EU Competition (Anti trust) Law - R. Vrahimis & Associates

The goal of competition (antitrust) law is to motivate companies to work efficiency, to encourage innovation and reduce prices.  This drives companies to offer the consumers goods and services at the most favourable terms possible.  It also keeps a fair balance in a market so as to guarantee that existing players and newcomers have equal access to the market and small and dominant companies compete in equal footing.  It achieves this by requiring companies to act independently of each other (even at different levels of the same supply chain), but subject to the competitive pressure exerted by the other companies.

EU legislation may be divided into four main policy areas:

The core of EU competition laws and regulations target profit-making individuals or companies (undertakings) who are engaged in an economic activity.  It aims in preserving fair competition within the EU by regulating and restricting anti-competitive conduct so as to ensure that undertakings or member states do not create cartels and monopolies.  The legal basis of EU competition laws are articles 101 to 109 of the Treaty on the Functioning of the European Union (TFEU).  Competition laws regulate all “undertakings” i.e. businesses run either by companies or individuals which are de facto economic units, or enterprises, regardless of whether they are a single company, or a group of multiple companies linked through ownership or contract, as long as their activity is of an economic nature.

To complement the TFEU, a number of regulations have been adopted some containing general rules for the implementation of the TFEU provisions and others dealing with particular types of conduct or with specific sectors as follows:

In Cyprus the Protection of Competition Law (13(I)/2008) was enacted to implement the basic EU legislation on Rules of Competition i.e. Regulation 1/2003.

Undertakings who behave to an appreciable extent independently of their competitors or hold a prevailing position or hold a substantial share in the EU market, are considered dominant.  These businesses are prevented from abusing that position to the detriment of consumers by:

Under EU law, very large market shares (over 39.7%) raise a rebuttable presumption that a business is dominant.  If a business has a dominant position, then it has a special responsibility not to allow its conduct to impair competition on the common market.  Market shares are determined with reference to the particular market in which the business sells its product.  The definition of the relevant market connected with a dominant position is important because the more wide the market the less likely is to prove that the undertaking is in a dominant position.  In practice, the court decides what definition to give to a relevant market by the help of a specialist economist.

The refusal to supply an essential facility needed by any businesses which is attempting to compete may constitute abuse of dominant position. Three requirements have been laid down by the European Court of Justice about the extent to which unsertakings should be compelled to supply an essential facility.  The refusal to supply it:

Monopolies, oligopolies, cartels and control of collusion, concerted practices and other anti-competitive conduct.

If associations have taken decisions, or if undertakings have agreed, or have developed a “concerted practice”, that as such may affect trade between member states and aim or in effect prevent, restrict or distort competition within the common market, then these undertakings form an illegal cartel and violate competition laws.   These practices are very similar to practices relating to abuse of dominant position and are must:

This would include both horizontal and vertical restraints as explained above.  It also covers concerted practices where undertakings tend to raise or lower prices at the same time without an explicit agreement, as long as this is not coincidental, but is proven by other evidence that undertakings were purposely synchronising prices and were therefore aware that this might prejudice competition.  Actual agreements to fix market prices do not need proof of awareness of prejudice to competition because the result shall self-evidently have an anti-competitive effect to the market even if the parties were unaware of this or did not intend it.  EU law has been construed very widely to include any kind of dealing, agreement, contact, informal agreement, “meeting of the minds” or even tacit acquiescence between undertakings, which is prohibited whether it is just a “gentlemen’s handshake” or a verbal or written agreement between them.

Exceptions to such cartel behaviour must satisfy only some limited conditions i.e. it must 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, and which does not:

If the terms of the agreement (in particular the restrictive clauses it contains) can be shown to provide economic benefits to both parties as well as to the EU consumer which outweigh the anti-competitive effects of its restrictive clauses, then the agreement is allowed.  In practice gave very few official exemptions have been given except for agreements of “minor importance” unless they fix sale prices.  This exemption may apply to small undertakings that do not hold a high percentage of the relevant market.  There are also “block exemptions” from these provisions for some types of contracts which permits certain terms and ban other terms.  These block exemptions contracts fall in the following areas:

Strictly speaking the ECMR is not antitrust legislation but a pre-emptive one.  By its nature, any M&A involves the concentration of market power in fewer undertakings than before.  Because the EU wishes to avoid the establishment of market structures which may create or strengthen a dominant position, without the need for direct control of possible abuses of dominant positions, the regulation of M&A attempts to deal ex ante with the problem (before it arises).

The possibility of undertakings gaining a dominant position within the common market enabling them to behave abusively is controlled by the Merger Regulation (the “EUMR”) and the Directive on Cross-border mergers, which deal with concentrations (i.e. mergers, acquisitions or takeovers) that have an EU dimension.  Concentrations with an EU dimension are defined in specific turnover figures and must be approved by European Commission.  A concentration arises by the:

EU competition law requires authorisation from the relevant government authority by prior notification or pre-notification referral, either before implementation and following the conclusion of the agreement, the announcement of the public bid, or the acquisition of a controlling interest or a good faith intention to conclude an agreement or, in the case of a public bid, where they have publicly announced an intention to make such a bid.

A number of considerations are taken into account to establish significant impediment or substantial lessening of competition such as:

As can be seen above certain prima facie anti-competitive behaviours may nonetheless be sanctioned because they lead to “technical and economic progress”.  It is also logical that a takeover of an insolvent undertaking does not affect competition

Public Services:  A member state is not directly prevented to deliver services “of general economic interest or having the character of a revenue-producing monopoly”.  However, according to article 106(2) of the TFEU all public undertakings must abide by the antitrust rules “in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them” without affecting the development of trade.

This allows the provision of services of general economic interest to be offset with less profitable sectors against the profitable sectors if a restriction of competition can be justified.  However, member states must not allow or assist undertakings to infringe EU competition law and as such they are not free to support national undertakings as they see fit.

This affects both state and private undertakings which are given special monopoly rights to provide a certain service.  Thus a monopoly cannot both be a regulatory body (e.g. setting up market standards) and an undertaking or both the owner of common network and a network service provider.

Article 106 of the TFEU aims to preserve Europe’s social character and institutions.  As such undertakings are entities that carry on an activity of economic and not social security nature (which operate according to the principle of solidarity where contributions from high earners subsidise those of low earners).  It also provides that competition law shall be applied generally but not where public services might be obstructed and practices that enable them to discharge their general-interest tasks in conditions of economic equilibrium are allowed.  However when a state is “subsidising” a market, it is always under a duty to ensure the provision of an efficient service.

State aid:  A member state is prevented to grant any aid or resources in any form to an undertaking which distort or threaten to distort competition by favouring certain undertakings or the production of certain goods “in so far as it affects trade between Member States” unless such aid:

Also, the European Commission may consider state aid to be necessary for the following reasons:

EU carries out a liberalisation programme to broaden sector regulation and to extend competition law to industries that were previously state monopolies.  It has also introduced positive integration measures to liberalise the internal market.  Member states that have not liberalised various sectors should gradually open up to competition. This EU policy intends to strike a balance between competition and continued quality service.

Undertakings that do not hold exclusive rights are not bound for economic reasons to offset losses in the unprofitable sectors against profits in the more profitable sectors.  Therefore, states should also authorise competition between individual undertakings and the holder of the exclusive rights for operations in that sector which would be economically profitable, so that individual undertakings would be able to offer better prices than those adopted by the holders of the exclusive rights.

Enforcement generally:  Under Article 105 of the TFEU the European Commission has the duty to ensure that competition law is applied correctly and to that effect it has a number of investigative powers to ensure compliance e.g. wide on-site investigation and inspections (dawn raids on the premises of suspected undertakings, private homes and vehicles) written requests for information (from governments, competent authorities of Member States, and undertakings) etc.  The European Commission may also impose fines for violations of EU competition laws.  The only defence available to undertakings that have been given a request for information or inspection would be lawyer-client legal professional privilege which to a limited extend has be recognised by the ECJ.

The European Commission may become aware of a potential competition violation by sector inquiry, by whistle-blowers, or through the complaint from an aggrieved or injured party.  Moreover, Member States and any individual or company are entitled to make a complaint if they have a legitimate interest.

By the Rules on Competition Regulation, the EU has assigned much of the responsibility of enforcing competition law to the national competition authorities and courts of the EC Member States so as to encourage private enforcement of competition law.  Therefore, member states’ national competition authorities and national courts may also apply the TFEU provisions directly.

The European Commission also cooperates with national courts to ensure that EU competition rules are applied coherently throughout the EU and has issued the Antitrust Damages Actions Directive on the application of EU competition law by national authorities by so as to remove the main obstacles to effective compensation, and to guarantee minimum protection for citizens and businesses throughout the EU.

Any citizen or business who suffers harm as a result of a breach of EU competition laws is able to obtain restitution from the party who caused the harm.  However this is rarely exercised by victims of European Union competition law infringements because many times the loss may be small or unquantifiable or the difficulties and costs of initiating cross border action may be many and high.

Sector inquiry:  According to article 17 of the Rules on Competition Regulation the European Commission has special investigative powers to investigate into sectors of the economy and into types of agreements (“sector inquiry”).  Where the trend of trade between Member States, the rigidity of prices or other circumstances suggest to the European Commission that competition may be restricted or distorted within the common market, it may conduct its inquiry into a particular market sector of the economy or into a particular type of agreements across various market sectors.  In such a case no specific violation is investigated but a whole market sector of the common market. T European Commission has the same investigative powers in its disposal as it has in investigating specific cases of infringements in competition law.

An enquiry might be initiated because by the European Commission because that particular market sector:

The European Commission has been using this method quite frequently in the recent years because there is no provision for notification or referral to European Commission of any agreement that may be construed as a cartel or as dominating the market in breach of competition law, and undertakings are responsible for self-assessment of EU Competition Law violations.  Prior to the sector inquiry powers of the European Commission, agreements had to be notified to the European Commission, but it was overwhelmed by this work so notification was abolished.

The following sectors have been subject of a sector inquiry:

Fines:  According to article 23 of the Rules on Competition Regulation the European Commission may impose a fine for breaches of competition law.  These fines are not fixed so as to ensure that undertakings shall not be capable of carrying out a cost/benefit analysis before breaching competition law.  

Fines may be not more than 1% of the total turnover in the preceding business year for intentionally or negligently providing false or misleading information to the European Commission.  A fine of not more than 10% of the total turnover in the preceding business year for intentionally or negligently or breaching an interim order, or failing to comply with a commitment made binding by a decision or where there is a breach of competition law may also be imposed by the European Commission.  Fines of up to 5% of the average daily turnover may also be imposed for every day an undertaking fails to comply with the requirements of the European Commission.  These fines are calculated for each of the undertakings participating in the infringement and can extend into millions of Euros

In determining the fine the gravity and duration of the infringement should be taken into account.  The European Commission determines a basic amount of the fine for each involved undertaking or association of undertakings and then adjusts that amount up or down on grounds of recidivism or leniency respectively, and individual circumstances (please see below).  The basic amount is tied up with the value of the sales relating to the infringement taking into account the gravity of the infringement i.e. its duration because this affects the potential consequences on the market and the gain of the undertaking.

Leniency policy in cartel cases:  According to the European Commission’s Notice “on immunity from fines and reduction of fines in cartel cases”, a “leniency policy” is applied to undertakings that are party to a cartel but nonetheless cooperate with the European Commission as follows:

The purpose of a reducing scale in fine reductions is to encourage a “race to confess” between cartel members, the criticism being that a cartel member may enjoy the fruits of the antirust practice and then instigate the other members of the cartel to inflict an economic loss to them.  However, the leniency policy has been of great success in the EU because it has aided in an increase in the detection of cartels to such an degree that most such investigations are initiated through the leniency policy.

Many people request legal assistance with EU competition law when wanting to incorporate various “sales” or promotional practices in their business or when they wish to implement a vertical corporate structure in their supply chain.  As seen above there is a plethora of laws and regulations that control how an enterprise may infringe competition laws in the EU.  To ensure compliance with all antitrust laws, rules and regulations business and startups need to hire a lawyer from the outset.

Our services include all EU competition law matters, claims and disputes such as: