On May 1, Regulation 1/2003 comes into force, replacing the 40-year-old Regulation 17 which deals with enforcement of the competition rules, with a modernised, and decentralized system. The new Regulation will not alter the substantive content of Articles 81 and 82, but will radically change the way competition law is applied.
The key elements of the new Regulation are:
Direct applicability of Article 81(3)
Decentralisation of enforcement
Co-operation between Commission, National Competition Authorities (NCAs) and national courts
Increased powers of investigation and enforcement for the Commission
The Regulation sets out the framework of this new regime and is supported by a series of Commission notices which provide more detailed guidance on how the system will operate in practice.
Direct Applicability Of Article 81(3)
From May 1, the individual notification system will be abolished and Article 81(3) will become directly applicable, without prior decision by the Commission. This should allow the Commission to focus its activities on the most serious infringements such as price fixing and cartel arrangements. Proceedings by NCAs and before national courts will no longer be blocked or delayed by notifications to the Commission. Under the new regime, NCAs and courts will have the power to apply the exemption rule themselves.
In exceptional circumstances, where the Community public interest so requires, the Commission can adopt a decision that Article 81 or Article 82 does not apply. This will mainly be the case for new types of agreements or practices that have not been settled in existing case law, in order to clarify the law. It will also remain possible for companies to obtain informal guidance from the Commission on points of law for cases that give rise to genuine uncertainty because they present novel or unresolved questions.
NCAs and national courts will play a much greater role in the enforcement of EC competition law and the Regulation sets out the relationship between national and EC competition law. Where an agreement or practice has an effect on trade between Member States, national authorities and courts must apply Articles 81 and 82, alongside national law or on a stand-alone basis. Member States will not be able to prohibit under national law agreements and concerted practices which do not infringe Article 81, or fulfil the conditions of Article 81(3). Member States are however not precluded from adopting and applying on their territory stricter national laws which prohibit or sanction unilateral conduct engaged in by undertakings.
Cooperation Between The Commission, NCAs And National Courts
In order to ensure a coherent application of EC competition law in all the Member States, a European Competition Network has been created, through which the Commission and national authorities will co-operate with each other and exchange information. A number of Commission notices further clarify the relationship between the Commission and the Member States and between the different NCA's. The network is intended to be a forum to allow the competition authorities to agree on case allocation and to assist each other in their investigations.
Increased Powers Of Investigation And Enforcement For The Commission
The Commission's powers of investigation and enforcement are increased and under the new Regulation the Commission will have the power to search private homes of directors, managers and other members of staff and their vehicles, if it has a reasonable suspicion that books or other records related to the subject matter of the investigation are being kept there. The exercise of this power will be subject to authorization by a national court.
Fines for breaches of procedural rules will be increased to 1% of the company's annual turnover (whereas currently they range between ¤100 to ¤5000). Fines for breaches of the substantive rules will remain unchanged, at a maximum of 10% of the company's annual turnover.
Another very important change in the Commission's powers is its ability to impose structural remedies where there is no equally effective behavioural remedy (subject to the principle of proportionality). This would for example give the Commission power to order the break up of a company that abuses its dominant position in the market.
The new Regulation is supported by a series of Commission notices which aim to clarify a number of questions as to how the decentralized enforcement of Articles 81 and 82 will work in practice.
Effect on Trade. The Effect on Trade Notice deals with the jurisdictional requirement that a restrictive agreement or abusive conduct have an effect on trade between Member States to fall within the scope of Article 81 and/or 82 EC. The notice describes and explains the current case law. It also introduces a new rule of 'not appreciably affecting trade,' under which agreements or practices that fall below the 5 percent market share threshold (combined market share of the parties) and the Euro 40 million turnover threshold (aggregate annual Community turnover of the undertakings concerned in the products covered by the agreement) are not presumed to have an effect on trade between Member States. This is a refutable presumption which is specific to the jurisdictional criterion of effect on trade, and should not be confused with the Commission's Notice on agreements of minor importance.
Guidelines on Article 81(3). The aim of this notice is to provide guidance to the national courts and competition authorities on the Commission's methodology for applying Article 81(3). It explains the types of efficiencies that may be created by restrictive agreements and the conditions for finding that consumers receive a fair share of these benefits. The notice will also be relied on by businesses whose agreements are found contrary to Article 81(1) to assist them with providing the necessary evidence that the conditions of Article 81(3) are satisfied.
Notice on Cooperation within the Network of Competition Authorities. The network notice develops a number of principles for the allocation of cases between the different NCAs and the Commission. Regulation 1/2003 creates a system of parallel enforcement of the substantive competition rules and cases can be dealt with by a single NCA, possibly with the assistance of other NCAs, by several NCAs acting in parallel or by the Commission. It is envisaged that in most instances the authority that receives the complaint or starts proceedings will remain in charge of the case. Re-allocation will only be considered where that authority is not well placed to act or where other authorities consider themselves also well placed to act. The notice also provides further details on the exchange of information between the authorities and on the treatment of leniency applications. An application for leniency to one authority is not considered as an application for leniency to all competition authorities which have jurisdiction and potential applicants are advised to file leniency applications with all appropriate authorities simultaneously.
Notice on Cooperation between the Commission and the National Courts. Under the new regime national courts will play a much greater role in the enforcement of EC competition law and this notice is intended to serve as a practical tool for national judges. The notice deals with the issue of competence of national courts to apply EC competition rules, the procedural aspects of the application of EC competition rules by national courts and the parallel application of EC competition rules by the Commission and by national courts. National courts have the right to obtain information which is in the Commission's possession for the purpose of applying Article 81 and 82. They can also ask the Commission for its opinion. National courts must send the Commission copies of any judgments applying Article 81 or 82 within one month of the date on which the judgment is delivered. The Commission as well as the NCAs have the right to submit written or oral observations to national courts in relation to cases in which questions of interpretation of Articles 81 or 82 arise.
Notice on Informal Guidance Relating to Novel Questions. Where cases give rise to genuine uncertainty, because they present novel or unresolved questions for the application of Articles 81 and 82, undertakings can seek informal guidance from the Commission. It is up to the Commission to decide whether or not a particular question merits a guidance letter, taking into account such issues as the economic importance of the goods or services concerned, the extent to which the agreement or practice is likely to become more widespread and the scope of the investments related to the transaction. There is no standard form for requesting informal guidance from the Commission but the notice contains a list of information that must be provided. A guidance letter cannot prejudice the assessment of the same question by the European courts, nor does it bind Member States' authorities or national courts with power to apply Articles 81 and 82.
Notice on the Handling of Complaints. The Commission wishes to encourage individuals and companies to inform public enforcers of suspected infringements of the competition rules. Depending on the nature of the complaint, a complainant can bring his complaint to the Commission, a national court or to a national competition authority. The notice intends to help potential complainants to make an informed choice about whether to address themselves to the Commission, to one of the Member States' competition authorities or to a national court.
Procedural Regulation. This Regulation applies to proceedings conducted by the Commission under Articles 81 and 82 and will replace Regulation 2482/98 on the parties' right to be heard in proceedings under Articles 81 and 82. It covers the initiation of proceedings, the conduct of investigations by the Commission, the handling of complaints, exercise of the right to be heard and access to the file and treatment of confidential information.
Impact On Businesses
The Commission argues that the new system of decentralized enforcement will be more efficient and will reduce the administrative burden on businesses. Where this may be the case for agreements that clearly satisfy the Article 81(3) criteria, companies are losing the protection against fines and provisional validity currently granted by the notification process in respect of difficult cases. In addition, at the early stages it is likely that decentralized enforcement will lead to inconsistent interpretation and application of the EC competition rules, which may in fact add to the administrative burden and reduce legal certainty. Where a dispute or a complaint arises over an agreement or conduct with impact on several Member States, businesses may well end up having to deal with multiple competition regulators and courts.
As with any major overhaul, it will take time for the new regime to bed down and much will depend on how the Regulation and notices are applied by the NCAs, the national courts and the Commission. It is too soon to predict the long-term effect of the new regime, but there is little doubt that there are challenging times ahead for businesses and their lawyers.
Jonathan Scott, Head of EU & Competition at Herbert Smith, can be reached at +44 20 7466 2361. Dr. Ingo Brinker, Head of Antitrust and Competition Law at Gleiss Lutz, can be reached +49 89 21 667-212. Christof Swaak, Head of EU, Competition and Regulations Markets at Stibbe, can be reached at +31 20 546 05.