short lines

All Change in Brussels
Procedural reform for articles 81 and 82

July 2003

An overhaul of the way EU competition law is enforced, described by the European Commission as "the most comprehensive antitrust reform undertaken since 1962" will come into force on 1 May 2004, the day the EU is to expand from 15 to 25 Member States.

Regulation 1/2003 will significantly affect the practical application of Articles 81 and 82 - the key competition law provisions of the EC Treaty that respectively prohibit anti-competitive agreements and the abuse of dominance. This Short Lines considers the impact of the key changes.

The Commission's current monopoly over the Article 81(3) exemption

The current procedural rules for the enforcement of Articles 81 and 82 are set out in Regulation 17/62, which provides that whilst an agreement that infringes Article 81(1) is automatically void, only the Commission can then determine whether the agreement may be saved by virtue of Article 81(3). In some cases, the Commission has issued block exemption regulations to provide automatic exemption. However where no block exemption applies, the parties must normally seek clearance by notifying the agreement to the Commission for individual exemption, in accordance with the procedure set out in Regulation 17[1]. National courts and competition authorities ("NCAs") are not empowered to consider the issue, and may therefore find they cannot themselves finally determine whether agreements are anti-competitive, should a party claim the benefit of Article 81(3).>

The Commission's White Paper on reform of the current system noted how many agreements had been notified to the Commission specifically as a means of blocking private actions before national courts and NCAs (as notification can result in years of delay pending a decision by the Commission). The Paper commented that this practice had "undermined efforts to promote a rigorous and decentralised application of the competition rules."

The two principal deficiencies in the current enforcement system and the Commission's primary reasons for reform are: (1) the current system no longer ensures the effective protection of competition; and (2) the current notification system is excessively burdensome on industry. The new Regulation proposes a number of remedial changes.

The new directly applicable exception

The new rules introduce a "directly applicable exception", by which all agreements within Article 81(3) will be automatically exempted. There will no longer be a requirement to notify agreements to the Commission for individual exemption, and national courts and NCAs will be empowered to apply the whole of Articles 81 and 82[2]. It will therefore be possible to conclude private actions without potentially years of delay caused by the notification system. The party seeking exemption will bear the burden of proving Article 81(3) applies.

Increased powers of investigation and a focus on serious breaches of competition law

Once the notification system is abolished, the Commission will have more time and resources to focus on the detection and punishment of serious competition infringements, such as cartels and price-fixing agreements.

The new Regulation strengthens the Commission's powers to investigate infringements of both Articles 81 and 82. The Commission will be able (1) to interview anyone who consents, for the purpose of collecting information relating to the subject-matter of an investigation; (2) to seal business premises and books and records for the period of an inspection; and (3) to search the homes of directors, managers and other staff if it reasonably suspects that records or books related to the business and inspection are kept there.

Potential problems

Lack of legal certainty: Parties to an agreement will no longer be able to obtain a clarificatory decision directly from the Commission as to whether their particular agreement is exempt under Article 81(3)[3]. However to address this reduced legal certainty, the Commission intends to issue draft Notices for consultation in autumn 2003, which will include guidance on the interpretation of Article 81(3). It is hoped this guidance will enable proactive assessment of agreements' validity./p>

Inconsistency: The application of Articles 81 and 82 by Member States' national courts and NCAs may result in inconsistent decisions, further increasing uncertainty over how the Articles should be applied on a case-by-case basis. The Regulation seeks to limit the potential for inconsistencies, by requiring NCAs and national courts not to make decisions under Articles 81 or 82 that run counter to decisions adopted by the Commission. The Regulation also specifically requires (1) that agreements that fall within the Article 81(3) exemption should not be prohibited under national competition laws; and (2) that NCAs lose jurisdiction to apply Articles 81 and 82 once the Commission initiates its proceedings. A network of European Competition authorities, the "European Competition Network" will also be formed, so NCAs, national courts and the Commission may regularly consult with each other on how Articles 81 and 82 should be applied.

Forum shopping: The new system could lead to tactical decision-making over the choice of jurisdiction in which to commence proceedings. Businesses could be significantly advantaged by bringing claims in certain Member States (e.g. because of those Member's States' differing evidentiary requirements or awards of compensation), even though those States are little affected by the relevant agreements. It will be interesting to see whether such a practice develops and if so, how (if at all) the Commission responds.

Multiple litigation: The Regulation enables a NCA to suspend its proceedings if another NCA is already dealing with the case. However, no similar right applies to court proceedings, thereby leaving the door ajar for litigation of the same agreement in different Member States[4].

A better system?

The Commission believes the Regulation will strengthen antitrust enforcement as a result of the new allocation of tasks between the Commission and national authorities. It aims to focus its resources on more serious infringements of EU competition law, and expects that putting an end to the notification system will reduce bureaucracy and costs for business./p>

In reality, with the loss of the option to seek clarification from the Commission as to whether Article 81(3) applies, businesses will need to expend greater time and resources assessing for themselves whether their agreements could benefit from exemption, whilst at the same time facing the real possibility of action being taken not only by the Commission, but also by national authorities and aggrieved third parties.

The Commission's proposed new guidance Notices on the interpretation of Article 81(3) will be crucial to the effective and uniform deployment of national enforcement. They will also be invaluable for advisers, tasked with assessing the likelihood of infringement. The distinct probability remains however, that the new regime will, in the short to medium term take some time to find its feet.

Useful URLs

http://europa.eu.int/comm/competition/antitrust/wp_modern_en.pdf
White Paper on Modernisation
http://www.europa.eu.int/comm/competition/antitrust/others/modernisation/comm_2000_582/en.pdf
Proposal for the Regulation
http://europa.eu.int/eur-lex/pri/en/oj/dat/2003/l_001/l_00120030104en00010025.pdf
Regulation 1/2003
http://www.dti.gov.uk/ccp/consultpdf/modconsult1.pdf
Department of Trade and Industry Consultation Paper

David Meredith / John Garcia

[1] Notification is not required if the relevant agreement falls within one of the categories of agreements listed at Article 4(2) of Regulation 17.

[2] The Commission will still be able to take over any case being investigated by a NCA.

[3] Currently, cases notified to the Commission for Article 81(3) exemption usually close by the Commission issuing a non-binding "comfort letter"

[4] Although EU rules relating to jurisdiction (Berne Convention) will likely limit the number of such parallel proceedings