Time for bold steps in competition law

Date: 04/02/1999

By Ian S Forrester QC

FUNDAMENTAL differences of philosophical opinion still affect the interpretation of the constitutional basis of EC competition law: Articles 85 and 86 of the Treaty of Rome.

Drafted in 1962, in a world which was cartel-friendly and Eurosceptical, the original competition regulation is Regulation 17/62. That text has been much interpreted and criticised since, but has become semi-sacred in that the European Commission has feared to take the risk of the radical rewrite which profane parliamentary or national hands might impose if a revision were proposed.

Reform is, however, in the air. Competition Commissioner Karel van Miert and his senior officials have been engaging in a wide-ranging and frank review of successes and failures, with a view to equipping the Community with a set of competition rules which can function in the next century. The proposals launched last year are moving towards implementation.

Two elements deserve special mention: the rules governing how competition cases will be organised, and what theory will be applied to common categories of business relationships regarded as posing a risk to intra-state trade.

Seven procedural regulations dealing with the conduct of competition investigations have been replaced by Regulation 2842/98.

One of the changes will be welcome to the families of Brussels lawyers. Statements of objections usually materialise before a holiday period, causing severe domestic disharmony to those obliged to draft the reply. The new regulation gives standard periods of time for responses: two or three months depending on complexity, plus an extra month if the period includes August.

Another change relates to the minutes of the hearing. The tradition has been for the hearing officer to supervise the preparation of a written record, based partly on written versions of the parties' own speeches and partly on the tape recording of the proceedings.

In future, the party will just get a copy of a tape recording (after business secrets have been erased). I am not convinced this is a change for the better. Fifteen hours of speech on tape is not as user-friendly as 200 pages of text, and will not help hearing officers to fulfil their duty to ensure all parties are fairly heard by the advisory committee.

A further change relates to fundamental principles. The basic structure of Article 85 is a prohibition which is curable by an exemption. If the agreement in question appreciably affects trade between member states and appreciably restricts competition, it is forbidden. Worse, the agreement is unenforceable before national courts. Worse still, the Commission can impose gigantic fines.

Only if the agreement has been exempted under Article 85(3) can these horrors be avoided. The Commission's interpretation of the basic prohibition is broad, so that in theory, thousands of agreements are caught every year by Article 85(1) and require an exemption under Article 85(3). In reality, less than five individual exemptions are granted in a year.

The Commission's interpretation of its own jurisdictional reach has created a demand for legal certainty which it is administratively incapable of satisfying. Clearly there is a problem. Should it be solved by taking shorter, simpler decisions? Or by redefining what requires an exemption? Or by sharing the task of deciding with national competition authorities or judges?

The Commission has been examining every alternative solution to the problem, and is proposing a fresh look at vertical restraints, but its response is too cautious. It would repeal three existing regulations granting an automatic exemption and replace them by a single regulation.

This sounds admirable, yet there are two buts. First, only those companies which do not enjoy 'significant market power' will be able to benefit from the new rule. This is inconsistent. If regulations granting block exemptions create certainty, there is no need to deny it to firms which happen to be successful; especially since defining the relevant market may well be uncertain.

The risk is that large firms which currently desire legal certainty and obtain it by fitting themselves within the scope of the existing regulations may fear losing that certainty and may file requests for specific exemptions.

Secondly, 'hard-core' restrictions cannot be exempted. This is fair enough in one sense, as no cartel can expect to receive legal blessing. But what about a pricing scheme which could discourage cross-border trade but does not prohibit it? At least the old regulations governing exclusive distribution relationships provided clear rules, if one chose to follow them.

In brief, two cheers for being willing to consider reform, but one groan for not being bold enough to recognise the inevitable: it is no more possible for the Commission to regulate acceptable families of commercial conduct precisely than it is for the church to prescribe detailed rules on sexual activity. Both institutions need to take the risk of trusting to the good sense of the laity.

This article reflects the personal views of the author.

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