Article

New Guidelines for State Aid to Energy Infrastructure – A Helpful Move Toward Europe 2020?

 Robert Miklós Babirad

  

1        Introduction

On April 9, 2014, the European Commission adopted in principle new State aid guidelines, which will now encompass the application of State aid to energy infrastructure within the European Union.[1]  In 2008 the present Community guidelines on State aid for environmental protection[2] were established, which extended in duration through 2014.[3] The focus of the 2008 Guidelines centered upon the improvement of performance with regard to environmental concerns.[4]  Energy issues were addressed to the extent that they related to the support of environmental or climate related goals, but energy infrastructure failed to be specifically or adequately considered.[5]  This article will begin with a brief overview of Europe’s 2020 energy and climate goals.  The Commission’s inclusion of specific guidelines for energy infrastructure will then be assessed as well as their helpfulness with regard to achieving the goals of Europe 2020 and with respect to the Single Market.  In conclusion, it will be suggested that by extending the present Guidelines, specifically into the area relating to energy infrastructure, there will be an overall positive impact upon Europe in attaining its 2020 energy and climate objectives while minimizing any accompanying market distortions.

 

2        Europe’s 2020 Climate and Energy Goals

The goals of Europe 2020 include creating an EU wide policy for energy, which seeks to provide for energy services and products that are uninterrupted while fostering European innovation, technology, the development of a market for energy that is integrated and the overall attainment of Europe’s climate and energy goals as a whole.[6]  Europe 2020 also provides that by the year 2020, there will be an increase in the efficiency of energy by the EU’s Member States of 20% and with respect to emissions that are connected with global warming, a reduction of 20%.[7]  The European Union’s energy and climate objectives also provide for the goal of attaining 20% of Europe’s energy derivation from renewable resources by this time.[8]

  

3        Controversy Concerning State Aid In The Energy Sector

There is a concern as to whether extending the 2008 State aid environmental guidelines into the area of energy infrastructure will actually aid in the securing of Europe’s 2020 climate and energy objectives or instead result in a negative and measurable disruption of market forces.

Article 107(3)(b) TFEU permits the promotion of “an important project of common European interest” even where competition may be potentially distorted.  However, a concern is always present with regard to the conflict between unaltered competition in a market based economy and that of subsidies being applied through the granting of State aid, which may result in the internal market being disrupted.

It is important though to note that policy objectives have also always played a crucial role alongside competitive concerns.  Dr. Townley suggests that even agreements under Article 101 TFEU have been upheld by the Commission where they were even only “theoretically” based upon the larger policy objective of ensuring the supply of energy and this has occurred despite concerns regarding the integration of the Single Market or economic efficiency being negatively impacted.[9]  The Commission’s decisions in International Energy Agency are offered by Dr. Townley as support for the value, which has been attributed by the Commission to the certainty of availability with respect to particular goods of importance.[10] State aid becomes an essential instrument for the provision of a secure and reliable energy supply and attainment of European climate and energy objectives where energy operators on the market are unable to otherwise provide an adequate and modern energy infrastructure and supply; and also acts as an important device for overcoming failures both with regard to the market and existing regulatory schemes.[11]

The application of State aid as an instrument for achieving policy may therefore be employed, but must operate in tandem with the goal of minimizing distortions of the Single Market.  The Commission’s proposed Guidelines for energy and particularly energy infrastructure do not appear to be an unreasonable extension of policy making through the application of State aid, but rather a logical progression toward the attainment of Europe’s climate and energy goals.

Extending the guidelines to energy infrastructure becomes necessary, particularly because of the intended purpose of the rules, which is to aid in the creation of a European energy market that is integrated and able to meet Europe’s 2020 energy and climate objectives.[12]  Additionally, there is a focus on providing State aid to energy infrastructure projects that will enhance the flow of energy across Member State borders and encourage the establishment of energy infrastructure in those areas of Europe, which to date have experienced a lesser degree of overall development.[13]

Revised guidelines developed specifically for State aid to energy infrastructure become particularly essential when it is considered that for renewable energy resources to be used to their full potential while reducing expenditures, new facilities that are enabled to store the energy must be provided for that have the ability to convert “intermittent supplies of these energy sources” into an energy supply that is secure.[14]  Guidelines for State aid to energy infrastructure can aid in the effective attainment of this objective.

 

4        The  Helpfulness of the Guidelines for State Aid to Energy Infrastructure

A key aspect of the new guidelines is that they extend the 2008 environmental rules for assessing the application of State aid into the energy field and now specifically include rules for supporting energy infrastructure.[15]  This is an important step by the Commission, which resolves an existing failure to address State aid for the development of energy infrastructure.

The need for State aid guidelines for energy infrastructure is evident through the Commission’s acknowledgment that the generating of electricity has experienced a transition within Europe from a supply that was previously continuous and “relatively stable” to one that is now from a greater number of “variable sources,” which provide production on a smaller scale.[16]  As a result, the EU has had to find new ways to secure adequate energy production and supply.[17]  The establishment of guidelines for State aid to energy infrastructure is one manner of helping to address this challenge.

The Commission also notes that failures of both a regulatory and market nature have the potential to create a lack of sufficient investment in “generation capacity,” without the application of State aid, which may be used to ensure adequacy of the energy supply and the employment of renewable energy within the EU’s Member States.[18]  These acknowledgements by the Commission are important, because they recognize the changing nature of how energy is being supplied throughout the E.U. and the need for State aid and accompanying guidelines for energy infrastructure if market and regulatory failures are to be corrected and adequate energy production is to be ensured.

The Guidelines also encourage an avoidance of using State aid as a subsidy for fossil fuels, which would have the potential to result in harmful environmental effects.[19]  This is an important move by the Commission toward encouraging the development of an energy infrastructure that will foster the use of renewable energy and aid in the overall achievement of Europe 2020’s energy and climate goals.

The burden is also placed upon the Member State to provide reasoning as to why State aid is necessary for “adequate capacity” and why this cannot be met by the market.[20]  This is a positive aspect of the Guidelines in that an undue reliance on State aid is discouraged and market forces are instead supported.  However, the Commission provides that factors to be considered in the assessment should include a consideration of “the impact of variable generation,” and this will extend to that which is available in neighbouring Member States, the availability of interconnectors, projects that may be in the planning stages or already under construction and any additional factors with the potential to “cause or exacerbate the generation adequacy problem.”[21]

The difficulty is that the Commission fails to explain the scope of these broad factors, which must enter into an assessment of whether State aid should be granted to energy infrastructure.  Factors that have the ability to result in a failure to generate sufficient energy need to be more clearly defined if this provision of the Guidelines is to be interpreted meaningfully.  The Commission also neglects to provide for the extent that energy generation facilities in neighbouring Member States must be considered in the assessment.  Additionally, it is problematic that projects, which have not been completed, as well as those that are under construction and which may not come to fruition, are to be considered as viable factors in the State aid assessment.  As a result, State aid may be needlessly granted or incorrectly denied to the development of energy infrastructure in a Member State.

The Commission also provides that State aid to energy infrastructure should not provide for the undertaking to be remunerated for energy being sold, but rather compensation should only be provided through State aid for the actual availability of the energy provided by the undertaking.[22]  This is a positive ideal, but requires greater clarification by the Commission. The cost charged by an operator for “availability” may be inflated and thereby enable an energy operator to benefit from the State aid, which it is in receipt of, while also obtaining a profit through inflating its cost for the “availability” of the infrastructure.  A misapplication of State aid could subsequently result under this provision if greater oversight is not provided by the Commission in how aid will actually be dispensed with regard to this provision.

It is beneficial to Europe 2020’s energy and climate objectives that the appropriateness of State aid to energy infrastructure will be evaluated in terms of whether the measure encourages “adequate incentives” to operators and generators for the use of technology that is sustainable.[23]

The Commission also provides that the measure receiving State aid should possess a design that enables other undertakings, which are able to “effectively contribute to addressing the generation adequacy problem” to be able to take part in the measure, but only where this is “physically possible.”[24]  This is a positive aspect of the Guidelines that should encourage the improvement of cross-border energy flow and support less developed regions.

It is also noted that the measure, which is receiving the State aid should avoid the creating of “negative effects on the internal market” or measures that would “unduly strengthen market dominance.”[25]  The Commission appears to be taking concerns with regard to competition into account as well as limiting potential market distortions through the inclusion of these provisions.  These guidelines in particular help to alleviate concerns regarding the Commission enabling an excessive dependence on State aid subsidies for the development of energy infrastructure.

It is also interesting to note that market distortions through the application of State aid are minimized by the new Guidelines, which support market based tools for encouraging the use and development of renewable energy through the application of certificate schemes as well as the Commission’s endorsement of market premiums.[26]  A particularly positive aspect is that a tradable permit scheme for energy infrastructure must exceed the mandatory environmental standards, which have been established.[27]  Additionally, an undertaking that has poor performance with regard to environmental standards for energy production will receive a reduction in their allowances under these schemes, which are provided for in the Guidelines.[28]

The Commission’s endorsement of tools that are based on the market with regard to trading schemes are a positive step in continuing to support competition and market based tools alongside the application of State aid to energy infrastructure.[29] The incorporation of a trading scheme assessment into the guidelines will also aid the climate objectives of Europe 2020 in that allowances for harmful emissions and the associated costs to energy infrastructure will foster the development of a European energy infrastructure that pursues the use of technology that is efficient and based less upon carbon and fossil fuels.[30]

The employment of a tradable permit scheme under the new guidelines for energy infrastructure serves as both an endorsement of market based tools for achieving EU objectives as well as an important aid for the attainment of Europe 2020’s energy and climate goals.  It is also important to note that the EU Emissions Trading System (ETS) is a long-standing instrument of EU environmental policy, which the new guidelines will continue to build upon in their future application.

 

5        Conclusion

The extension of the 2008 State Aid Guidelines on Environmental Protection into the area of energy infrastructure will enable the European Union to more effectively achieve its 2020 energy and climate objectives.  Critics may suggest that competition will be unduly distorted by the measure.  Ambiguities are certainly present in the new guidelines, which will need to be eventually clarified by the Commission, so as to prevent State aid from being needlessly dispensed or incorrectly denied to energy infrastructure applicants in a Member State.  However, the Commission effectively addresses concerns with regard to the Single Market by endorsing market based tools throughout the new 2014 Guidelines and generally succeeds in ensuring that market disruptions are minimal and greater gains are achieved toward the EU’s energy and climate objectives through a more effective application of State aid with regard to energy infrastructure throughout the European Union.


[1]Commission Communication, Guidelines on State Aid for Environmental Protection and Energy 2014-2020 C(2014) 2322/3.

<http://ec.europa.eu/competition/sectors/energy/legislation_en.html>

Accessed 5th of June 2014.

[2] Community guidelines on State aid for environmental protection OJ 2008 C82/01

< http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52008XC0401(03):EN:NOT> Accessed 11th of March 2014.

[3] Commission Press Release of 18 December 2013, State aid: Commission consults on draft rules for state support in energy and environmental field, IP/13/1282, p. 2.

< http://europa.eu/rapid/press-release_IP-13-1282_en.htm> Accessed 11th of March 2014.

[4] Ibid.

[5] Ibid.

[6] Commission Communication, A Strategy for Competitive, Sustainable and Secure Energy COM (2010) 639 final, p. 2, 5-6.

< http://europa.eu/legislation_summaries/energy/european_energy_policy/en0024_en.htm> Accessed 11th of March 2014.

[7] da Graça Carvalho, Maria, Matteo Bonifacio, and Pierre Dechamps.  “Building a low carbon society.” Energy 36, no. 4 (2011): 1842-1847, p. 1842.

[8] Ibid. at p. 1843

[9] Townley, C. Article 81 EC and Public Policy (Hart Publishing, Oxford, 2009), p. 169.

[10] Ibid, at p. 165; See also: Commission decisions, International Energy Agency (1994) and International Energy Agency (1983).

[11] Commission Paper, Draft Guidelines on Environmental and Energy Aid for 2014-2020 OJ 2013, p. 52.

<http://ec.europa.eu/competition/consultations/2013_state_aid_environment/index_en.html> Accessed 11th of March 2014.

[12] Ibid.

[13] Commission Press Release of 18 December 2013, State aid: Commission consults on draft rules for state support in energy and environmental field, IP/13/1282, p. 1.

< http://europa.eu/rapid/press-release_IP-13-1282_en.htm> Accessed 11th of March 2014.

[14] da Graça Carvalho, Maria, Matteo Bonifacio, and Pierre Dechamps.  “Building a low carbon society.” Energy 36, no. 4 (2011): 1842-1847, p. 1843.

[15]Commission Communication, Guidelines on State Aid for Environmental Protection and Energy 2014-2020 C(2014) 2322/3.

<http://ec.europa.eu/competition/sectors/energy/legislation_en.html>

Accessed 5th of June 2014.

[16] Commission Communication, Guidelines on State Aid for Environmental Protection and Energy 2014-2020 C(2014) 2322/3, p. 52.

<http://ec.europa.eu/competition/sectors/energy/legislation_en.html>

Accessed 28th of May 2014.

[17] Ibid.

[18] Ibid.

[19] Ibid.

[20] Ibid. at p. 53.

[21] Ibid.

[22] Ibid.

[23] Ibid.

[24] Ibid. at p. 54.

[25] Ibid. at pps. 54-55.

[26] Commission Press Release of 18 December 2013, State aid: Commission consults on draft rules for state support in energy and environmental field, IP/13/1282, p. 1.

< http://europa.eu/rapid/press-release_IP-13-1282_en.htm> Accessed 11th of March 2014.

[27]Commission Communication, Guidelines on State Aid for Environmental Protection and Energy 2014-2020 C(2014) 2322/3, p. 55.

<http://ec.europa.eu/competition/sectors/energy/legislation_en.html>

Accessed 28th of May 2014.

[28] Ibid. at pps. 55-56.

[29]Schleich, Joachim, Karoline Rogge, and Regina Betz.  “Incentives for energy efficiency in the EU Emissions Trading Scheme.” Energy Efficiency 2, no. 1 (2009), p. 1.

[30] Ibid. at p. 2.

Article

Commission Proposal for a Directive on actions for damages revealed – tout pour le peuple, rien par le peuple?*

Jose Manuel Panero Rivas

MA and PGD in Economics for Competition Law, King’s College London; LL.M in European Law, College of Europe

 

On 11 June 2013, the Commission issued its much expected[1] Proposal for a Directive concerning damages claims by victims of antitrust violations (‘the Proposal’).[2] This post aims to examine what the Commission has finally done in an area in which it has never felt too comfortable. The obvious reason for this is that, contrary to what happens with the vast majority of its legislative proposals, depending on its content the Directive could have a potentially detrimental impact on the crown jewel: public enforcement by the Commission of EU competition Rules.[3]

This is a controverted area of EU competition law. Therefore, rather than aseptically describe what the content of the Proposal is, this post rather begins with an explanation of several elements the Commission considered when drafting the Proposal. This will be followed by a description of the solution retained by this institution.

A final word of caution in this introduction: this is a long-waited and matured legislative proposal. However, it is still for the Council and the Parliament to intervene in the legislative procedure. At this stage it is still unclear if amendments will be introduced by any of the two institutions. Nevertheless, what is already known is that some Member States have distinguished themselves by putting spokes in the wheels of this project, in a perceived defence of ‘their’ large corporations potentially exposed to this kind of actions – although one may think they should also consider the interests of, at least domestic, consumers.

 

(i)                 Some background elements for understanding the Proposal

It is worth recalling that the right of compensation for parties suffering the consequences of infringements of EU competition rules is well established in the case law of the Court of Justice of the European Union (‘CJEU’).[4] Nevertheless, absent any EU rule governing this type of actions, it has been for the legal systems of the Member States to lay down detailed rules governing these claims. The limits of this autonomy were identified by the Court when proclaiming the principle of effectiveness (the national rules should not make the exercise of the rights excessively difficult or practically impossible) and the principle of equivalence (the rules may not be less favourable than those governing damages actions for breaches of similar rights conferred by domestic law).[5]

However, the Commission has always been reluctant to introduce US-type actions for damages in the toolbox of competition law enforcement mechanisms.[6] It is no secret that the star tool for the Commission with regard to its fight against cartels is its leniency programme. However, the incentives for an undertaking to apply for leniency (thereby escaping without a fine a prisoner’s dilemma-type situation) could be drastically reduced if the applicant could be subject to follow-on actions for damages by affected.[7] This incentive could be further reduced if the documents which the leniency applicant provided to the Commission could subsequently be requested by a national court, as is now permitted in accordance with the Pfleiderer case law,[8] in order to prove the existence of an infringement. In other words: one might expect that if actions for damages were to be made available to affected parties by a participant in a cartel which applies for leniency – as the principle of compensation of the harm suffered would require – then less applications for leniency would be made. Also companies would perceive less pressure to apply for leniency as they might consider that other undertakings would also be less likely to reveal the existence of the practice.

Determining what the actual damage suffered by a customer of those practices infringing antitrust rules is another essential element of actions for damages, but it is not an easy task.[9] One reason for that is that some of the overcharges incurred could have been passed on to final consumers or other downstream actors in the supply chain. However, it is not uncommon that those indirect purchasers could face procedural hurdles for claiming compensation from the damage they actually suffered. It is also worth noting that the actual damage for some types of antitrust infringements are far from being evident, consider for instance certain infringements of Article 102 TFEU or even infringements of Article 101 TFEU which, despite being classified as infringements “by object”, do not have an actual impact on prices or output.[10]

 

(ii)               Main elements of the Proposal

Bearing in mind the above, the Commission issued its Proposal, which contains the following key elements:

  1. It contains the principle of full compensation. In Article 2, the Proposal states that ‘full compensation shall place anyone who has suffered harm in the position in which that person would have been, had the infringement not been committed. It shall therefore include compensation for actual loss and for loss of profit, and payment of interest from the time the harm occurred until the compensation in respect of that has actually been paid’.
  2. In Article 5, the Proposal establishes the rules on disclosure of evidence, which should allow affected parties to obtain the necessary evidence for presenting their case to a court when the claimant presents reasonably available facts and evidence showing plausible grounds for suspecting it has suffered harm from an infringement of antitrust rules. However, Article 6 offers absolute protection to leniency and settlement applications (for both leniency corporate statements and settlement submissions), also limiting access to other kind of documents needed for the purposes of public enforcement of competition rules.
  3. In Article 11, the Proposal establishes the joint and several liability of participants in collective infringements of competition rules (typically cartels). However, this Article makes an exception for leniency applicants having received immunity, which could only be forced to compensate damages caused by other participants in the infringement after the injured parties have shown they are unable to obtain full compensation from the other undertakings involved in the prohibited practice.
  4. The Proposal expressly recognises the possibility for infringing undertakings to invoke a passing-on defence (Article 12.1 of the Proposal) except in those cases in which it is legally impossible for indirect purchasers to claim compensation for their harm (Article 12.2 of the Proposal). However, this also establishes that indirect affected parties (those suffering harm because of the passing-on of the extra costs) should have at their disposal effective mechanisms of redress (Article 13 of the Proposal).
  5. On quantification of harm, Article 16 establishes the rebuttable presumption that, in case of cartel infringements, it shall be presumed that the infringement caused harm.

 

(iii)             A foreseeable long and winding road until its adoption

The Proposal is now in the hands of the Parliament and the Council. Although the Proposal is a mature piece of legislation, the first reactions of these two institutions suggest that the Proposal is not likely to remain untouched in its final wording and that it will face a rocky ride in the course of the ordinary legislative procedure.

First reactions from various different actors within the Parliament suggest inter alia that (i) collective redress mechanisms should be part of the proposal; (ii) there should be changes in the rules concerning discovery of evidence (with contradictory views with regards to the direction in which the change should go); and (iii) limitation periods – five years in the wording of the Proposal – should be shortened. However, the final vote on the issue is scheduled for 5 December 2013.[11]

At its turn, the Council seems to seek a tightened of disclosure rules, and also a shortening of the limitation period (to three years). It also seems to water down the possible fines a national court could impose to defendants in case they refuse to comply with disclosure orders or destroy evidence (provided by Article 8 of the Proposal).[12]

Apparently, the Council is even contesting the legal basis used by the Commission. The Proposal has used a dual legal basis, namely Articles 103 and 114 TFEU. However, it seems that the Council – against the opinion of the Commission – is trying to avoid the use of Article 114 TFEU. In practical terms, this would mean depriving the Parliament from exercising effective legislative powers with regards to the Proposal.[13]

 

(iv)              Conclusion

The Proposal shows a complex equilibrium. The Commission has tried to genuinely foster actions for damages in the antitrust field while at the same time avoiding undermining a key element of its public enforcement of antitrust rules as is its successful leniency policy.

It is not for this post to determine if the Commission has been too zealous in its protection of public enforcement of competition rules or not.  It is neither for this author to consider if, given the direct impact of the issue on a key competence of the Commission, this institution is the most appropriate actor to issue the Proposal (although, in any event, no other possible actor could have started the legislative procedure). However, the first reactions from the Council seem to point out that Member States would like an even less litigation-friendly environment than the one envisaged by the Proposal. At its turn, voices in the Parliament are claiming for the introduction of collective redress mechanisms. It is worth recalling that the Proposal enters into a field (actions for damages) in which there are significant divergences between Member States. It is possible that its content (for instance with regard to joint and several liability or passing-on defence) could potentially shock well-established principles of civil or commercial statutes or judicial practices in certain Member States.

The final Directive would be a major piece of legislation for EU antitrust policy. Because of the compensation to be awarded under it, it is also of vital importance for undertakings and consumers. Finally this is likely to have an impact on general EU law concerning judicial procedures in Member States. Time will tell what the final result is and if the Directive has the ability to close the gap between antitrust and civil and commercial law rules in several Member States, which may have the impression that competition rules are from Venus while tort liability is from Mars.

 

*’Everything for the people, nothing by the people’. As the learned readers of this blog know, this motto corresponds to the age of Enlightened absolutism having been attributed to some of the European kings of the 18th century.


[1] Precedent works from the Commission in the field include (1) the European Commission, White Paper on Damages Actions for Breach of the EC Antitrust Rules, COM (2008) 165; and (2) the Commission Staff Working Paper Accompanying the White Paper on Damages Actions for Breach of the EC Antitrust Rules, SEC (2008) 404.

[2] Proposal for a Directive of the European Parliament and of the Council on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, COM(2013) 404, 11.6.2013. But the Proposal does not come alone. The documents issued by the Commission on 11 June 2013 are the following: (i) Proposal for a Directive of the European Parliament and of the Council on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, COM(2013) 404, 11.6.2013 (‘the Proposal’); (ii) Communication from the Commission on quantifying harm in actions for damages based on breaches of Article 101 or 102 of the Treaty on the Functioning of the European Union, C(2013) 3440, 11.6.2013 (‘the Communication’); (iii) Commission Staff Working Document – Practical Guide on Quantifying Harm in Actions for damages based on breaches of Article 101 or 102 of the Treaty on the Functioning of the European Union, SWD(2013) 205, 11.6.2013 (‘the SWD’); (iv) the Impact Assessment Report, SWD(2013) 203 final, 11.6.2013 (the ‘RIA’); (v) Executive Summary of the Impact Assessment Report, SWD(2013) 204 final, 11.6.2013; (vi) a Frequently Asked Questions document; and (vii) a Citizens summary.

[3]  See W.P.J.Wils, “Should Private Antitrust Enforcement be Encouraged?” in W.P.J. Wils, Principles of European Antitrust Enforcement, 2005 pp.111-127.

[4] See Case C-453/99 Courage and Crehan [2001] ECR I-6297; Joined Cases C-295 to298/04 Manfredi [2006] ECR I-6619; and Case C-360/09 Pfleiderer [2011] ECR I-5161.

[5] See Case C-453/99 Courage and Crehan [2001] ECR I-6297; and Joined Cases C-295 to 298/04 Manfredi [2006] ECR I-6619.

[6] Section 4 of the Clayton Act empowers private parties injured by violations of the Act to sue for treble  damages. For a comparison of several aspects of both systems (including the role played in the US by actions for damages and the interface between the different tools) see J. Panero Rivas Criminalisation of EU Competition Law enforcement: the long and winding road in Derecho de la Competencia Europeo y Español, vol  Dykinson Vol XI, 2013, pp. 139-185.

[7] Nonetheless, it is worth noting that those parties, independently from subsequent decisions of the participant in the cartel, have effectively suffered the harm.

[8] Case C-360/09 Pleiderer [2011] ECR I-5161. In that case, the CJEU stated that, in absence of EU Law, it is for the national court to decide on the basis of national law and on a case-by-case basis whether to allow the disclosure of documents, including leniency documents.

[9] On that issue see S. Bishop and M. Walker, The Economics of EC Competition Law: Concepts, Application and Measurement, Sweet & Maxwell, 2010, pp. 699 to 721.

[10] A good example could be information sharing practices that are traditionally considered infringements of Article 101 TFEU by object but whose impact on prices in not evident.

[11] MLex Lawmakers face scrap over ‘group claims’ in damages law, 17 October 2013.

[12] MLex EU States may seek tighter disclosure rules in draft damages law. 10 October 2013. For the initial position of the different Member States see MLex EU Governments size up draft damages claims-law, 3 September 2013.

[13] MLex Legal advice casts doubt on EU damage-claim law, 31 October 2013.

 

Article

Proposed Changes to Simplified Merger Notification Procedure

Robert Miklós Babirad

J.D. Masters Diploma candidate in EU Law, King’s College London; Post Graduate Diploma in EU Law (Merit); Member of the New York Bar

 

I           Introduction

On March 27, 2013, the Commission invited public comments regarding a proposal to simplify procedures under the EU Merger Regulation.[1]  Changes would include altering market share thresholds relating to which mergers would qualify for access to the simplified merger notification procedure.[2]  Additionally, Commission Regulation (EC) No 802/2004 implementing Council Regulation (EC) No 139/2004[3] (`the Implementing Regulation’) would be amended with regard to the forms for merger notification.[4]

Mergers unable to qualify for notification under the simplified procedure would also benefit from the proposed changes.[5]  Only information relating to markets in which the market shares of those firms merging, which is in excess of the established thresholds for notification under the simplified procedure, would be required for submission in a notification to the Commission.[6]  An important aspect of the proposed changes would be that seventy percent of all mergers notified to the Commission would now qualify for notification under the simplified procedure.[7]

The issue is whether these proposed changes under the EU Merger Regulation will be helpful to fostering European competitiveness and economic development.  This article will begin by briefly discussing the process of notifying a merger to the Commission with a focus on the simplified merger notification procedure; the changes to both the Notice detailing the simplified notification procedure as well as to the forms for notification under the Implementing Regulation will then be discussed; and finally, the article will assess the overall helpfulness of the proposal.

 

II         The Simplified Merger Notification Procedure

Under the EU Merger Regulation[8]it is mandatory for the Commission to be notified of those mergers encompassing a “Community dimension” in order to obtain approval prior to effecting the merger with limited exceptions.[9]  The EU Merger Regulation provides for this notification to the Commission before a merger may be implemented.[10] A determination as to whether a merger contains a “Community dimension” is governed by the turnover threshold of the merging undertakings under the EU Merger Regulation.[11]

The Commission Notice on a simplified procedure for treatment of certain concentrations under Council Regulation (EC) No 139/2004[12] (“the Notice”) provides for notification to the Commission using a form that is shorter and not as extensive with regard to its informational requirements for qualifying mergers that have not traditionally presented prima facie difficulties with regard to competition.[13]

Mergers qualifying under the simplified procedure may also obtain authorisation after a “lighter procedure” and without the need for the Commission to engage in an extensive investigation of the market relating to the merger being notified.[14]  A “short-form clearance decision” for the merger is typically adopted within a period of 25 working days from the notification date to the Commission.[15] A more comprehensive Phase II Commission investigation will occur if the merger presents “serious doubts”[16] as to whether it will be compatible with regard to competition and the EU’s single market.[17]  The objective of the simplified merger notification procedure is to increase the focus and effectiveness of controlling mergers under the EU Merger Regulation.[18]

A key benefit available to those merging undertakings with access to the simplified short form notification merger procedure is that of a reduction in the amount of detailed information and associated expenses, which would otherwise be expended in completing a non-simplified merger notification to the Commission.[19] The information that must be provided for a regular Form CO notification as well as for a notification under the simplified procedure is provided in Annexes I and II respectively of the Implementing Regulation.[20]  It is a benefit to both the merging entities as well as to the Commission to encourage use of the simplified procedure, because of the reduction in resources under this form of merger notification.

 

III        Proposed Changes

Expansion of access to the simplified merger notification procedure includes a proposal to increase the qualifying market share threshold under the Notice from 15% to 20% for those competing firms in the same market merging.[21]  A merger concerning undertakings participating in markets that are upstream and downstream from one another would be able to take advantage of an increased 25% to 30% qualifying threshold for access to the procedure under the proposal.[22]  Additionally, access to the simplified merger notification procedure under the proposal would be available where two undertakings are participants in the same market and their joint share of the market exceeds the threshold of 20%, but as a result of their merger, the resultant market share increase from the merger is insubstantial.[23]

The Implementing Regulation[24] will also be revised under the proposal with regard to the notification forms for mergers.[25]  An important aspect of the proposed changes relates to those cases, which would be unable to qualify for access to the simplified merger notification procedure.[26]  The firms engaged in a merger would be required to submit comprehensive information in a notification to the Commission solely for the markets in which their market share is found to be in excess of the thresholds established for qualification under the simplified merger notification procedure.[27]  This is a positive change, which will enable the Commission to focus exclusively on information with the potential to pose a threat to competition within the single market upon implementation of the merger.

The primary objective underlying the short form simplified merger notification procedure is that of facilitating the process of notification and reducing burdens of an administrative nature for those mergers, which the Commission has traditionally found unlikely to present concerns relating to competition within the EU’s single market.[28]  The proposed changes will act as a positive expansion toward the attainment of these goals.

The changes proposed are with the intent of streamlining and reducing resources otherwise unnecessarily expended on merger cases.[29]  The Commission will instead be able to use its resources more efficiently on those mergers which necessitate a more comprehensive assessment and may actually result in a harmful impact upon both consumers and competition within the single market.[30]  Additionally, burdens of an administrative nature for both undertakings notifying a merger and with regard to burdens imposed upon the resources of DG Competition will continue to be reduced by this procedure and its expansion.[31]

The Commission’s primary objective in amending the Notice as well as the notification forms under the Implementing Regulation is to reduce procedural administrative burdens in an effort to increase European competitiveness and to stimulate continued economic growth.[32]  These changes to the Notice and Implementing Regulation will be helpful for the attainment of these objectives by encouraging a more efficient use of resources for both DG Competition and the merging parties.

 

IV        Helpfulness of Proposed Changes

The primary concern regarding mergers under the EU competition law system is that a particular merger when effected will have the result of reducing post-merger competitiveness within the common market.[33]  The proposed changes to the simplified merger notification procedure will not have the result of decreasing competitiveness or hindering the necessary scrutiny and control of mergers, which remain a primary and essential concern regarding any merger that is to be implemented within the single market.  Expanding access to the simplified procedure as well as reducing burdens of both a financial and administrative nature for both the merging parties and DG Competition will foster greater growth within Europe; facilitate the notification of mergers, which are not detrimental to the single market; and stimulate greater European competitiveness.

It may be argued that expanding access to use of the simplified notification procedure will act as a detriment to competition and to the necessary oversight of proposed mergers within the single market.  An increase in the qualifying market share for access to the simplified notification procedure may enable too many potential mergers to employ this procedure without sufficient safeguards.  An increasing number of merging firms will be able to notify under the simplified and shortened notification procedure because of the increased qualifying percentages, thereby resulting in an increase in the number of mergers that the Commission will potentially approve without a comprehensive relevant market investigation.[34]  A less comprehensive investigation of the market with regard to a greater number of qualifying mergers may hinder the Commission’s ability to engage in fully informed decision making and may result in greater threats to competition within the EU’s single market.

Additionally, amending the Implementing Regulation with regard to the merger notification forms would enable merging firms that are unable to qualify under the simplified procedure to only be required to provide information to the Commission with regard to markets in which the market share of the merging firms is in excess of the access threshold mandated under the simplified merger notification procedure.[35]  It may be argued that a reduction in the amount of information being provided in a notification under this proposed change will have a negative impact on the Commission’s ability to make an informed assessment as to whether a merger should be approved and its assessment of potential anti-competitive effects.

However, the possible negative implications of the proposed changes appear to be outweighed by existing precautions taken by the Commission.  The proposed increased qualifying percentages under the simplified notification procedure continue to be within “safe harbours” previously established by the Commission.[36]  Additionally, mergers qualifying under the simplified procedure will continue to be subject to the EU Merger Regulation’s “ex-ante merger control” system.[37]  The proposed changes will only benefit those mergers, which in the Commission’s experience have not posed a threat to competition rather than lowering existing safeguards, which would increase the probability of anti-competitive activity.[38]  It is also important to note that the Commission will continue to require critical information in any notification, which potentially reflects a threat to competition, regardless of whether the notification occurs under the standard or simplified notification procedure.[39]  A comprehensive investigation by the Commission of the relevant market where there is a potential threat to competition due to a proposed merger will also continue to take place.[40]

The changes being considered by the Commission do not reduce the oversight or scrutiny provided for under the EU Merger Regulation.[41]  An example of oversight, which will be unaffected by the proposed changes is that of Article 16 providing for the Court of Justice to review Commission decisions regarding the imposition of fines or penalty payments.[42]  Additionally, the Commission has the power under Article 8 to dissolve mergers where an incompatible concentration was effected without Commission approval or without adhering to a mandated condition for implementation.[43]  Fines may also be imposed by the Commission if the information in a notification is false or misleading by the merging parties.[44]  It is important that these safeguards remain unaffected by any proposed changes to the notification procedure.

Expanding access to the simplified merger notification procedure and updating the notification forms under the Implementing Regulation will not have a detrimental impact on the need to protect the EU single market from anti-competitive conduct regarding proposed mergers. Facilitating EU economic development in the field of mergers, which are subject to Commission notification, will have a positive effect on economic growth within the EU.  Establishing greater access to the simplified merger notification procedure and updating the notification forms will facilitate the notification process and positively stimulate EU economic growth in the field of mergers.

 

V         Conclusion

A proposal to expand access to the simplified notification procedure under the EU Merger regulation will have a positive impact on reducing administrative burdens and expanding European economic growth.  Both the Commission as well as the merging parties will benefit from the proposed changes.  Safeguards for the protection of the single market from anti-competitive conduct in the field of mergers will also remain in place and are unaffected by the proposed changes.  Additionally, amending the notification forms under the Implementation Regulation will enable the Commission to focus its resources more efficiently and effectively on potentially problematic areas with regard to a proposed merger rather than on issues that do not raise any competitive concerns.[45]


[1] Commission Press Release of 27 March 2013, Mergers: Commission consults on proposal for simplifying procedures under the EU Merger Regulation, IP/13/288, p. 1.

<http://europa.eu/rapid/press-release_IP-13-288_en.htm> Accessed 14th of April 2013.

[2] Ibid.

[3] Commission Regulation (EC) 802/2004 implementing Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings 2004 OJ L 133/1.

[4] Commission Press Release of 27 March 2013, Mergers: Commission consults on proposal for simplifying procedures under the EU Merger Regulation, IP/13/288, p. 1.

<http://europa.eu/rapid/press-release_IP-13-288_en.htm> Accessed 14th of April 2013.

[5] Ibid.

[6] Ibid.

[7] Ibid.

[8] Council Regulation (EC) 139/2004 on the control of concentrations between undertakings 2004 OJ L 24/1.

[9] Whish, R. Competition Law, 6th ed. (Oxford University Press, Oxford, 2009), p. 818.

[10] Commission Regulation (EC) 802/2004 implementing Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings 2004 OJ L 133/1, art. 4(1).

[11] Ibid., art. (1).

[12] Commission Notice, on a simplified procedure for treatment of certain concentrations under Council Regulation (EC) No 139/2004 OJ 2005 C 56/32.

[13] Indicative Roadmap of the Planned `Merger Simplification Project,’ January 2013, p. 1.

<http://ec.europa.eu/governance/impact/planned_ia/docs/2013_comp_006_merger_simplification_en.pdf > Accessed 14th of April 2013.

[14] Ibid.

[15] Commission Notice, on a simplified procedure for treatment of certain concentrations under Council Regulation (EC) No 139/2004 OJ 2005 C 56/32, p. 1 (art. 2).

[16] See Council Regulation (EC) 139/2004 on the control of concentrations between undertakings 2004 OJ L 24/1, art. 6(1)(b).

[17] Whish, R. Competition Law, 6th ed. (Oxford University Press, Oxford, 2009), p. 847.

[18] Commission Notice, on a simplified procedure for treatment of certain concentrations under Council Regulation (EC) No 139/2004 OJ 2005 C 56/32, p. 1 (art. 4).

[19] Whish, R. Competition Law, 6th ed. (Oxford University Press, Oxford, 2009), p. 845.

[20] Ibid.

[21] Commission Press Release of 27 March 2013, Mergers: Commission consults on proposal for simplifying procedures under the EU Merger Regulation, IP/13/288, p. 1.

<http://europa.eu/rapid/press-release_IP-13-288_en.htm> Accessed 14th of April 2013.

[22] Ibid.

[23] Ibid.

[24] Commission Regulation (EC) 802/2004 implementing Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings 2004 OJ L 133/1.

[25] Commission Press Release of 27 March 2013, Mergers: Commission consults on proposal for simplifying procedures under the EU Merger Regulation, IP/13/288, p. 1.

<http://europa.eu/rapid/press-release_IP-13-288_en.htm> Accessed 14th of April 2013.

[26] Ibid.

[27] Ibid.

[28] See Indicative Roadmap of the Planned `Merger Simplification Project,’ January 2013, pps. 1-2<http://ec.europa.eu/governance/impact/planned_ia/docs/2013_comp_006_merger_simplification_en.pdf > Accessed 14th of April 2013, and Commission Regulation (EC) 802/2004 implementing Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings 2004 OJ L 133/1, Annex II.

[29]Indicative Roadmap of the Planned `Merger Simplification Project,’ January 2013, pps. 1-2<http://ec.europa.eu/governance/impact/planned_ia/docs/2013_comp_006_merger_simplification_en.pdf > Accessed 14th of April 2013 .

[30] Ibid., p. 2.

[31] Ibid.

[32] Commission Press Release of 27 March 2013, Mergers: Commission consults on proposal for simplifying procedures under the EU Merger Regulation, IP/13/288, p. 1.

<http://europa.eu/rapid/press-release_IP-13-288_en.htm> Accessed 14th of April 2013.

[33] Whish, R. Competition Law, 6th ed. (Oxford University Press, Oxford, 2009), p. 799.

[34] Commission Press Release of 27 March 2013, Mergers: Commission consults on proposal for simplifying procedures under the EU Merger Regulation, IP/13/288, p. 1.

<http://europa.eu/rapid/press-release_IP-13-288_en.htm> Accessed 14th of April 2013.

[35] Ibid.

[36] Indicative Roadmap of the Planned `Merger Simplification Project,’ January 2013, p. 3.

<http://ec.europa.eu/governance/impact/planned_ia/docs/2013_comp_006_merger_simplification_en.pdf > Accessed 14th of April 2013.

 

[37] Ibid., p. 1.

[38] Commission Press Release of 27 March 2013, Mergers: Commission consults on proposal for simplifying procedures under the EU Merger Regulation, IP/13/288, p. 1.

<http://europa.eu/rapid/press-release_IP-13-288_en.htm> Accessed 14th of April 2013.

[39] Ibid.

[40] See Ibid.

[41] Commission Press Release of 27 March 2013, Mergers: Commission consults on proposal for simplifying procedures under the EU Merger Regulation, IP/13/288, p. 1.

<http://europa.eu/rapid/press-release_IP-13-288_en.htm> Accessed 14th of April 2013.

[42] Council Regulation (EC) 139/2004 on the control of concentrations between undertakings 2004 OJ L 24/1, art. 16.

[43] Ibid., art. 8.

[44] Ibid. art. 14(1)(a).

[45] Indicative Roadmap of the Planned `Merger Simplification Project,’ January 2013, p. 2. <http://ec.europa.eu/governance/impact/planned_ia/docs/2013_comp_006_merger_simplification_en.pdf > Accessed 14th of April 2013 .

Article

EU Competition Policy’s Broad Application

 

Robert Miklós Babirad

 

1          Introduction

On October 18, 2012, Mr. Joaquín Almunia, Vice President of the European Commission responsible for Competition Policy delivered a speech entitled “Competition Enforcement in the EU: Beyond the Integration of Markets”[1] at the twentieth anniversary of the Academy of European Law.  Mr. Almunia’s speech reflects the important idea that EU competition policy has a broad application and impact on the EU’s citizenry.  Additionally, the scope of EU competition policy necessarily extends beyond furthering development of the Single Market and economic efficiency objectives.  It may be argued that a broad and diverse application of EU competition policy, which is not limited solely in its employment to increasing economic efficiency, will lead to greater diversity and abundance of derived benefits for all EU citizens as well as furthering the Union’s development as a whole.  A key example of an expanded application for competition policy provided by the speech is that of its use as a tool for effectively responding to the present financial crisis.[2]

 

This article will begin by briefly discussing the debate concerning the role of competition policy.  EU competition policy as a unique tool, which differs from that which may be available in other competition systems will then be discussed.  The views set forth in Mr. Almunia’s speech concerning the historical, present and future application of EU competition policy will be offered.  The article will conclude by suggesting that Mr. Almunia’s speech demonstrates the continued importance and need for competition policy to be applied in context and its necessity as an instrument with broad application for enhancing the welfare of all EU citizens.  It will also be argued that placing competition policy in the greater context of the Union’s goals as a whole, and affording competition policy the opportunity to be an instrument responsive to its societal context, is preferable over an approach that is solely concerned with generating economic efficiency.

 

2          The Role of EU Competition Policy

 It is interesting to read Mr. Almunia’s speech in the context of the debate over the “correct” role for EU competition policy.  The majority of global competition law systems presently consider the enhancing of economic efficacy to be their primary goal.[3]  Objectives related to public policy have diminished as an important consideration in these systems.[4]  The U.S. antitrust model provides an example of this approach where all effective discourse must be presented in terms of economics and no provision is made for successful, non-economic, policy related arguments.[5]  A solely economic approach would not be effective under the EU system, because different societal values including that of the Single Market, as well as the attendant policy considerations of the Treaties are at stake.

 

The alternative and perhaps more helpful viewpoint, particularly with regard to the EU, is that competition policy should apply broadly and also promote a nation’s policy objectives, or in this case those of the Union as a whole, objectives which may not be related solely to increasing economic efficiency.[6]  However, the European Commission is restricting the consideration of policy objectives within EU competition policy.[7]  Mr. Almunia notes in his speech that one important change has been a trend toward an approach that is to a greater degree economically oriented and this is reflected in the regulations for block exemptions and establishment of guidelines relating to policy in varying fields.[8]

 

Dr. Townley states that competition policy is “not an end in itself,” but is rather more appropriately employed as a tool for achieving the objectives set forth in the Treaties.[9]  Additionally, the EU competition provisions do not operate independently and it is preferable to view them instead as “part of a web of inter-related Treaty articles.”[10]  The EU Treaties and their embedded objectives provide the context in which competition policy must be interpreted.[11]  Mr. Almunia’s speech also indirectly alludes to this contextual approach for EU competition policy, but stops short of directly calling for the greater incorporation of policy under the competition provisions.  It is this contextual approach, which appears to be of the greatest helpfulness if EU competition policy is to be used as an effective tool for promoting the values of the Treaty as well as those of the EU and its citizens as a whole.

 

An example of the Commission’s limitation on considering objectives other than economic efficiency under EU competition policy is demonstrated by its statement that the objective of Article 101 TFEU (previously Art. 81 EC) is to protect competitive conditions on the Single Market with the goal of promoting consumer welfare as well as the allocation of resources in an efficient manner.[12] Goals relating to policy expressed in the Treaties, may only be considered under Article 101 TFEU if they fall within the limited conditions of Article 101(3) TFEU.[13]  However, it has also been argued that Article 101(3)’s conditions for exemption of otherwise prohibited agreements are not necessarily meant for the incorporation of policy, but are rather “economic efficiency” considerations.[14]

 

It may be argued that EU competition policy has necessarily gone beyond the role of considering solely economic efficiency and must continue to do so moving forward.  The need for its broad application as a tool not only for creating economic efficiency, but also as a contextually responsive instrument for responding to the present economic crisis appears to be evident.[15]  It is in this application that competition policy may have the greatest effect and benefit the largest number of individuals.

 

3          EU Competition Policy’s Unique Nature

Mr. Almunia’s speech demonstrates that EU competition policy differs from other competition law systems and therefore necessarily takes a different approach in its application.[16]  The European Commission, as a competition authority, is in a unique position, because its enforcement powers extend broadly to both bodies of a private as well as public nature.[17] It is important for both public and private actors to be made accountable to the competition rules and as such not only is competition increased, but greater consideration may be given to advancing the Treaty’s policy considerations with regard to both the public and private sector. Additionally, it is only through applying competition policy to both public and private actors that the Single Market and increased welfare of all EU citizens can become a functional reality.

 

Competition is safeguarded in the private sector by rules concerning antitrust, which seek to prevent the development of private restrictions to trade by businesses.[18]  Additionally, these rules operate with the objective of establishing equal operating conditions for businesses within the Single Market.[19]  In the public sector, rules concerning State aid inhibit governments from altering competitive conditions and ensure equality of opportunity in the ability of Member States to provide subsidies.[20]  The European Commission, because of its broad application of rules regulating competitive conditions is empowered with a “formidable tool,” which benefits both citizens of the EU as well as the Single Market as a whole.[21]  It is noted in the speech that neither other nations outside of the EU nor organisations operating at the international level have at their disposal the tools available within the EU competition system.   It is therefore important that these tools not be restricted by the establishment of a narrower application for EU competition policy. Additionally, a competition policy less insistent on policy will subsequently result in decreased societal benefits (namely, those advocated by the Treaties) that would have otherwise been available.

 

The application of EU competition policy is broader than that employed in most other jurisdictions and bases itself not only upon the unique situation of fostering development of a Single Market, but also upon the underlying idea of promoting the welfare of its citizens by monitoring competitive effects by both private as well as public actors.  The EU competition system’s broad application to both public as well as private actors thereby creates overall better conditions for the economy as well as its citizens than that which may occur under a more restricted interpretation.

 

 4          Application of EU Competition Policy

EU competition policy has traditionally embodied and continues to take on a broad role, not limited solely to creating economic efficiency in its application or corresponding benefits.  This is reflected by Mr. Almunia’s speech.  It appears that this is the most helpful approach and most in line with the goals of the Treaty, which necessitate the consideration of policy in applying the competition rules.[22]  The Single Market can only be effectively integrated if competition policy applies broadly, not only to public and private actors, but also through its application as an instrument for advancing the Union’s larger policy objectives.

 

The application of competition policy may focus upon and be predominantly motivated by economic considerations, but its broad application and derived impact as well as benefits have suggested a much greater influence.  The suggestion is put forth that competition policy does not operate in an isolated manner, which would insulate it from the surrounding social and economic situation.[23]  The present social and economic situation since the onset of the global financial crisis is comprised by a lack of growth, an increase in unemployment, and an elevated public debt situation.[24]  Competition policy must not only operate in this difficult context, but has the responsibility to aid in the creation of growth that is sustainable while also assisting Europe in its ability to withdraw from the present crisis.[25]  This in itself recognises an extended role for competition policy beyond that of generating economic efficiency and is clearly reflective of the important and necessary role of policy considerations.  However, it is not clear from the speech as to how competition policy should proceed in this regard nor is it evident how the competition provisions should be applied as a tool for addressing the present financial crisis.

 

Policy concerns are being implicated and alluded to in Mr. Almunia’s speech, such as that of competition policy serving a contextual purpose and being employed as a tool for responding to the present financial crisis, but how this is to be done remains unclear.  However, competition policy necessarily emerges as a tool that is most productive if enabled to be responsive to its context, rather than one which is isolated and solely focused upon the attainment of economic efficiency at the exclusion of considering the Union’s policy related Treaty objectives.

 

Competition policy is an essential tool in Mr. Almunia’s view for the continued integration of the EU, but its role is not restricted to “the preservation of a level playing field” within the Single Market.[26]  The historical development of the EU’s unique competition policy regime as well as the support, which is offered by the Treaties and its accompanying policy objectives provide substantiation for this viewpoint.[27]  Mr. Almunia states, “[w]e all know that the call of Europe’s founding fathers for economic integration had a more profound and more noble motive.”[28]  Subsequently, it may be inferred that EU competition policy goes beyond protecting economic efficiency in its application and this is demonstrated by its role as an essential instrument for Europe’s institutional and political development.[29]  One is led to believe that policy considerations remain important in the application of competition policy, particularly if it is to be used as a tool for effective political and institutional construction.  However, one is left unsure as to whether an expanded role for policy is actually being advocated or whether Mr. Almunia’s remarks relate solely to economic efficiency.

 

Competition policy has also been used as an essential tool for development of the Single Market and the EU Courts’ manner of interpreting the competition provisions have occurred in a way that furthers integration.[30]  An example includes the EU Courts’ interpretation of concepts such as “effect on trade,” “concerted practices,” and the definition of an “undertaking” being afforded an interpretation that is generous and based upon the overriding policy interest of the Single Market’s development.[31]  As such, we see another example of competition policy being broadly applied.  It was traditionally necessary and continues to be essential for the EU Courts to follow this broad manner of interpretation if advancement of the Single Market is to be successful.

 

The importance of the relationship between competition policy and Europe’s public services is also noted.[32]  The public institutions of the community have the obligation of carrying out one of the most central tenets and fundamental values of the European model, that of providing for “certain social needs and public goods.”[33]  Mr. Almunia states that in looking at the field of public services in Europe, we are provided with “no better example to illustrate the link between competition controls and our fundamental values.”[34]  However, although a link is made between key European values and the competition provisions, the actual role of policy remains uncertain.  Policy is essential and must be considered to a greater degree in the application of the competition rules if there is to be such a link.  Applying competition policy to the provision of community public services clearly goes beyond the concern of generating economic efficiency.  It reflects important policy considerations, one example being that of Member States having the support of a competition law system, which assists in their ability to provide such services in a fair, effective, and cost efficient manner.  Unfortunately, the speech again stops short of directly supporting policy under the competition provisions.  However, the need for an expanded application of competition policy does appear to emerge as an important consideration in the continued development of the EU competition law system.

 

Competition policy has also assisted the Commission’s efforts to eliminate those existing obstacles, which may obstruct the development of unified European markets in areas as diverse as the telecommunications industry, the provision of postal services, railway networks, energy distribution and air travel with the goal of furthering the development of a single and unified EU marketplace.[35] Additionally, competition policy has made the principles of the free movement rules effective in practice.[36] It is essential for policy to be considered in applying competition policy broadly, particularly because of a propensity by the Commission and EU Courts to apply similar reasoning in their application of both the free movement and competition rules.[37] Unified markets and effective free movement rules are not only positive economically, but also foster a greater sense of European national, institutional and political unity, which are policy concerns.  The strengthening of the EU has in many ways been due to its competition policy and the broad application of that policy.[38]  The EU competition system has also delivered “practical benefits” to its citizens, because of its broad application and perhaps it may be argued that these have been derived, because of the recognition of policy and an application that has traditionally been contextually responsive.[39]

 

In the field of mergers, the EU Courts have afforded the Commission the ability to inquire into practices of an anticompetitive nature as well as mergers within the Single Market with the key requirement being merely that an impact upon the EU occurs even though a company may not have a physical headquarters within the European Union.[40]  EU competition policy has necessarily had a wide application and this is demonstrated by its application to foreign companies operating within the EU.  It is important that undertakings from outside of the Union are not provided with the opportunity to escape liability for actions, which lead to the distortion of competition on the Single Market, because of a narrow application of EU competition policy.

 

A unified and shared body of law that all EU citizens are able to rely upon has also been provided by the unique application and interpretation of EU competition policy.[41]  Legal precedents have applicability throughout Europe providing a common body of law for its citizens, businesses and national competition authorities.[42]  The competition rules are also universally applicable to all undertakings and it is possible for these rules to be invoked directly by citizens as well as businesses at the Member State level.[43]  Businesses are able to operate effectively and freely across Member States, because of competition policy and its enforcement against anti-competitive practices, which provides protection and universal applicability to companies throughout the European Union.[44]  A uniform body of law that applies throughout all of the Member States has economic, societal and political benefits and is possible, because of a broad and policy cognizant application of competition policy.

 

Mr. Almunia also states that in 2008 at the onset of the financial crisis, competition policy was employed as the only shared available device for confronting and preventing the collapse of the financial system in Europe.[45]  Government bail-outs were also controlled by the timely creation of a system concerning State aid and plans presently exist for a banking union’s future development.[46]  Additionally, State aid has been flexibly employed as an integral part of the EU’s competition policy.[47]  These actions clearly demonstrate the importance of a competition policy that is necessarily wide, contextually responsive, cognizant of policy, and subsequently varied in its scope, application and derived benefits.

 

5          Conclusion

The contributions of EU competition policy have improved the standard of living within Europe because of their broad application to a wide array of areas, resulting in the improved development of the Union’s structural, political and legal composition.[48]  EU competition policy should not be limited to solely attaining economic efficiency and now more than ever must be an instrument cognizant of greater European policy concerns.  Competition policy in the EU has not been traditionally restricted in its application or corresponding benefits to economics or the objective of advancing the Single Market, which may itself be looked upon as a predominantly economic concern.[49]  It continues to be important for EU competition policy to serve as a multipurpose instrument that is aware of its operating context and Treaty obligations, particularly if it is to be an effective tool for responding to the present financial crisis and the attainment of its timely resolution.

 


[1] Almunia, P, Competition Enforcement in the EU: Beyond the Integration of Markets, The citizen at the heart of EU law: 20th anniversary of the Academy of European Law (ERA) Trier, Speech /12/742, 18 October 2012.  <http://europa.eu/rapid/press-release_SPEECH-12-742_en.htm>  Accessed 12th of November 2012.

[2] See Almunia, p. 5.

[3] Townley, C. Article 81 EC and Public Policy (Hart Publishing, Oxford, 2009), p. 14.

[4] Ibid., p. 313.

[5] Monti, G. EC Competition Law (Cambridge University Press, New York, 2007), p. 79.

[6] Townley, p. 14.

[7] Ibid., p. 11.

[8] Almunia, p. 3.

[9] Townley, p. 314.

[10] Ibid., p. 48.

[11] Ibid.

[12] Commission Notice, Guidelines on the Application of Article 81(3) of the Treaty OJ 2004 C101/97, para. 13.

[13] Ibid., para. 42.

[14] Monti, p. 45.

[15] Almunia, p. 5.

[16] Ibid., p. 3.

[17] Ibid.

[18] Ibid.

[19] Ibid.

[20] Ibid.

[21] Ibid.

[22] See Townley, pps. 48-50.

[23] Almunia, p. 5.

[24] Ibid.

[25] Ibid.

[26] Ibid., p. 2.

[27] Ibid.

[28] Ibid.

[29] Ibid.

[30] Ibid., p. 4.

[31] Ibid.

[32] Ibid., p. 6.

[33] Ibid.

[34] Ibid.

[35] Ibid.

[36] Ibid., p. 4.

[37] Mortelmans, K. “Towards Convergence in the Application of the Rules on Free Movement?” (2001) 38 Common Market Law Review 613, pps. 613, 645-46.

[38] Almunia, p. 4.

[39] Ibid.

[40] Ibid., p. 4.

[41] Ibid.

[42] Ibid.

[43] Ibid.

[44] Ibid.

[45] Ibid., p. 5.

[46] Ibid.

[47] Ibid., p. 6.

[48] Ibid.

[49] See Commission, Article 81(3) Guidelines, para. 13.

Article

“I want to break free” – Implications of breaking Commission’s seals during antitrust investigations, Case C-89/11 P E.On v Commission [2012]

Andrea Redondo

LL.M in European Law and Economic Analysis, College of Europe; BSc Economics and Finance, LSE; LLB, Université Paris 1 Panthéon-Sorbonne and Universidad Complutense of Madrid

 

In the judgment, delivered on 22 November 2012, the Court of Justice of the European Union (hereafter “CJEU”) had to resolve, for the first time, a conflict between a company and the European Commission pertaining to the application of Article 23(1)(e) of Regulation 1/2003. The conflict concerned the scope of the Commission’s powers when imposing fines on companies breaking the seals which have been affixed in their premises during the course of antitrust investigations.

The facts

It all began on 29 May 2006, when some officials of the European Commission, together with their counterparts from the German competition authority, arrived by surprise at the premises of E.On in Munich in order to gather documentary evidence, which would allow them to prove E.On’s anticompetitive conduct (in this case, a potential abuse of its dominant position). Some of the documents which were gathered during the course of the day were deposited in a room which the company had facilitated so that these could be analysed in greater detail the following day. The agent in charge of conducting the investigation locked the door of the room and affixed on the frame of the door an official seal.

For those readers who are not familiar with dawn raids, the seal includes a plastic sticker which allows determining whether, during the absence of the Commission officials, a non-authorised access to the room occurred. In case the seal in broken, the seal which is originally blue and contains the yellow stars of the European flag becomes transparent and the sign “VOID” appears written on it. These signs appear even if the seal is placed back in its original position.

The next morning, when the Commission officials returned to the room, they noticed the “VOID” sign on the totality of the seal. Furthermore, the seal had been displaced by 2mm upwards and sideways, which entailed that there were visible traces of adhesive from the rear of the seal. The seal had however not been torn, although it should also be noted that when the Commission representatives opened the door themselves, the seal did not torn apart either.

The Commission considered that the state of the seal was sufficient to claim that E.On had committed a procedural infringement, even if it did not prove that some documents had been removed from the room – something which we will never know given that the documents which were placed in the room had not been photocopied nor catalogued, which means that it is materially impossible to determine if anything was removed from the room. Consequently, on 30 January 2008, the Commission imposed a fine of EUR 38 million on E.On for obstructing the Commission’s investigation, even if, at the end of the day, the Commission considered that E.On had not committed any substantive infringement of competition rules.[i]

This was the first time the European Commission employed the powers conferred to it by Article 23(1)(e) of Regulation 1/2003[ii] in order to impose a fine going up to 1% of the company’s total turnover in the preceding business year for a procedural infringement such as the breach of a seal.[iii]

The ruling of the General Court

It is no wonder that E.On appealed the Commission’s decision before the General Court. In order to justify the state of the seal, E.On presented various alternatives as to what might have happened during the absence of the Commission officials. On the one hand, E.On alleged that the seal had been broken as a consequence of the vibrations of the walls of the building, given that renovation works were being carried out in neighbouring rooms. On the other hand, E.On claimed that the cleaning personnel may have washed the frame of the door with products which would have caused the displacement of the seal. Finally, E.On tried to justify its conduct arguing that the seal had exceeded its shelf life (i.e. it’s expiry date was set later than the period for which the producer could certify its reliability and correct functioning).

The General Court was unimpressed by these – original, to say the least – arguments and consequently dismissed the appeal in full in a judgment adopted on 15 December 2010.[iv] The General Court held that “the Commission was fully entitled to take the view that this case concerned at least a breach of seal through negligence”.[v] Furthermore, the Court ruled that the fine imposed by the Commission was not disproportionate given the particularly serious nature of the infringement, E.On’s size and the need to ensure that the fine had a sufficiently deterrent effect.[vi]

The ruling of the Court of Justice

Again, it comes as no surprise that E.On appealed to the Court of Justice the General Court’s judgment in an attempt to seek more coherence in the field of the Commission’s powers with respect to the imposition of fines for seal breaching conducts.

This was a much-awaited judgment as it was going to set the grounds for future antitrust investigations. Yet, the Court merely confirmed the General Court’s judgment and its findings without going into particular great detail nor making any statements of principle. There are, however, two issues discussed in the judgment which are worth mentioning here.

The first one is the burden of proof. While confirming that in the field of competition law, it is for the Commission to prove the infringement and to adduce evidence capable of demonstrating to the requisite legal standard the existence of the circumstances constituting an infringement, the CJEU stated that when the Commission relies on evidence which is sufficient to demonstrate the infringement, the company cannot merely raise the possibility that a circumstance arose which might affect the probative value of that evidence. Instead, the company must – with the exception of those cases where such proof cannot be provided by the company due to the Commission’s conduct – prove both the existence of the circumstance relied on by it as well as that the circumstance calls in question the probative value of the evidence relied upon by the Commission.[vii] In the case at stake this meant that the burden of proof laid with E.On and it was thus for it to adduce evidence challenging the Commission’s finding of the breach of seal, which it did not.

The second one is the proportionality of the fine. The CJEU started off by arguing that whilst the General Court has unlimited jurisdiction with regards to the fines imposed by the Commission (i.e. it can decrease – or increase, although this is much more exceptional in practice – the level of the fine imposed on the undertaking if it deems it appropriate), the CJEU – to the extent that it is a court of appeal – doesn’t enjoy such powers. The CJEU hence recalled that it can therefore only find that the General Court erred in law when the fine is excessive to the point of being disproportionate. Thereafter, the CJEU confirmed that the breach of a seal must be regarded as a particularly serious infringement by its own nature, independently of whether or not the room was opened. The Court ruled in this sense because the objective of Article 23(1)(e) of Regulation 1/2003 is to protect the inspections from the threat that comes from the fact that the seal has been broken, which may be an obstacle to the integrity of the evidence contained in the sealed room. Finally, the CJEU held that procedural fines ought to be set at a sufficiently high level – within the limit of the 1% impose by Regulation 1/2003, of course – in order to ensure deterrence as otherwise companies would be able of escaping a much higher fine for a substantive infringement – going up to 10% of their annual turnover – by breaking the seal and removing the evidence gathered by the Commission.

The implications of the judgment for future antitrust investigations

The judgment of the CJEU deserves, at least, two comments, one negative and one positive.

On the one hand, the Court confers to the Commission a great – too great maybe – discretion when it comes to assessing and sanctioning procedural infringements such as the breach of seals, given that at no point during the judicial review was it questioned that E.On had opened the door of the conflictive room. Therefore, and given that the CJEU has held that it belongs to the Commission to proof the breach of the seal even if it does not however need to demonstrate that the room was actually accessed or that any documents stored in the sealed room had been removed or manipulated, this is tantamount to considering this type of procedural infringements as entailing an objective liability for undertakings. In other words, the mere appearance of the “VOID” message is sufficient to find an infringement. Consequently, it is not necessary for the Commission to prove the effects of the conduct – in this case the effects would have been that the documents were removed or manipulated – which significantly reduces the burden of proof on the Commission. Additionally, the objective liability of undertakings when it comes to seal breaking infringements entails that any justification on the side of the company, independently of how sincere and valid this may be, is useless to make it escape the fine. The judgment is thus to be disapproved in this respect given that competition authorities and courts applying EU competition law should analyse in detail the effects of the conduct at stake – and this goes for both substantive infringements as well as for procedural infringements – instead of limiting themselves to appreciating the mere existence of the conduct.

On the other hand, however, the judgment is to be welcome to the extent that it considers that the EUR 38 million fine was not disproportionate. Although this amount is impressive and may sound excessive, it “only” amounts to 0.14% of E.On’s annual turnover. This is a ridiculously low amount when compared to the fine that E.On could have faced for a substantive infringement – which could have been as high as EUR 2.7 billion, i.e. 10% of E.On’s annual turnover – which might have been found on the basis of incriminating evidence which could have disappeared during the Commission officials’ absence. It is only by deterring such potential document-destructing conducts that a higher number of substantive infringements will be found, in fine reverting in the consumers’ interest, which is the ultimate aim of competition law.

All in all, this novel judgment of the CJEU should be welcomed, although it is regretful that it did not proclaim an effects-based approach for procedural infringements. Having said that, even if the Commission has been granted extensive powers (given that the burden of proof is not particularly stringent) and that fines for procedural infringements are very high in order to ensure deterrence, it is likely that more cases will arise in the future where “[companies] want to break free” as, unfortunately, the reward for doing so still is significantly greater than the price they have to pay to break free.


[i] See Decision of 4 May 2010 in Case COMP/39.317 – E.On Gas, where the Commission considered that the commitments offered by E.On were sufficient to dissipate any existing doubts concerning the company’s abuse of its dominant position and thus closed down the case.

[iii] The only exception is Case COMP/37.792 – Microsoft, where the Commission imposed a fine amounting to the eye-popping amount of EUR 899 million. Even if this fine preceded the one imposed on E.On, it is of a different nature given that in the Microsoft case the fine was imposed for non-complying with a Commission decision, whilst in the case of E.On what was at stake was an illegal conduct during the course of the inspections carried out in its premises.

[iv] Case T-141/08 E.On Energie v European Commission.

[v] Case T-141/08, para. 262.

[vi] Case T-141/08, para. 294.

[vii] Case C-89/11 P, para. 76.