NEWSLETTER

December 2002

 COMPETITION LAW

THE NEW REGULATION RELATIVE TO THE APPLICATION OF ARTICLES 81 AND 82 OF THE EC TREATY

INTRODUCTION

After more than two years of deliberations, the European Council approved on 26 November 2002 the new Regulation implementing Articles 81 and 82 of the EC Treaty (the "new Regulation"). The new Regulation, which will enter into force on 1 May 2004, sets up a new system for the application of competition rules of the EC Treaty and will replace Regulation no. 17 of 1962.

The dual purpose of the reform is to simplify the implementing procedures of Articles 81 and 82 of the EC Treaty and to ensure that these provisions are effectively applied. To this end, the new Regulation abolishes the system of prior authorisation by the European Commission (the "Commission") of agreements restricting competition in conformity with Article 81.3 of the EC Treaty, and provides national competition authorities ("NCAs") and national courts with full powers to apply directly this provision. However, the reform does not affect the exclusive competence of the Commission to assess concentration operations with Community dimension.

ABOLITION OF THE SYSTEM OF PRIOR AUTHORISATION OF AGREEMENTS RESTRICTING COMPETITION

Pursuant to Regulation no. 17 agreements between undertakings restricting competition could only benefit from an individual exemption under Article 81.3 of the EC Treaty if they were previously notified to the Commission and the latter issued a Decision of authorisation.

This system is abolished by the new Regulation, which provides for the automatic authorisation of agreements restricting competition which fulfil the conditions laid down in Article 81.3, "no prior decision to that effect being required".

As a result thereof, undertakings will no longer be able to notify agreements to the Commission in order to obtain an individual exemption. It will be up to the undertakings to assess whether their agreements meet the necessary conditions for complying with Article 81.3. The objective pursued thereby is to reduce the workload of the Commission and to allow this institution to allocate more resources to curb the most serious infringements.

However, the replacement of the notification system by the new self-evaluation system will not be necessarily positive. On the one hand, the substantial efforts and resources that the Commission shall allocate to set up the new system (see below) may jeopardise the alleged objective of reducing the Commission's workload. On the other hand, the new system brings up a certain degree of uncertainty for undertakings, which will be deprived of the guarantee that a prior authorisation of their agreements provided.

The abolition of the authorisation system implies that notifications of restrictive agreements filed under Regulation no. 17 shall lapse as from the date of application of the new Regulation. However, as a transitional measure, Commission's Decisions applying Article 81.3 issued before the entry into force of the new Regulation will remain valid during the time period established in the said Decisions.

APPLICATION OF ARTICLE 81.3 OF THE EC TREATY BY NCAs AND NATIONAL COURTS

Although the direct effect of Articles 81.1 and 82 of the EC Treaty and the possibility for NCAs and national courts to directly apply these provisions had already been recognised, Regulation no. 17 provided the Commission with the exclusive competence to apply Article 81.3 of the EC Treaty.

The new Regulation abolishes the exclusive competence of the Commission to apply Article 81.3 of the EC Treaty and sets up a system where both the Commission, the NCAs and national courts are competent to assess the application of this provision and the compatibility of certain agreements in light thereof.

The corner stone of the reform lies in the leading role assumed by NCAs and Member States' courts, which will be able to apply Article 81 of the EC Treaty on an equal footing with the Commission.

The decentralisation of the application of Article 81 of the EC Treaty should allow authorities which are closer to individuals to contribute to the effective enforcement of Community competition law. Moreover, national judges and courts, when deciding disputes between private individuals, will be able to protect their subjective rights under Community law by awarding damages to the victims of infringements.

However, this decentralisation raises several distrusts due to, on the one hand, the limited knowledge and training of judges in competition law and, on the other hand, the slowness which characterises judicial procedures in certain Member States.

CASE ALLOCATION BETWEEN THE COMMISSION AND THE NCAs

The system of parallel competences established by the new Regulation entails a mechanism for sharing enforcement tasks between the Commission and the NCAs.

In principle, an NCA will be able to deal with a case involving the application of Articles 81 and 82 of the EC Treaty provided that the following cumulative criteria are met: (i) the alleged infringement has appreciable effects on consumers within its territory; (ii) it can gather the evidence required to prove the infringement; and (iii) it is capable of bringing an end to the infringement (i.e. it can sanction the infringement effectively or bind undertakings by the commitments that they may offer in order to render an agreement compatible with Article 81.3).

Generally, these criteria are met when the agreement or practice has its main effects in a Member State.

If the action of one NCA is not sufficient to bring an end to the infringement in a geographic area wider than that of the NCA, two or more NCAs may be able to act in parallel against that infringement. Such parallel action would cover situations where two or more NCAs investigate the same agreement(s) or practice(s) by the same undertaking(s) on the same relevant product and geographic market as a result of several complaints or several ex officio procedures.

When several NCAs act in parallel they must closely cooperate in order to ensure that the analysis and the outcome are consistent. In any event, in order avoid problems of coordination, the Commission will deal with restrictive practices having appreciable effects in more than three Member States.

The Commission, as the "guardian of the Treaty" and responsible for defining and implementing Community competition policy, is entitled to intervene at any time and to adopt Decisions in a given case. In particular, Commission's action shall be necessary in order to prevent inconsistent decisions, compensate for a lack of enforcement at national level or enforce the rules itself for reasons of Community interest.

Commission's action is also foreseen in relation to new issues which may constitute a relevant precedent, such as the application of Articles 81 and 82 to developping markets (i.e. telecommunications, energy or air transport). Furthermore, cartel practices affecting several Member States (and even one Member State in its entirety) will be most likely dealt with by the Commission.

The Commission will also deal with a case when the application of Articles 81 and 82 of the EC Treaty is closely linked to the application of another Community provision (i.e. Article 86 - exclusive and special rights granted by State measures - or Article 90 - State aids -).

In any event, the Commission will issue complementary provisions clarifying case allocation and preventing conflicts of jurisdiction.

COOPERATION BETWEEN THE COMMISSION AND THE NCAs

In order to ensure a consistent and uniform application of Community law, the new Regulation foresees the creation of a European competition network where the Commission and the NCAs will cooperate and exchange information and documents. Although a certain degree of such cooperation already exists, the forum will be formally set up on 1 May 2004 and a Commission's Notice will regulate it.

In order to avoid multiple proceedings, the members of the network shall be informed at an early stage of the cases pending before the different NCAs. In particular, the Commission shall be consulted by the NCAs before decisions applying Articles 81 and 82 of the EC Treaty are taken.

Furthermore, the initiation by the Commission of proceedings for the adoption of a Decision under Articles 81 and 82 of the EC Treaty shall relieve the NCAs of their competence to apply these provisions. If an NCA is already acting on a case, the Commission shall only initiate proceedings after consulting with that NCA.

In any event, NCAs and national courts may consult the Commission on any case involving the application of Community law. The assistance and monitoring tasks (necessary in order to ensure consistency of decisions of NCAs and national courts) corresponding to the Commission (the development of which is still pending) will require the establishment of proper mechanisms and the allocation of sufficient resources.

In addition, a key element for the proper functioning of the network is the mutual exchange of information and documentation not only between the Commission and the NCAs, but also between the latter. In this regard, the new Regulation provides that such exchanges may have as their object confidential information on undertakings which shall be covered by the professional secrecy and not be disclosed to third parties.

The information exchanged shall only be used as evidence for the application of Articles 81 or 82 of the EC Treaty and for the application of national competition rules provided that, in the latter case, these rules are applied to the same case and do not lead to a different outcome.

NEW POWERS OF INVESTIGATION OF THE COMMISSION

In order to facilitate inspections, the new Regulation provides the Commission with additional powers of investigation. The Commission shall be entitled to seal business premises of investigated undertakings and to conduct inspections in private homes of directors and employees of the undertakings concerned, provided that, in the latter case, the judicial authority of the Member State concerned has previously authorised such inspections. Moreover, in order to collect information relating to an investigation, the Commission may interview any person who consents to be interviewed for that purpose.

November 29, 2002