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Restrictive Agreements

Restrictive Agreements. Doc . dr. sc . Jasminka Pecotić Kaufman University of Zagreb- Faculty of Economics and Business , Department of Law jpecotic @ efzg.hr University of Zagreb- Faculty of Law Course : Competition Law 6.12.2011. Key terms. Undertakings Competition Agreement

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Restrictive Agreements

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  1. RestrictiveAgreements Doc. dr. sc. Jasminka Pecotić Kaufman Universityof Zagreb-FacultyofEconomicsandBusiness, Department ofLaw jpecotic@efzg.hr Universityof Zagreb-FacultyofLaw Course: CompetitionLaw 6.12.2011

  2. Keyterms • Undertakings • Competition • Agreement • Restrictionofcompetition „Peopleofthe same tradeseldommeettogether, even for merrimentanddiversion, but theconversationendsin a conspiracyagainstthepublic, or in some contrivance to raise prices.“ (Adam Smith, WealthofNations, 1776)

  3. Typesofagreements • Horizontalagreements • Betweencompetitors • As regardstheir anti-competitivepotential: • Cartelagreements • Horizontalcooperationagreement • Verticalagreements • Betweenundertakingswhich are notcompetitors

  4. Differencein legal treatment • Horizontalagreements • Largerpotential to restrictcompetition • Eliminationofcompetitione.g. byagreeing on price • Verticalagreements • Smallerprobabilityofrestrictionofcompetition • Verticalrestrictionsnecessary: • For a producer to succesfullylaunchits new product • To prevent“free-riding”

  5. Art. 101 TFEU

  6. Art. 101 para 1 and 2 TFEU • Thefollowingshallbeprohibited • Agreementsbetweenundertakings, • Decisionsbyassociationsofundertakingsand • Concertedpractices • WhichmayaffecttradebetweenMemberStatesand • Whichhave as theirobject or effect • Prevention, restriction or distortionsofcompetitionwithinthecommonmarket • Nullity

  7. Art. 101 para 3 TFEU • However, para 1 maybedeclaredinapplicableif • Contribution to improvingofproduction or distributionor to promotingtechnical or economic progress • Whileallowingconsumers a fairshareoftheresultingbenefit • No impositionofrestrictionswhich are notindispensable to theattainmentoftheseobjectives • No substantialeliminationofcompetition • Individual/ blockexemptions

  8. Art. 101 TFEU • Undertakings • Agreement • Decisionofassociationofundertakings • Concertedpractice • Objective / effect • (substantial) restriction # de minimis • Effect on inter-state trade • Nullity • Exemptioncriteria

  9. Undertaking • Anyentityinvolvedineconomicactivity • Legal status andmanneroffinancingirrelevant • (Höfner i Elserv Macrotron, C-41/90) • Ekonomicactivity • Anyactivityconsistingofofferinggoodsandservices on themarket • (Commission v Italy, C-35/96) • No undertakings • Employees • Personsexercisingpublicauthority • Agents • No autonomy as regardstheir principal • Singleeconomicentity

  10. Agreement • Horizontal/vertical • Autonomousbehaviour on themarket • Higherpricesifcoordination • “Concurrenceofwillsbetween at leasttwoparties the form in which it is manifested being unimportant so long as it constitutes the faithful expression of the parties' intention” • (T-41/96 Bayerv Commission) • Singleclassificationprinciple • Singleandoverallagreementpriciple

  11. Coordinatedpractice • Collusion • Overt • Tacit • A formofcoordinationofundertakingswhich, withouthavingreachedthestagewhereanagreementproperlyso-calledhasbeenconcluded, knowinglysubstitutespracticalcooperationbetweenthem for therisksofcompetition • (Dyestuffs, 48-57/69) • Intelligentadaptation to presentandexpectedbehaviourofcompetitiorsallowed • (SuikerUnie, 40/73 etc.)

  12. What is prohibited? • Direct or indirectcontractbetweenundertakingswhoseobjectoreffect is • To influence marketconductofactual or potentialcompetitor • To disclosemarketconducttoactual or potentialcompetitor • Art. 101 para 1 notapplicable to non-collusiveparallelbehaviour as regardsprices, unlesscoordinationofundertakings is theonlycredibleexplanationofparallelconduct • (Woodpulp II, C-89/85 etc.)

  13. Decisionsofassociationsofundertakings • Tradeassociations • Increaseddangerof anti-competitivecooperation • Associationneednotbeundertaking • Liabilityofassociation for breachofcompetitionrules • Decisionofassociation • Expressionofcommonwillofundertakingsgatheredamongthe same structurewhichstrive for adoptionof a certainmannerofconduct • Decisionneednotbebinding

  14. Effect on tradebetweenMemberStates • Arts. 101 and 102 applicableonly to agreements/abuseswhichmaw influence tradebetweenMemberStates • Wide interpretation • Aim to catchanypracticethathas influence on commonEuropeanmarket • Direct or indirect, actualorpotentialeffect on patternoftradebetweenMemberStates • Significantrestriction • Jurisdictionaldivide • EU law / national law

  15. Object or effect • Ifobject, no need to analyseitseffects • No need for detailedeconomicanalysis • Art 101 para 3 notapplicable • No need to prove actual anti-competitiveeffects • Ifeffect, detailedeconomicanalysis • PossiblityofexemptionunderArt 101 para 3 • If anti-competitiveeffect de minimis, Art 101 para 1 notapplicable

  16. Significanteffect on competition • De minimisagreements • Horizontalagts (10%) • Verticalagts(15%) • Notapplicable to hard-corerestraints • E.g. price fixing, marketsharing, bidrigging • E.g. RPM, restrictions on passive sale

  17. Horizontalagreements

  18. Types • Cartelsagreements • Horizontalcooperationagts • Cooperationofcompetitors ok ifeconomicbenefitswithoutcreatingcompetitionrisks

  19. Cartelagreements

  20. Collusion • Overtcollusion • Tacitcollusion • Agreement on termsofcooperation • Monitoringimplementation (stabilityofcartel) • Punishingcheaters

  21. Cartelagreements • Overtcollusion • Object = to restrictcompetition • Independentundertakingsceasing to compete • Price fixing • Marketsharing • Sharingofcustomers • Bidrigging • Exchange ofinformation

  22. Fightagainstcartels - instruments • Strongpublicenforcement • Ex offoproceedings • Finesup to 10% ofturnover(EU) • Prison sentence (some MS) • How to incentivisecarteliststounearthsecretcartel • Leniencyprogramme • Privateenforcement

  23. EC–carteldecisions(2004-2011) Source: http://ec.europa.eu/competition/cartels/statistics/statistics.pdf *lastchanged on 12 Nov 2011

  24. EC – carteldecisions(1990-2011) Source: http://ec.europa.eu/competition/cartels/statistics/statistics.pdf * lastchanged on 12 Nov 2011

  25. Cartels - fines(2007-2011)* Source: http://ec.europa.eu/competition/cartels/statistics/statistics.pdf *adjusted for Court judgments ** lastchanged on 12 Nov 2011 NB! EU 2011 budget: €141,9 bn

  26. Cartels - fines(1990-2011)* Source: http://ec.europa.eu/competition/cartels/statistics/statistics.pdf *adjustedfor Court judgments ** lastchanged on 12 Nov 2011

  27. Oligopolisticmarkets • Tacitcollusion= consciousparallelism • Mergers = coordinatedeffects • Priceshigherthancompetitiveprices • EC – sectorinvestigations (Regulation1/2003, Art. 17) • Energy markets • Banking • Insurance • Pharmaceutics

  28. Tacitcollusion • Art. 101 • Agreement • Coordinatedpractice • Art. 102 • Jointdominantposition • Abuse • MergerRegulation • Dominance test • SIEC-test • Airtourscriteria

  29. Horizontalcooperationagreemetns

  30. Horizontalcooperationagreements • CommissionGuidelines on horizontalcooperationagreements (OJ C 11, 14.1.2011, p. 1) • Joint R&D • Jointproduction • Jointpurchasing • Joingcommercialisation • Standardisationagts • Environmentalagts • Exchange ofinformationbtwcompetitors • Characteristics • Assessment on a casebycasebasis • Rationalisation – costsharing, risksharing • Joiningtogethercomplementary resources andtechnology • Creationof new productioncapacity– more or new productsbeingproduced • Consumers: lowerprices, new or improvedproducts

  31. Exemptions • Individualexemptions • Systemofnotificationabandonedin 2004 • Exclusivejurisdictionof EC to applyArt. 81(3) • Regulation 1/2003 • EC, NCAs, national courts • Blockexemptions • BERs • Competentauthoritymaystillassesstheagreementex offo

  32. Criteria for exemptingagreemetns • Improvingproductionanddistribution • Benefits for consumers • Indispensabilityofrestrictions • Eliminationofcompetition • Cumulativeconditions • Burdenofproof on parties

  33. 1 Improvementofproduction or distribution • Objectivebenefits, notsubjectivebenefits to parties • Evidenceof a causal link btwagreementsandbenefits • Benefits must besufficient to outweighrestrictions • Typicalbenefits • Improvedproducts • Improvedproductionprocess • Stableandflexiblesupply • Costdecreased • Environmentalbenefits

  34. 2 Fairshareofbenefit for consumers • Notonly natural persons-finalconsumers, but alsoanyconsumer (e.g. undertakingsat anylevelofproduction/distributionchain) • Some benefitsdirectlyfor consumers • Improvedproducts, costsdecerased, stabledistribution, environmentalimprovements • Some benefitsindirectlymanifested • Economyofscope, rationalisationofproduction/distribution

  35. 3 Indispensabilityofrestrictions • Agreement must notimpose on theundertakingsconcernedrestrictionswhich are notindispensable to theattainmentoftheobjectives (improvementofproduction/distribution, fairshareofbenefit for consumers) • Parties must showthatbenefitscouldnothavebeenattainedin a differentmanner

  36. 4 No eliminationofcompetition • Competitionneeds to bepreservedevenif some restrictions (workablecompetition, effectivecompetition) • Thisconditiondepends on marketsharesofparties • Need to definerelevantmarket

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