Competition Summit 2013

PREMIER CERCLE: ANTITRUST| MERGERS - COMPETITION SUMMIT 5-6 DECEMBER 2013

The Competition Summit is going to be held in Belgium and organized by Premier Cercle. The conference will be expecting more than 100 highly educated speakers and 350+ delegates will quarrel about the new strategies to take over anticipated evolution which is related to the various topics such as the costs and effectiveness of compliance programs, remedies packages in merger control, antitrust in the BRICS, the proportionality of fines, selective distribution, fair use and abuse of patents, the future guidelines for technology transfer BER, cartels and leniency, dawn raids and much more. Visitors will get attracted and entertained through plenary sessions and workshops.

Visit the website for more information and registration: http://www.premiercercle.com/sites/competition/2013/brussels2013/

 

Competition policy as a cattle market

As part of a package of consultation documents relating to the new Competition and Markets Authority (CAM), BIS has published its view of the strategic priorities that should inform the work of the CMA, which it refers to as the "Strategic Steer" or "Steer" for short (https://www.gov.uk/government/consultations/competition-regime-cma-priorities-and-draft-secondary-legislation) . This is non-statutory, high level guidance to the CMA which is meant to last for a period of three years; in this case 2014-17 and a first version of it is presented.

The consultation document points out that providing competition authorities with more independence has been a key part of reform in the UK and elsewhere and that stakeholders regard independence as a key element to an effective regime. The provision of a Steer must, however, lesson the independence of the CMA because they are intended to have regard to this guidance (as well as being subject to various reporting requirements). As Julia Black put it in a different context, "Politics is often a key driver of what the regulator does."

The Steer asks the CMA to do four things:

• Identify markets where competition is not working well
  
• Enforce antitrust rules robustly
  
• Play a key role in challenging government where it is inadvertently creating barriers to competition
  
• Work with and through partner agencies to deliver positive competition outcomes
  

The most notable omission from the Steer is that it has nothing to say about merger policy (enforcement does not include merger control). This is not, in itself, an unreasonable position to have, although it is surprising that there are no comments in relation to process, given the dissatisfaction that has been expressed with the speed of UK merger control, most recently in relation to hospital mergers.

In relation to the first task, the CMA should identify emerging competition problems early and increase the number and speed of cases for the benefit of consumers and the wider economy. In deciding whether or not markets are working well the CMA should take into account consumer behaviour, especially where there are information problems or asymmetries of information. The government considers that consumer behavioural issues should be central to the CMA's analysis of whether markets are working well. The CMA should also take into account dynamic competition through innovation and the development of new business models. As part of this, the CMA should be willing to consider potential competition concerns in business to business markets; including the differences in power between firms in the supply chains (is this a reference to supermarkets?). Finally, the CMA should assess specific sectors where enhanced competition could contribute to faster growth. The examples given are knowledge intensive sectors, financial services and infrastructure industries.

As regards anti-trust enforcement, it is suggested that the CMA should have an appropriate mix of complex and simpler enforcement cases in order to maximise its impact. This is perhaps a suggestion that the CMA ought to take up more localised and smaller cases than, arguably, the OFT has done in the past. So we will perhaps see more cases like the one relating to Mercedes Benz commercial vehicles in the north of England, parts of Wales and Scotland.

As its third task, the CMA is to play a key role in challenging government where it inadvertently creates competition problems. The government's view is that it commits to accepting the CMA's views on how to promote competition. What this actually means is that there will be a presumption that all recommendations will be accepted "unless there are strong policy reasons not to do so." So, for example, the outcome of the HBOS/Lloyds TSB takeover would presumably remain the same under this policy.

Finally, the CMA is supposed to work with and through partner agencies to deliver positive competition outcomes. This means it should engage in a broad strategic dialogue with regulators and look for opportunities to encourage effective competition either by carrying out its own work or supporting the regulators' work. It should also work with the sector regulators, specifically including the Financial Conduct Authority, to build up its sector capabilities and to share competition expertise including through joint enforcement work, training and research. The CMA should also maintain and enhance its international leadership position.

The tone of the Steer is striking. The CMA is treated as an arm of the state, or perhaps government, which has a role to perform in changing the way the economy works. It does not simply have a policing role but it is supposed to identify areas of the economy where there are competition problems, albeit not breaches of competition law, and provide solutions to these problems. Two areas in particular seem to be singled out for attention: financial services and those other industries which are subject to sector regulation. Knowledge intensive industries is an interesting, although uncertain, idea, which might include pharmaceuticals and the health services, to give just two examples. Furthermore, it is clear that the government wants to see more enforcement activity than has taken place in the past, as well as greater numbers of market studies and investigations.

The three year timespan for the Steer is problematic. Since this is a non-statutory document, there would be nothing to stop a new government in 2015 from revising it and this could be done in time for October 2015, following the timetable of this consultation. Even if the Steer ran its full three years, given the timescale of most activities by the competition authorities in the UK, any review will probably only encompass one round of decisions. For market investigations, in its consultation document on reform of the competition law regime, BIS estimated that the average time for a market investigation was three years. Although the aim of the new legislation was to speed up this process, it is unlikely to make a big difference and, in particular, it is going to be unlikely that a proper assessment of the effectiveness of any remedies stemming from a market investigation, starting at the beginning of a review period, can be done.

The publication of the Steer should be welcomed because, if the government is going to have general view about the direction of travel of the CMA, it is right that this should be published. It does represent a different approach to the competition authorities than has prevailed in the last decade. It will be interesting to see if the CMA can deliver in terms of greater enforcement activity and, if it does so, whether or not this will be welcomed by government and business. As the old saying has it, "Be careful what you wish for …"

Re thinking the de minimis rules

In the light of Case C-226/11 Expedia, judgment of 13 December 2012, the European Commission is consulting on a revision of the de minimis Notice (http://ec.europa.eu/competition/consultations/2013_de_minimis_notice/index_en.html). This is a sensible idea, particularly as there is some tension between the current version of the Notice and the case law of the EU courts. The Expedia case opens up the opportunity to align the Notice with the case law. There is to be no change in the market share thresholds beneath which agreements which may have the effect of restricting competition will be considered not to have an appreciable effect on competition and thus are outside of Article 101(1) TFEU. The major change is found in para, 12 where the Commission says that the market share thresholds:

"… do not apply to agreements which have as their object the prevention, restriction or distortion of competition within the internal market. For instance, as regards agreements between competitors, this means that the Commission will not apply this Notice to, in particular, agreements containing restrictions which, directly or indirectly, have as their object: a) the fixing of prices when selling products to third parties; b) the limitation of output or sales; or c) the allocation of markets or customers. Likewise, the Commission will not apply these market shares thresholds to agreements containing any of the restrictions that are defined or listed as hardcore restrictions in any current or future Commission block exemption regulation, which are considered by the Commission to generally constitute restrictions by object."

 

This statement is on the one hand in line with the Court's case law as it follows the Expedia case in taking the view that agreements with the object of restricting competition must always have an appreciable effect on competition. On the other hand, there is a problem because, as Advocate General Mazák pointed out in Case C-439/09 Pierre Fabre, the concept of an agreement with the object of restricting competition is different from that of a hardcore restriction and that just because an agreement, or a clause within it, does not meet the criteria for a block exemption, it does not follow that it is necessarily in breach of Article 101(1) TFEU. The word "generally" does not provide the Commission with a get-out, since the burden of proof under Regulation 1/2003 is on the authority alleging breach of the competition rules.

 

There are a number of responses to this document. The Expedia case has been criticised for being a backwards step insofar as a more economic approach to competition law is concerned (for one example see Pinar Akman at: http://tinyurl.com/pthbmtb ). The Commission's proposed new Notice will thus simply exacerbate the problem. This criticism can be overstated as all competition law regimes are a compromise between administrability and principles. It is not unreasonable to say that there are certain agreements which have no redeeming characteristics and, because of this, there is no point in having a discussion about their effects – they may not have any negative effects because of the parties' weak market position, but they have no redeeming characteristics and so no loophole should be allowed.

 

Leaving this point aside, there are potential problems with the Commission's approach. In order for this approach to work effectively, there should be a clear, and arguably limited, list of agreements which are considered to have the object of restricting competition. This is not the case, especially as some national competition authorities have taken an expansive approach to this category of agreements. In Expedia the contract at issue could have been characterised as single branding while in Case C-32/11 Allianz Hungaria at stake were contracts which offered incentives for selling other products. The issue approach is further muddied by the Commission's assertion that, as far as it is concerned hardcore restrictions, present or future, are to be considered the equivalent of agreements with the object of restricting competition. While this is true of some of the hardcore restraints, it will not necessarily be true for all of them. This is potentially an acute problem, as it seems unlikely that the Commission will spend its time and resources on small agreements with limited significance at EU level. Enforcement will therefore be in the hands of the national competition authorities who may have differing interpretations of what constitutes an object agreement.

 

This combination of approaches between the Court, the Commission and NCAs suggests that more, relatively smaller, agreements will be caught by Article 101(1) TFEU and the enforcement process. Given as well the decision in Case C-681/11 Schenker, where the Court was very unsympathetic to an argument that there should be no liability for clear anti-competitive activity which the undertakings thought, on the basis of legal advice, technically escaped the prohibition, there should be a strong incentive on undertakings to review any agreements which could arguably fall within EU competition law.

 

Delay in competition cases

It is well known in the competition law community that the General Court of the EU has a significant backlog of cases and that it takes around four years on average for it to hear a competition case. The next question that follows from this is, at what point do such drawn out proceedings constitute undue delay which would breach the requirements of Article 6 ECHR and Article 47 of the Charter of Fundamental Rights? The issue has recently been tackled again by Advocate General Sharpston in her opinion on the appeals in the industrial bags cartel case (Case C-58/12 P Groupe Gascogne SA v Commission, 30 May 2013). The bare facts of the case are that the Commission took its prohibition decision at the end of November 2005. Gascogne lodged its appeal in February 2006 and the written procedure ended in July 2007. In September 2010, the Registry told Gascogne that the case had been allocated to the Fourth Chamber of the GC and the case was heard in February 2011 and judgment was delivered in November 2011. Critically, there seems to have been a period of three years when nothing happened. Gascogne argued that the length of the proceedings was excessive and that the judgment of the GC should be quashed or the fine should be reduced as a consequence of the financial burden imposed on it by the excessive duration of the proceedings.

The first question, therefore, was how to determine whether or not the period was excessive? The starting point was the criteria set down in Case C185/95 P Baustahlgewebe v Commission [1998] ECR I8417 which are: importance of the case to the applicant, the complexity of the case, the applicant's conduct and the conduct of the competent authorities. Rather than focusing on the overall length of time taken, AG Sharpston took the view that she should look at what the GC does, the constraints under which it functions and what periods should be subjected to greater scrutiny. Importantly, she decided that the period from the submission of the application to the end of the written stage of the proceedings should be disregarded because of the problems of translating documents into the working language of the court. Some months should also be added for obtaining a translation of the last pleadings and any time spend by the court in active case management should be ignored. Difficulties caused by case overload, no matter how real, should be ignored. As a general approach she thought that "once more than two years have elapsed since the end of the written procedure, with no active case management and no convocation of the parties to a hearing, I would be minded to regard the delay as excessive and would require persuading otherwise." This is, however, in the context of her having said that there are no magic figures and that matters do have to be decided on a case by case basis. Looking at this particular case, she thought that it had taken about eighteen months too long, largely because of the three year period when nothing seemed to have happened.

If this was the case, then what was the remedy? In some previous cases, for example, Baustahlgewebe, the European courts have taken the view that there should be a reduction of the fine, largely on pragmatic grounds and praying in aid the unlimited jurisdiction to review fines contained in Regulation 1/2003. Advocate General Sharpston was uneasy with this approach, both on conceptual and legal grounds, and proposed an alternative. She recommended taking the approach followed in Case C385/07 Der Grüne Punkt [2009] ECR I6155 that a separate action for damages should be lodged before the GC which would examine whether the claimant has suffered injury or loss, whether there is a causal link between the injury and the failure to adjudicate within a reasonable time and to quantify any damage. In her mind, there were two obvious objections to such an approach. First, the extra amount of time such a process would take and, secondly, the fact that the GC would be the party against who the breach was alleged while at the same time deciding upon it. She dismissed the first object easily, simply saying that she was sure that the GC would hear such a case "expeditiously". In response to the second objection, she thought there were five reasons to think that the GC would be sufficiently impartial. First, it was not responsible for paying any monetary penalty, secondly, the damages claim would have to be heard by a different chamber from the one that heard the substantive case, thirdly, the decision that there had been undue delay would have been that of the CJEU, not the GC, which would simply be quantifying the damage, fourthly the Commission would be responsible for defending the EU interest before the GC and, finally, there was always the possibility of appealing the GC decision.

There are a number of aspects to this opinion. There is a clear view that a number of the problems faced by the GC stem from the lack of action by the Member States. An approach which effectively disregards the time spent on the written procedure does seem very generous to the GC. The idea that nothing substantive can be done with the case while the written process is continuing is disturbing. As regards the choice of remedy, which she identifies as a choice between two imperfect options, one obvious response is that the cure makes disease worse. If part of the problem is judicial overload, providing another means of access to the GC, no matter how small the line of cases, is simply going to exacerbate the issue. It would certainly be neater if a way could be found for the damages claim to be assessed by the CJEU, rather than requiring a new process to be started. Furthermore, the arguments about impartiality are not that convincing. To use a less elevated literary reference than AG Sharpston, she seems to be expecting the GC to behave like Dobby the house elf in Harry Potter, who punished himself for disobeying his masters.

Time and EU competition law

As it has been a relatively slow week for activities on the competition law front, although the Enterprise and Regulatory Reform Act has now hit the statute book, I thought it was worth reflecting on two pieces of information: the publication of the 2012 annual report of the Court of Justice of the European Union and the publication of the final version of the draft accession agreement of the European Union to the European Convention on Human Rights.

Taking the Court of Justice's annual report first, this reveals that in 2012 the General Court had 34 new competition cases and 36 new state aid ones (down from 67 in 2011). It completed 61 competition cases and 63 state aid cases. It took 48.4 months to complete competition cases and 31.5 months for a state aid case. The Court of Justice, for its part, dealt with 30 competition cases and 28 state aid cases in 2012. Appeals took 15.3 months to hear, while preliminary references took 15.7 months. The record of the General Court in competition cases is very poor and does not look to be improving.

When the European Union accedes to the ECHR, this will allow parties to bring allegations that the procedures by which EU competition law are enforced are not compatible with the ECHR to the European Court of Human Rights. It is clear from various commentaries that there is a substantial amount of dissatisfaction with the procedures used by the European Commission and the role of the EU courts in reviewing those decisions. So, once the Accession Treaty is signed, we can expect that there will be some cases taken to the Court of Human Rights in order to test out these arguments. Given the principle of exhaustion of remedies, these cases will have to be argued before the General Court and the Court of Justice so taking some five years to get to the Court of Human Rights. It will take the Court of Human Rights some time to hear such a case. Unlike the Court of Justice, the Court of Human Rights does not publish information on how long cases take, but we do know that there is a significant backlog. Menarini, for example, took just over three years, although the first equivalent case argued against the European Commission might be given a higher priority. So, let us say maybe seven years before the issue is addressed by the Court of Human Rights.

Although competition law cases are complicated, this does not seem to be an acceptable position, particularly if you add in the time it takes for the European Commission to reach a decision. The initial complaint in Intel, which may be an unusual case, was lodged back in 2000, the Commission's decision came in 2009 and the General Court's judgment on the appeal is still awaited. It is not surprising in these circumstances that the European Commission is showing an increasing preference for dealing with Article 102 TFEU cases via commitment decisions and that undertakings are prepared to cooperate with this approach. Although there are reforms which could improve the position, this does not seem high up anyone's agenda, so perhaps it is best just to leave the last word with T. S. Eliot:

Time for you and time for me,
And time yet for a hundred indecisions,
And for a hundred visions and revisions,
Before the taking of a toast and tea.

First thoughts on the Competition and Markets Authority

I attended the Competition Law Association's annual Burrell lecture a couple of days ago. The lecture was given by Alex Chisholm, the chief executive designate of the Competition and Markets Authority (CMA) and will be published on the CLA's website in due course. In advance of that, it is worth giving some brief impressions. The first was that this was a cautious start. I was going to say like a typical civil servant, but typical UK civil servants don't have an MBA from INSEAD, senior level business experience and running the Irish communications regulator on their cvs. A cautious approach is not a bad thing, especially when you have only been in post for a few weeks. Secondly, he seemed to say that there would be a step up in the application of competition in regulated sectors of the economy, for example, energy. This would require effective coordination between the CMA and the sector regulators. Quite how this is reconciled with the CMA's role as an appeal body for price control issues is a good question. Thirdly, there was much more discussion of the role of the CMA in enforcing consumer law than I had expected, which may be just my own misunderstanding of the CMA's role going forward, but it highlighted the continuing issue of coordinating competition and consumer policy. Fourthly, he seemed happy with the OFT's recent procedural innovations and hinted, intriguingly, that the CMA would consider whether there was a role for its panellists in enforcement decisions after a statement of objections was issued. The final point was that there was a lot of work to be done to get the CMA fully functional for April 2014 and the plan was that consultations on CMA procedures would start sometime in July – just early enough to ruin someone's holiday!

Hospital mergers

The proposed merger between Royal Bournemouth NHS Foundation Trust and Poole NHS Foundation Trust is the first such merger to have been considered by the Competition Commission. The process seems to have run into some difficulties, as the CC has issued s. 109 notices to the parties requiring them to provide information and documents. It has followed that up with an extension to the reference period of the inquiry until the information is provided to the satisfaction of the CC. See: http://tinyurl.com/d9olcdj
It is unusual for the CC to issue in s. 109 notices and extend an inquiry because of a failure to comply with them. In two previous cases where this was done, Sports Direct/JJB and BBC Worldwide/Channel 4/ITV, in the former the parties were unable to comply because they had been subject to investigations by the OFT in a separate cartel investigation while in the latter negotiations between the parties were still continuing. In both these cases, the CC was prepared to accept that these circumstances made the failure to comply with the s. 109 notice reasonable. No such statement has been made in this notice. This is mysterious, particularly because this notice comes into force just before submissions were supposed to be received in advance of the provisional findings (originally due in late April). It is not normally in the parties' interest to delay a merger decision (market investigations are perhaps a different matter) particularly when it is argued that one of the parties is failing financially. Reading between the lines, the parties may be having difficulties in explaining what the benefits of the merger are going to be, an issue on which Monitor gave the merger a mixed report.