the ECJ for an interpretation on whether a competitor who was operating illegally could be denied the protection of Article 101 TFEU.

In its ruling the ECJ found that the fact that a competitor was operating illegally in a market could not be used to overlook the provisions of Article 101 TFEU. In its ruling, the ECJ observed that it was apparent “from the order of reference that the agreement entered into by the banks concerned specifically had as its object the restriction of competition and that none of the banks had challenged the legality of Akcenta’s business before they were investigated in the case giving rise to the main proceedings” (para. 19). Further the court found out that it was the responsibility of the authorities, and not the banks, to ensure statutory compliance by all businesses operating in the Slovak Market. Thus, the ECJ found out that the banks overstepped their mandate to dislodge the competitor out of the market. According to the ECJ, the banks ought to have reported the alleged illegal operations to the relevant authority.

Comparison of the two cases

            The two cases are unique and important in their own respect. While the car glass case is unique due to the hefty fine imposed, the Slovak banks case takes a unique dimension where a not having required certification to operate in a certain market cannot be used exclude a competitor.  The two cases are important in anti completion policy. In the first case, the commission set a record that heavy fines can be imposed to violators of Article 101 TFEU. According to the case, what should be considered in imposing the fines is the economic effect of the infringement. At the same time, the car glass case enforces a unique approach where the victims of a cartel can bring individual charges against the responsible business for compensation of damages incurred therein.

The difference between the two cases is that one was decided by the Competition Commission while the other one is decided by the courts. Nonetheless, the two institutions affirm their commitment to enforce the provisions of Article 101 TFEU. The other difference is that in the car glass case, the proceedings are commenced by the commission itself, while in the Slovak bank case; it is the victim who brings the infringement to the attention of the enforcing authorities.

 

 

Conclusion

The European Union has maintained a stringent anticompetitive policy since its formation. The EU competition policy is based on the Union desire to achieve an open market that encourages innovation and yields the best value for the consumer. Article 101 TFEU has been central in enforcing compliance with the European anticompetitive policy. Any undertaking that goes against the provisions of the article risk heavy penalties that may cripple its operation. Article 101 TFEU prohibits agreement between undertaking and all collusive conduct that has their effect or object to distort the market. However, there have been questions regarding the current competition policy where participants have questioned whether the welfare of the consumer should be the guiding principle. In some instances, competition law has been viewed as barrier to firms coming together.

 

 

 

 

 

 

 

 

List of references  

Antimonopoly Office of the Slovak Republic (2013) The European Court of Justice has ruled in the matter of prejudicial question of the Supreme Court of the Slovak Republic. Bratislava: Antimonopoly office

Chalmers D, Davies G & Monti G (2010) European Union Law: Text and Materials. London: Cambridge University Press

Comp/39125 car glass case

European Commission (2006) Guidelines on the Method of Setting Fines Pursuant to Article 23 (2) (a) of Regulation No 1/2003 [2006] OJ C210/02.

European Union (2010) Consolidated Version of the Treaty on the Functioning of the European Union. Official Journal of the European Union c 83/49

Guersent O (2010) Cartel Fines, Deterrence and Ability to Pay. London: European University Institute

Jones A & Sufrin B (2007) EC Competition Law: Texts, Cases and Materials (3rd eds). London: Oxford University Press.

Kallaugher J & Weitbrecht A (2010) Developments under the Treaty on the Functioning of the European Union, articles 101 and 102 in 2008/2009. European Competition Law Review, Issue No. 8

Motta M (2004) Competition Policy: Theory and Practice. London: Cambridge University Press.

Motta M (2007) On Cartel Deterrence and Fines in the EU. London: European University Institute

Neils G, Jenkins H, & Kavanagh J (2011) Economic for Competition lawyers. London: Oxford university press.

Protimonopolný úrad Slovenskej republiky v Slovenská sporite??a a.s. (Case C-68/12)

Rompuy B (2012) Economic Efficiency: The Sole Concern of Modern Antitrust Policy? Non-Efficiency Considerations under Article 101 TFEU. London: Cambridge University press

Ruddick G (2010) Volvo sues Pilkington over “price fixing”. The Telegraph. [Online] Available at: http://www.telegraph.co.uk/finance/newsbysector/industry/7913278/Volvo-sues-Pilkington-over-price-fixing.html [Accessed on April 2, 2013]

Schinkel M (2009) Cartels, deterrence and ability to pay: Getting the balance right.  Remarks prepared for the CRA conference on Economic Developments in European Competition Policy. Brussels: University of Amsterdam

Townley C (2011) Which Goals Count in Article 101 TFEU? Public Policy and its Discontents. European Competition Law Review, Issue No. 13

Treaty of Paris 1951

Treaty of Rome 1957

Veljanovski C (2011) Deterrence, Recedivism, and European Cartel Fines. Journal of Competition Law and Economics Vol. 7(4), p.871

Werden G, Hammond S, & Barnett B (2012) Deterrence and Detection of Cartels: Using all the Tools and Sanctions. Washington DC: U.S. Department of Justice

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