EC competition / antitrust law

Prevention, restriction or distortion of competition

Article 81(1) of the EC Treaty (Treaty of Rome consolidated by Treaty of Amsterdam in 1997) prohibits agreements, decisions or concerted practices between undertakings which may affect trade between EU member states and have as their object or effect the prevention, restriction or distortion of competition.

Article 81(2) states anything breaching 81(1) is void.

Article 81(3) allows necessary and justifiable agreements that otherwise infringe 81(1) but contribute to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit without the possibility of eliminating competition.

Exemptions to Article 81(1)

1.         Agreements of minor importance

81(1) does not apply to agreements of minor importance. European Commission defines them as agreements between parties with less than 250 employees and an annual turnover not exceeding 40 million Euro or balance sheet total not exceeding 27 million Euro. If the parties meet these tests and do not share more than 10% of the market there is no breach of 81(1). Price fixing and restricting passive sales to customers or into specific territories, production, or spare part supply (“the Hardcore Restrictions”) are specifically excluded from this exemption.

2.         Block Exemptions

Vertical Agreements (between parties at different levels of supply such as manufacturer and distributor) can benefit from Block Exemption Regulation 2790/99. This clarifies 81(3) requirements. Only applies to vertical agreements devoid of Hardcore Restrictions. Also 3 sector specific block exemptions:

• Motor Vehicle - (Regulation 1400/02) assumes manufacturers and dealers operate a selective distribution system – expires end May 2010
• Insurance - (Regulation 358/03) grants a block exemption to agreements concerning calculations and studies, standard policy conditions, the joint coverage of risks, and safety devices – expires end March 2010
• Transport - range of block exemptions for air, maritime, rail, road and inland waterways agreements.

Horizontal Agreements (between parties at same level of supply) devoid of Hardcore Restrictions:

• IPR – Technology Transfer (Regulation 2659/2000) and R&D (Regulation 772/2004) cover IPR licensing agreements between 2 parties and first stage R&D up to commercialisation respectively; and
• Specialisation - (Regulation 2658/2000) production goods or provision of services by 2 parties who appoint an independent distributor.

Abuse of a Dominant Position

Article 82 states any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States.

Dominant position is where a firm has the ability to behave independently of its competitors, customers, suppliers and the final consumer. Dominance assumed with a market share of 40%.

There are no exemptions to a breach of Article 82.

Domestic enforcement

All EU member states have domestic law replicating Article 81 and 82. If there is a breach but trade is only affected in 1 member state the domestic authority will enforce.

Penalties

• Fines up to 10% of worldwide turnover and daily fines up to 5% of worldwide turnover if a decision is not complied with
• Individuals involved in cartels breaching Article 81 and/or 82 can face up to 5 years in prison and an unlimited fine

Examples

Microsoft fined 497 million Euro for Art 82 breach - bundling media player with windows.

BA fined 380 million Euro for Art 81 breach – transatlantic flight price fixing, 2 employees facing criminal charges.

Visa fined 10.2 million Euro for Art 81 breach – refusing to admit Morgan Stanley as member 3 Samsung employees currently serving jail time in US for global price fixing.