Questions and answers on EU competition law

Date: 03/07/1997

By Ian S. Forrester QC

AS EC competition law approaches the end of the century, the indications about its future are mixed.

On one hand, the successes are considerable: the Merger Regulation is well accepted and functioning smoothly, and has been used in a small but celebrated number of cases to challenge particular transactions.

The scope of competition law is being extended to formerly musty corners traditionally immune to anything other than self-regulation like rail transport and shipping conferences.

The Commission has also applied the rules to emerging economic fields, such as telecommunications and (though less confidently) sport. Cooperation rather than conflict with other competition agencies around the world has become fashionable. Relations with the US are notably easier than in the days of the IBM case, and 'convergence' of competition goals world-wide is the watchword.

However, the Commission's core enforcement functions of prohibiting anti-competitive agreements and abuse of monopoly power are subject to severe intellectual and procedural uncertainties.

Article 85(1) prohibits anti-competitive agreements, subject to the possibility of their being exempted under Article 85(3).

Special exemptions are almost never granted because taking individual decisions is too burdensome to be effected more than a few times a year. Thus the decision to file a notification requesting an exemption is driven either by innocent but erroneous belief that the relevant texts are to be taken at face value and that a specific exemption is a real possibility; or to obtain advantage over the other side in case the parties fall out and one of them wishes to claim that the now inconvenient deal was unlawful. It is very rarely taken in the hope of getting an affirmative decision from the Commission.

There are solutions to this. One would be to increase the number of decisions by making them shorter and brisker.

Another would be to move the intellectual goalposts so that Article 85(1) no longer catches so many agreements. A third would be to increase the number of bodies which can take decisions, and yet another would be to change the EC treaty.

Agreements prohibited by Article 85(1) are void under Article 85(2) and expose the parties to huge fines. Thus, in theory, a mildly controversial term (such as 'exclusivity') is just as void as a plainly disgraceful one (such as 'price fixing').

Since only the Commission can grant exemptions, though it rarely does so, its officials are often tempted to insist on rewriting parts of the deal as a condition of granting their approval, even if these are not the terms which require Commission blessing.

Some favour eliminating altogether the possibility of requesting an exemption on the ground that the availability of notification is not a source of legal certainty but one of legal insecurity, exploited by those who want to gain advantage over their contracting partners.

But notifications are effectively required by the present structure of the treaty. Eliminating them would deny the Commission one of its few legally provided direct routes of access for members of the public.

It would be a wholesome development for rigorous deadlines for the handling of notifications and complaints to be adopted so that silence in response to a filing can no longer be interpreted as proof of the Commission's endorsement.

Should the frontier between Article 85 (1) and 85(3) be radically redrawn, so that Article 85(3) is used as a vehicle to bless genuinely restrictive agreements which possess short-term economic or social merits?

At the moment, Article 85(3) is used to approve theoretical restrictions of competition in arrangements which, in their totality, are actually pro-competitive. It is plainly intellectually dirigiste for a system of liberal competition law to be based on a wide-reaching prohibition which applies to basically wholesome agreements.

These ideas are not new, having been recognised for over 15 years. The Commission is a conservative institution and it is easier to argue for no change than for taking risks. However, some radical thoughts are in the air and we may hope that a fresh approach will soon emerge.

A broader philosophical issue also arises. Is the purpose of the competition rules to protect competition and the competitive process, or is it to protect competitors? Should a weak competitor be given special rights to ensure its survival? Or should its expiry in the face of a stronger rival be accepted as a natural and ultimately efficient part of the competitive process?

The Commission is charged with preventing abuses of a dominant position, but it is sometimes unclear whether condemnations are motivated by sympathy for the victim or because of an economic analysis which determines the presence of dominant power.

The Courts' judgements in recent years have been surprisingly perfunctory in analysing these issues: is a very successful company to be blamed for its rival's difficulty, or is the struggle and its outcome part of the natural economic order? Does the fox abuse its strength when it kills the chicken, or is the result to be applauded as proof that the system works?

This article reflects the personal views of the author.