1. business and industrial
2. company
3. merger and acquisition

Kyiv Institute of International Relations
European Competition Law:
Main Pillars
Lecture 1 - 25 March 2014
Prepared by Riccardo Croce, Partner, and
Hanna Stakheyeva, Associate
EU Competition and Regulatory Department
<docid>
Table of Contents
Section 1. European Competition Pillars
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
2
Table of Contents
Section 1. European Competition Law Pillars
 Anticompetitive agreements/actions
 Abuse of dominance
 Merger Control
 State aid
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
3
European Competition Pillars
Competition: a mechanism of the market economy which
encourages companies to offer consumer goods and services
at the most favourable terms for consumers
Goals:






Essential to complete a single market
Encourages efficiency
Increases productivity, quality, choice
Creates better conditions for investors and innovators
Reduces prices (increases consumer benefit)
Requires companies to act independently of each other, but
subject to the competitive pressure of others
4
European Competition Law Pillars

Anticompetitive (horizontal and vertical) agreements: businesses with/out
market power that operate at same/vertically related level must avoid hard-core
restraints, concerted actions [2+]
 Cartels: competing businesses must not enter into anti-competitive agreements
(price, market/customer allocation, bid rigging), or inappropriate info exchanges

Abuse of dominance: businesses must not abuse their dominant market
position (40%) in a way that affects trade [1+]

Merger control: businesses must not implement acquisitions, mergers and joint
ventures above a certain thresholds (or gun-jumping fines) [2+]

State aid: national authorities must not grant state aids that distort competition
and trade in the EU
+

Private Enforcement/ Litigation
5
Basic Concepts
Undertaking/ company:
“every entity engaged in economic activity, regardless of legal status of entity and
way it is financed” (Höfner & Elser v Macrotron, ECJ 1991)
Offering goods or services = economic activity (Commission v. Italy, ECJ 1998)
[ + all football's governing bodies, i.e. FIFA, UEFA, fitness centres; universities]
Competitors:
Companies active on the same relevant market
Relevant market:
a) product - “catalogue” of goods/substitutes
SNIP test: Small but significant and non-transitory increase in price – profitability of
raising price by 5%, switching
b) geography - area of activity with homogeneous conditions
of competition: pricing, transport cost, trade flows, etc.
See Commission's Notice for the Definition of the Relevant Market, 1997
6
Table of Contents
Section 1. European Competition Pillars
 Anticompetitive agreements/actions
 Abuse of dominance
 Merger Control
 State aid
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
7
Anticompetitive agreements


Article 101(1) TFEU prohibits agreements between businesses [2+] or concerted
practices which could affect trade between MS, and which have as their
object or effect prevention/ restriction/ distortion of competition
If so, agreement is null and void – not enforcable
Agreement doesn’t have to be in writing or be legally binding
Agreement re supply of goods/services – but also know-how/patents – across EU
borders-with effect on EU or re foreign businesses’ entry into EU market (extraterritoriality)
 Restriction on competition can be by object or effect
 Effects depends on relevant market, market context, market power,
appreciable effect of agreement, and whether there is a vertical or horizontal
restriction (cartel v. RPM)


8
Anticompetitive agreements - Cartels
Similar, independent companies join together to fix prices/ limit production/share
markets or customers
• Instead of competing - rely on agreed course of action
• Reduces incentives to provide new/better products and services at competitive
prices
• Result: consumers end up paying more for less quality
• Illegal and highly secretive
• Heavy fines [single company - over €896 million; all members of cartel - over
€1,3 billion]
• Leniency policy for fine reduction – “whistle-blowers”
(See Commission Notice on Immunity from fines and reduction of fines in cartel
cases, 2006)
9
Anticompetitive agreements - Cartels: examples
EUR 141,7 mln - car parts suppliers - 5 cartels for supply of wire
harnesses to Toyota, Honda, Nissan and Renault (2013)
EUR 280 mln - German authority fines sugar cartelists (2014)
EUR 17 mln – 4 wallpaper manufacturers (price increase 20052008)
UK’s universities face an investigation by the Office of Fair Trading
(OFT) into “anti-competitive” practices (nearly all charge £9,000 a
year despite widely varying degree quality – cartel?)
10
Anticompetitive agreements – General Exemptions

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An agreement that technically infringes Article 101(1) may be exempted
under Article 101(3) if the benefits that it provides outweigh its anticompetitive effects
Improve production/ distribution, promote technological progress, consumer
benefit share
Price fixing, market sharing and bid rigging will almost never be exempt
Self-assessment since 2004: the parties must evaluate whether their
agreement could infringe Article 101(1). Guidance notes on horizontal and
vertical agreements have been published by the European Commission
Block exemptions will also apply to certain types of agreements, such as
vertical agreements but consider also TTBE (for tech licensing with/out
raw material) (market share below 30%).
Covers both vertical and horizontal agreements
This presentation focuses on vertical agreements
11
Anticompetitive agreements - Guidelines
Vertical Agreements

Commission provided guidelines for the assessment of vertical agreements
(and consider de minimis)

When assessing whether a vertical agreement is exempted, you should:

define relevant market to work out the market shares of supplier and buyer;
 if the market shares are under 30%, the agreement will be exempted as
long as none of the hard-core restrictions apply;

if the market shares are over 30%, you should assess whether the
agreement can be exempted under Article 101(3) TFEU, i.e. it must:
•
•
•
•
contribute to improving production/distribution/promote
economic or technical progress
allow consumers a fair share of benefits
not impose vertical restraints that are not indispensable
not enable businesses to eliminate competition
12
Anticompetitive agreements - Block Exemption
Vertical Agreements
 Certain types of obligations are excluded from block exemptions, e.g.:
 Non-compete obligations beyond 5 years
 Post-agreement termination obligations on the buyer not to manufacture,
purchase, sell, re-sell goods or services
 Sale of competing goods in a selective distribution system
 If outside of block exemption, you have to self-assess
 Hard-core restrictions ( resale price maintenance, fixed/minimum resale prices,
restricting territories etc.) are outside of the BER
13
Anticompetitive agreements - Examples Vertical
Agreements
 Agency agreements: an agent is a person who is allowed to negotiate or
conclude contracts on behalf of a principal
 Genuine agency agreements do not generally infringe Article 101 TFEU
because the agent acts as an extension of the principle’s business, not a new
business, typically takes no risk
 Issues could arise where there are territorial exclusivity clauses or restrictions
on dealing with other products or services
 Distribution agreements below 30% safe harbour generally OK, if no hardcore e.g. RPM, or MFN, e-platform restraint, but consider excluded clauses e.g.
non’compete
 Non-compete agreements: allowed if the restrictions are directly related and
necessary to the implementation of a concentration. If they are not, they could
infringe Article 101 TFEU if they have an appreciable effect on competition. Noncompete obligations will be problematic if their duration is indefinite or exceeds
five years
14
Anticompetitive agreements - Ukraine
General prohibition, unless exemption applies: (i) general: up to 5% combined market
share OR if below 12 mln euro WW turnover – up to 20% (vertical arrangements)
and up to 15 % (horizontal) market share); SME; (ii) BE: specialization (up to 25%
market share)
In line with the EU approach, BUT for procedure: there is ex-ante
notification/authorization, NO self-assessment
• Law On Protection of Economic Competition, 2001
• AMCU Resolution On Procedure for Filing Applications with the AMC for Obtaining
its Approval for the Concerted Practices, 2002
• AMC Resolution on Standard Requirement to Concerted Practices for their
General Exemption from Notification Requirement, 2002
• AMC Resolution on Standard Requirement to Concerted Practices concerning
Specialization of Production, 2008
• Regulation on the Procedure for Leniency Application, 2012
15
Table of Contents
Section 1. European Competition Pillars
 Anticompetitive agreements/actions
 Abuse of dominance
 Merger Control
 State aid
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
16
Abuse of Dominance
•
•
•
Article 102 TFEU - no abuse of dominant position by [1+]
company, special responsibility
Covers:
- Unfair prices/predation
- Limiting production/markets
- Supplementary obligations in contracts, exclusionary conduct
Exemption: Market share below 40%, but not always (no strong
competitors)
17
Dominance
“position of economic strength […] to prevent effective competition being
maintained […], power to behave […] independently of its competitors, its
customers and ultimately of consumers”
• confers special responsibility
• not likely if market share of company = below 40 %
• no significant competitors
Microsoft competition case
-Complain from competitor in 1993 – blocking competitors by licensing practices;
including its Windows Media Player within the Microsoft Windows platform (tying )
-Investigation by EC; fine €497 + €280.5 mln fine [€1.5 million per day from 16
December 2005 to 20 June 2006] for failure to comply with its obligations = provide
info + additional €899 mln fine for non-compliance with EC decision
Gazprom investigation - 2012 – possible multibillion-dollar fines, dawn raids in 10
member states; “destination clause”; “take or pay” clause”, unfairly high prices to its
customers in Central and Eastern Europe
18
Dominance - Ukraine
•
•
•
•
•
Abuse of dominant position is anti-competitive and automatically prohibited
No exemptions
No notification requirement (guidance possible – non-binding recommendation)
Monopoly if holds market share in excess of 35% (unless strong competitors)
Collective dominance: 2-3 companies together with market share that exceeds
50%
• Investigations by AMC similar to the investigation into anticompetitive
agreements
Law On Protection of Economic Competition, 2001
19
Table of Contents
Section 1. European Competition Pillars
 Anticompetitive agreements/actions
 Abuse of dominance
 Merger Control
 State aid
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
20
Merger Control
•
EU Merger Control Regulation – no concentration [2+] without prior approval
•
Covers: - Mergers; - Take-overs; - Joint ventures (FF).
•
Key - lasting change in control (de facto/ de jure control)
•
Exemptions: if control is acquirer by credit, financial institutions (i) holding
securities on temporary basis, (ii) reselling; by insolvency receiver,; intragroup
transactions.
•
Procedure: Regulation 139/2004; Regulation 802/2004; one stop-shop principle
•
EUR 20 mln - Electrabel-acquiring control without prior approval (2009)
21
Merger control -Thresholds
Primary thresholds:
€5 billion - parties’ combined worldwide turnover;
AND
€ 250 mln - each of at least 2 parties has EEA-wide turnover,
UNLESS
all parties generate at least 2/3 of their individual EEA-wide turnover
in one and the same EEA Member State (EU + Iceland, Lichtenstein
+ Norway).
= notification is mandatory ex ante
22
Merger control -Thresholds
Alternative thresholds:
€2.5 billion - parties’ combined worldwide turnover;
AND
€100 mln - each of at least 2 parties has EEA-wide turnover;
AND
in at least 3 EEA member states:
€100 mln - combined turnover, and
€25 mln - at least 2 parties each has turnover
UNLESS
2/3 rule
= notification is mandatory ex ante
23
Merger Control: example
Case No COMP/M.5518 - FIAT/ CHRYSLER,
2009
Fiat SpA (Italy) acquires 20% in Chrysler LLC
(USA)
“Despite Fiat’s stake of only 20 percent, which it
may increase in future, Fiat holds rights in the
decision-making process of the U.S. firm that will
enable it to exercise sole control”
24
Merger control - Ukraine
Thresholds:
• Combined WW asset/turnover value of parties (groups) exceeds EUR 12 mln;
and
• Each of the parties WW assets/turnover in excess of EUR 1 mln;
and
• Value of assets/turnover in Ukraine of either of the parties exceeds EUR 1 mln.
+ market share (individual or combined) exceeds 35%
No monopolisation or substantial restriction of competition test)
Ex-ante notification + stand-still obligation = European approach + filing fee + review
period 45 calendar days ( while 25 working days EU)
Formal guidance possible (non-binding preliminary opinion)
Law on Protection of Economic competition, 2001
AMC Regulation on Procedure for Filing Applications with the AMC for Obtaining
Prior Approval for Concentration of Undertakings, 2002
25
Table of Contents
Section 1. European Competition Pillars
 Anticompetitive agreements/actions
 Abuse of dominance
 Merger Control
 State aid
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
26
State aid
Advantage in any form whatsoever conferred on a selective basis to
undertakings by national public authorities.
- Intervention by the state/ through state resources
- variety of forms (e.g. grants, interest and tax reliefs, guarantees, government
holdings of all or part of a company, or providing goods and services on
preferential terms, etc.);
- gives the recipient an advantage on a selective basis, e.g. to specific companies
or industry sectors/regions
- competition has been or may be distorted
- affect trade between Member States
General prohibition of State aid (Article 107 TFEU)
Ex ante notification procedure (preliminary investigation v. in-depth investigation)
Recovery of incompatible state aid
Ex post monitoring
27
State aid
Compatible state aid (no notification needed) (Art. 107(2):
- aid having a social character, granted to individual consumers, without
discrimination related to the origin of the products concerned;
- aid to make good the damage caused by natural disasters
- aid covered by a BE (aid measures defined by the EC)
- de minimis aid ( below €200,000 per undertaking over period of 3 years)
May be considered to be compatible (Art. 107(3)):
- aid to promote the economic development of areas with abnormally low
standard of living/ underemployment;
- aid to remedy a serious disturbance in the economy of a State;
- aid to facilitate the development of certain economic activities or of certain
economic areas,
- aid to promote culture and heritage conservation
where such aid does not affect trading conditions and competition
28
State aid – Legal Framework
Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules
for the application of Article 93 of the EC Treaty, OJ L 83, 27.03.1999
Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council
Regulation (EC) No 659/1999 laying down detailed rules for the application of Article
93 of the EC Treaty, OJ L 140, 30.04.2004
Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the
application of Articles 107 and 108 of the Treaty on the Functioning of the European
Union to de minimis aid, OJ L 352, 24.12.2013
Commission Regulation (EC) No 800/2008 of 6 August 2008 declaring certain
categories of aid compatible with the common market in application of Article 87 and
88 of the Treaty (General block exemption Regulation) OJ L 214, 9.8.2008
Full set see http://ec.europa.eu/competition/state_aid/legislation/compilation/index_en.html
29
State aid- example
SA.36516 Aid for wind farm Zuidermeerdijk - VWW II (Netherlands), 14.02.2014
Objective – environmental protection
Legal basis - Art. 107(3)(c) TFEU Certain econ. activities/areas
Aid instrument – direct grant
Decision – no objection
SA.18042 Tax exemption for biofuels (Spain), 06.06.2006
Objective – environmental protection
Legal basis - Art. 107(3)(c) TFEU Certain econ. activities/areas
Aid instrument – tax rate reduction for biofuel producers
Duration 14.01.2004 – 31.12.2012
Decision – no objection
30
State aid - Ukraine
• No state aid law
• Draft law + Regulation “On approval of an Action Plan for the implementation of
an institutional reform in the field of monitoring and control over granting State aid
to undertakings”, 2013
• EU-Ukraine Association Agreement (pending) introduces state aid system in
Ukraine:
- within 3 years of the Agreement’s entry into force, Ukraine must adopt its law on
state aid and establish an independent body to monitor/control/authorise any aid
that Ukraine grants to companies.
- within 5 years - Ukraine and the EU are obliged to send each other a report
containing information on the total amount of aid, the types of aid and the
spheres of state aid which have been granted (official website- transparency).
31
Table of Contents
Section 1. European Competition Pillars
 Anticompetitive agreements/actions
 Abuse of dominance
 Merger Control
 State aid
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
32
Fines in theory
 The European Commission has the power to impose a fine on a business if it
breaches Article 101 TFEU. The fine cannot exceed 10% of the
company’s worldwide turnover
 The basic amount of the fine is based on the company’s value of sales. The
gravity of the infringement is assessed, and the fine is increased for each year
of infringement
 Value of sales: turnover for goods and services affected by the infringement,
usually in the last full year of the business’ participation
 The basic amount of the fine is up to 30% of the value of sales
 Upward adjustments to the basic amount can be made if there is a:
 repeat infringement
 refusal to co-operate with the Commission
 leader of the cartel
Fines of up to 1% of group annual turnover may be imposed if a company fails
to submit to the inspections, answer a question relating to relevant
facts/documents, or breaks a seal placed on documents/premises
33
Fines in Practice
10 highest cartel fines:
 2012: €1, 470, 515, 000 (TV and computer monitor tubes case)
 2008: €1,383,896,000 (Car glass case)
 2007: €832,422,250 (Elevators and escalators case)
 2010: €799,445,000 (Airfreight case)
 2001: €790,515,000 (Vitamins case)
 2008: €676,011,400 (Candle waxes case)
 2010: €648,925,000 (LCD case)
 2009: €640,000,000 (Gas case)
 2010: €622,250,782 (Bathroom fittings case)
 2007: €539,185,000 (Gas insulated switchgear case)
34
Fines - Ukraine
Anticompetitive agreements: fines up to 10% of parties turnover
Abuse of dominance: fines up to 10% of parties turnover (leniency –
full immunity only) + mandatory division of a dominant company
Mergers: up to 5% (for non-notification), up to 10% for noncompliance with AMC decision prohibiting concentration; up to 1%
for submitting false/incomplete information
+
• Third party damages claims (amount of compensation in
commercial court – up to twice the amount of the actual damage
sustained)
• Invalidation of transaction/agreement
35
Table of Contents
Section 1. European Competition Pillars




Anticompetitive agreements/actions
Abuse of dominance
Merger Control
State aid
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
36
Competition Authorities in Europe
 There is one European Competition Authority in charge of the
National Competition Authorities of the 28 Member States
 the European Commission Directorate General for Competition
(EC, DG COPM) http://ec.europa.eu/competition/index_en.html
 There are 28 National Competition Authorities (NCA)
 Cases moving from national to EU level and vice versa
 Commission and NCAs also share information and work together (e.g. for
national dawn raids)
37
EU Competition Authority
38
Competition Networks

European Competition Network (“ECN”): Commission and NCAs in all EU
Member States cooperate with each other through the ECN

International Competition Network (“ICN”): Commission also provides
antitrust agencies from developed and developing countries with focused
network for addressing practical antitrust enforcement and policy issues of
common concern

Commission also participates in the competition related activities at international
level, e.g. Organisation for Economic Cooperation and Development
(“OECD”), World Trade Organisation (“WTO”) and United Nations
Conference on Trade and Development
39
Competition Authority - Ukraine
Law On Antimonopoly Committee of Ukraine, 1993
AMCU + territorial offices
Chairman (term of office – 7 years) and 8 state commissioners
Chairman: appointed and dismissed by the President of Ukraine by approval of the
Verkhovna Rada of Ukraine
State Commissioners: be appointed and dismissed by the President of Ukraine by
recommendation of the Prime Minister of Ukraine submitted on the basis of the
proposals of the Chairman of the AMC
40
AMCU
Powers during investigations:
Request information, explanation, material and other data from undertakings under
investigation;
Request oral and written explanation from undertakings under investigation, third
parties, officials, individuals
Request expert opinions
Seize and retain evidence (documents, computers..)
Cooperates:
- mostly with CIS competition authorities within the Interstate Council for
Antimonopoly Policy
- On bilateral treaties (with Bulgaria, Hungary, Latvia) and
- On multilateral treaties ( OECD, UNCTAD, ICN)
Relation with EU: Agreement on Partnership and Cooperation 1998, DCFT (?)
41
Table of Contents
Section 1. European Competition Pillars
 Anticompetitive agreements/actions
 Abuse of dominance
 Merger Control
 State aid
Section 2. Fines +Practical examples
Section 3. Competition Authority
Section 4. Questions
42
Any Questions?
43
Thanks for your attention!
44