EU Competition Law: Changes, Modernization, and Enforcement
The Change to the Enforcement Regime
Regulation 1/200 is the essential piece for the modernized enforcement regime, as it introduced fundamental changes to the way in which articles 101 and 102 TFUE are enforced.
The previous implementing legislation, Regulation 17, conferred the central role in the application and enforcement of the EC competition law upon the Commission and the role of the NCAs and national courts was peripheral.
Regulation 1/2003 decentralized application and enforcement and gave the NCAs a greater role. Furthermore, the reforms were designed to encourage more “private” enforcement of competition law through litigation in the national courts of the Member States. “Decentralization” means decentralization to the national courts as well as to the NCAs.
The Old Enforcement Regime Set Up by Regulation 17
Regulation 17 set up a system whereby an agreement falling within Article 101(1) could only escape via Article 101(3) if it was exempted. The granting of an exemption was a constitutive act. There were two ways of obtaining an exemption:
- The parties could bring their agreement within a block exemption regulation.
- The parties could obtain an individual exemption from the Commission.
Article 9(1) of Regulation 17 conferred sole power on the Commission to declare Article 101(1) inapplicable pursuant to Article 101(3).
Article 4(1) of the Regulation 17 provided that the parties to an agreement seeking an exemption had to notify it to the Commission. Until they did so, no decision pursuant to Article 101(3) could be taken. Only notification gave the possibility of exemption.
When notifying an agreement, it was necessary for the parties and the Commission to comply with the prerequisite procedure. Notification had to be made in the prescribed format. Following notification, there were no time limits within which the Commission had to give a decision.
This meant that a non-notified agreement which infringed Article 101(1) was void pursuant to Article 101(2).
Modernization
The modernization White Paper.
In 1999, the Commission adopted a White Paper on modernization of the rules implementing Articles 101 and 102 TFUE. The Commission wanted to promote greater decentralization of enforcement through the national courts and the NCAs.
The White Paper proposed the complete abolition and exemption system. Article 101(3) should become a “directly applicable exemption”. The decision on whether it bit an agreement fulfilled the criteria in Article 101(3) would no longer be taken by the Commission after notification. Rather, the decision would be made by a national court if the matter were relevant to litigation before it, or by a NCA or the Commission itself if the matter became of concern.
In other words, ex ante control would be replaced by an ex post control. Undertakings would be deprived of the comfort of being able to notify and receive assurance on the compatibility of their agreements with Article 101.
The modernization “package”.
The council adopted Regulation 1/2003 on 16thDecember 2002 and replaced regulation 17. On 1stMay 2003.
Regulation 1/2003 deals with two matters:
- It renders Article 101(3) directly applicable and lays down the basic framework for the Commission, the NCAs and the national courts to cooperate in the decentralized system.
- It provided for the powers and procedures of the Commission in investigation of competition matters.
Enforcement by the NCAs within the ECN
General.
The NCAs have, since 1stMay 2004, played a much more significant role in the enforcement of the EU competition rules.
Regulation 1/2003 creates a system of parallel competences in which the competition rules are enforced by a network of competition authorities (through the ECN) as well as by the national courts.
Article 5 of the Regulation 1/2003 provides that “competition authorities of the Member Stated shall have the power to apply articles 101 and 102 in individual cases.
Article 5 was interpreted by the CJ in Tele2Polska: the court held that Article 5 does not permit NCAs to adopt decisions finding that article 102 was not infringed, an NCA may decide that Article 102 has been infringed and they decide that there are no grounds for action. It cannot, however, actually take a non-infringement decision.
Regulation 1/2003 leaves the Member State to determine which body will enforce the rules and what mechanisms for investigating infringements and enforcing decisions will apply.
Division of work.
Chapter IV of the Regulation 1/2003 deals with cooperation, including cooperation between the Commission and the Competition authorities of the Member States. Under the new system, Article 101 and 102 TFUE cases can be dealt by:
- A single NCA (possibly with the assistance of others);
- Several NCAs acting parallel; or
- The Commission.
The basic principles are that a case should be dealt with by the authority best placed to deal with it and able to restore or maintain competition in the market, and that cases should be allocated according to a predictable process as soon as possible in the procedure.
In order for an authority to be well placed, there must be a material link between the infringement and the territory of the authority, the authority must be able to bring the entire infringement effectively to an end and must be able to gather the evidence required.
Where two or more NCAs are well places to act, then one NCA only should act where the action of one would be sufficient to bring the entire infringement to and end. If it would not, then two or more authorities should coordinate their action and where possible, designate a leas authority to the case.
The Commission is likely to be best placed to deal with an agreement or practice where:
- It has effects on competition in 3 or more Member States;
- The conduct is linked with other union provisions which may be exclusively or more effectively adopted by the Commission; or
- The union interest requires it.
Masterfoods Ltd v HB Ice Cream Ltd
The duty of national courts to enforce the competition rules of the EU and to cooperate with EU institutions was addressed by the ECJ in Masterfoods Ltd v HB Ice Cream Ltd. Masterfoods, a producer of frozen foodstuffs, appealed against a decision by the High Court of Ireland not to declare null and void a so- called ‘freezer exclusivity clause’.
Prior to the hearing, acting on Masterfood’s complaint, the Commission ruled that the clause infringed Article 101(1) and Article 102. HB, the freezer owner, immediately applied to the GCEU for an annulment of the Commission’s ruling and suspensive measures. A reference by the Irish High Court to the ECJ sought clarification on the extent of the duty of cooperation between national courts and the Commission and EU Courts.
The ECJ delivered a clear judgment in which it stated that there was a duty of sincere cooperation. The Court referred to the old Article 10 EC (now Article 4(3) TEU), which set out the duty of Member States (including all of their authorities) to ensure the fulfillment of the obligations arising from EU law and to abstain from any measure which could jeopardize the attainment of the objectives of the EU. The ECJ also emphasized the duty of national courts, when deciding a case which may subsequently be the subject of a decision of the Commission, to avoid giving a decision which would conflict with that of the Commission.
Private Enforcement
The Treaty contains no specific provision governing private rights of action for damages or injunctions following a violation of the EU competition law rules. Private proceedings in the national courts are possible by virtue of the fact that Articles 101 and 102 have direct effect.
EU law makes clear that national courts are bound to apply directly effective Treaty provisions. A litigant may question an agreement’s or other conduct’s compatibility with the competition rules in proceedings before a national court.
Where an individual seeks to vindicate or protect his EU rights before a national court, the general disciple is that of a national procedural autonomy.
The CJ has held that national rules:
- Must not be less favorable than those relating to similar claims of a domestic nature; and
- Must not make it impossible or excessively difficult to exercise the right that are national courts obliged to protect.
The principle of effectiveness imposes an important inhibition of the free application of national rules.
Further, the duty of sincere cooperation imposed on Member States requires that remedies granted by national courts must be adequate and must guarantee a real and effective judicial protection for EU rights.
EU law establishes that:
- National courts must not take decisions that run counter to those adopted by the Commission.
- Provisions in an agreement that contravene Article 101 are void and unenforceable.
- Full compensation must be available to those that have suffered loss in consequence of a breach of Article 101 and 102.
- Interim relief must be available where necessary to protect putative EU rights.
- Limitations on those rights must comply with the principles of equivalence and effectiveness.
Private civil actions may achieve corrective justice by allowing compensation on victims. It may be seen as having a compensation function. It may also deter violations of the rules and help to develop and clarify the law. Arguably, it also serves a deterrent function (to deter the violation of competition rules and to punish perpetrators). However, there is a view that public enforcement is better suited to save the deterrent function, whilst private enforcement is more apt to pursue the compensation function.
The view that private enforcement should be further encouraged is not held universally, however. The Commission has taken number of steps designed to try and overcome the barriers to private litigation and to encourage it, recognizing that it cannot bear sole responsibility for the enforcement of the EU competition laws but also that a careful balance between private and public enforcement must be maintained.
The Enforceability of Agreements Infringing Articles 101 and 102
Article 101.
Article 101 itself provided that agreements or decisions prohibited by Article 101(1) are void if the agreement does not satisfy the conditions of Article 101(3). However, the CJ has held that the nullity provided in Article 101(2) in fact applies only to individual clauses in the agreement affected by the Article 101(1) prohibition.
The agreement as a whole is thus void only where those clauses are not severable from the remaining terms of the agreement.
Article 102.
Article 102 contains no declaration of nullity equivalent to that set out in article 101. Nonetheless, the Article implicitly prohibits many contracts and contractual terms and the effect in relation to sanctioned agreements is similar to Article 101.
Article 102 should render a contract affected by its prohibition, void or at every least, unenforceable.