This paper – which You can find here – focuses on the role that priority setting and institutional dynamics can have on public competition enforcement. It argues that, while the Commission has developed an impressive theoretical framework for assessing the effects of agreements on competition, there has in fact been very little effects analysis in the Commission’s decisional practice since 2005. Instead, most cases have been decided as ‘object restrictions’.
The paper is structured as follows:
- A first section briefly retraces how the Commission came to endorse a more effects-based approach to EU competition law generally, and to Article 101 TFEU in particular.
By the late 1990s, commentators had been long criticising the Commission for relying too heavily on form-based presumptions of legality and illegality in its assessments under Articles 101 and 102 TFEU. Commentators pressed the Commission to scale back the use of form-based presumptions in favour of more individual assessments in line with contemporary US antitrust law. The Commission reacted to these criticisms by triggering a substantive modernization process with the aim of bringing European competition law more in line with contemporary economic theory.
This was a major undertaking that took up the better part of 10 years, and which eventually led to four Commission’s guidelines on Article 101 – on vertical agreements, on horizontal cooperation agreements, on technology transfer agreements and on efficiency justifications (or, to be more precise, on Art. 101(3)). While acknowledging that some restrictions of competition should be prohibited by object, their raison d’être was to spell out a coherent theoretical framework for assessing the effects of agreements that do not have an anticompetitive object. The test they propose can be broadly described as consisting of two cumulative requirements. First, the enforcing body needs to demonstrate that the investigated agreement leads to a restriction of competition through either coordination or foreclosure. Secondly, this body needs to prove – on the basis of cogent evidence – that this restriction of competition has the effect of reducing consumer welfare, for example through higher prices, reduced output, lower quality or diminished levels of innovation.
- This section also examines the Commission’s recent enforcement practice.
Contrary to what one may have expected in view of the public rhetoric and the substantial effort that went into developing a sound economic framework for assessing the effects of agreements, there has been next to no effects analysis in the Commission’s decisional practice on Article 101 TFEU since the last set of 101 guidelines was published in 2004. In the overwhelming majority of cases, the Commission has instead presumed the anticompetitive effects of prohibited agreements and condemned them as restrictive by object.
The lack of effects-based analysis in the Commission’s decisional practice since the modernisation process was concluded seems to be a consequence of case selection. Between January 2005 and June 2017, the European Commission has prohibited and fined 78 cartel agreements. During the same period, it has merely prohibited 10 non-cartel agreements, and even these were predominantly concerned with object restrictions. Four of these decisions were explicitly and exclusively based solely on identifying restrictions by object – such as non-compete agreements (PT/Telefonica), minimum price agreements (Ordre National des Pharmaciens), pay-for-delay agreements (Lundbeck and Fentanyl, which could be said to also have conducted an effects assessment), and exclusive conditions for the management and licensing of authors’ public performance rights by collecting societies (CISAC). Other decisions found that the agreements under investigation contained clear restrictions by object, while also proving these agreements’ likely restrictive effects “for the sake of completeness” (Servier, SEP/Peugeot and Groupement des Cartes Bancaires). Finally, the Commission has also left open whether it was dealing with an object or effect restriction (MasterCard). In effect, there has only been one decision based exclusively on effects since 2004: the Visa decision in 2007.
- A third part of the paper explores possible explanations for this state of affairs.
A first possible explanation is that the decentralisation of competition enforcement in 2004 allowed the Commission to concentrate its resources on pursuing the most serious infringements. A second possibility is that EU’s competition law focus on consumer welfare, together with the introduction of Block Exemptions, has operated as a filter and led to fewer cases being caught by Article 101. However, the author considers that these are not plausible explanations for such limited enforcement against effects’ restrictions over a 12 year span.
An additional, more plausible explanation is that effects cases are much harder to bring than they used to be. The resources that the Commission is required to put into proving anticompetitive effects have increased significantly with the introduction of the more economic approach – as evidenced by the remarkable increase in the number of pages of Commission decisions. Art. 102 decisions, where effects need to be demonstrated, have increased from an average of fewer than 10 pages from 1970 to 1998, to over 157 pages since 2005. This development is related to another possible explanation – object cases are more likely to survive judicial review.
A last factor to consider is the impact of commitment decisions. While commitments are not deemed suitable to deal with cartels, they are in theory suitable for all other types of infringement. Commitments decisions are a quicker and cheaper way of closing a case than prohibition decisions. To date, the Commission has enacted 15 such commitments decisions regarding suspected Article 101 infringements. If one examines the types of restraints addressed in these decisions, one finds that at least four cases concerned restraints that the Commission is likely to have considered restrictions by effect, while six commitments decisions express a clear suspicion that the investigated agreements contained restrictions by object. This seems to be contributing, albeit to a modest extent, to the drop in decisions sanctioning restrictions by effect.
- The paper then explores whether these findings give cause for concern. In particular, it asks whether other forms of competition law enforcement – such as enforcement at the national level and private enforcement – are dealing effectively with the effects’ cases that the Commission has apparently failed to pursue over the past few years.
Regarding national enforcement, the author looks at France, Germany and the UK. The decisional practice of these three national competition agencies reveals a very similar picture to that of the Commission: since 2005, there have hardly been any decisions finding an infringement of Article 101 by effect at the national level either. The CMA has enacted 10 decisions establishing an infringement of Article 101, and a number of other decisions relating to the equivalent national provisions. All of the investigated agreements were categorized as object restrictions, even if in some the CMA has on occasion looked at effects (such as in pay-for-delay cases). In Germany, 15 decisions have been published since 2005 establishing infringements of Article 101. Of these, only two assessed the effects of the investigated conduct, and both cases concerned price parity clauses for hotel booking platforms. Finally, during the same period the French autorité de la concurrence enacted 45 decisions establishing an infringement of Article 101, of which only five contained some effects analysis – and in only three, concerning exclusivity agreements, were effects restrictions the predominant theory of harm.
Private enforcement is unlikely, at this point, to pick up cases in which agreements restrict competition by effect within the meaning of Article 101. Unlike in the United States, public enforcement remains the norm in Europe. Stand-alone actions, i.e. judicial proceedings in which injured parties sue the parties in an anticompetitive agreement independently of an infringement decision, are even less common than follow-on actions, in which the parties base their claim for compensation on a prior finding of anticompetitive conduct by a competition agency. In other words, private stand-alone actions in national courts are currently unlikely to tackle the effects cases that the European Commission and national competition authorities have not been pursuing effectively under Article 101 over the past fifteen years.
- In short, the author concludes that the lack of effects’ case is down to priority setting by competition agencies. Like any public body, competition agencies have limited resources and are expected to use them wisely. Given the comparative difficulty of proving restrictions of competition by effect to the required legal standard, it does not seem sensible to allocate resources to such cases if it is possible to bring to an end several less complex object infringements on the same budget. From a long-term perspective, however, the lack of enforcement action against effects restrictions risks sending the message that such restrictions will no longer be prohibited and, more importantly, no longer be fined. This can be pernicious to the deterrent effect of the prohibition against effects restrictions.
Comment: This is an extremely well-researched paper on enforcement practices in the EU since 2005. I am very impressed by this research, which illuminates competition enforcement practice to a great extent.
However, I can think of a number of additional explanations for the phenomena that the author describes so well.
First, the Commission and the NCAs may be advancing ‘object’ cases strategically. ‘Object’ cases change the burden of proof as to actual effects to the investigated parties, by forcing them to prove that their conduct is pro-competitive. As such, they will usually be easier to bring than pure effects’ cases – where the authorities must establish, and then defend in court, the actual effects of individual business practices. If an agency has an effects’ case, it may make sense to bring it as an object case and present the effects analysis ‘for the sake of completeness’ – i.e. to provide a fallback in case the object restriction argument does not stick, and to increase the persuasiveness of the object case.
An additional advantage for the authorities of doing this is that ‘object’ cases create rules that may have a greater deterrent effect in the future – because they are easier to delineate and enforce – than effects’ decisions that rely on (unavoidably) individual fact specific situations.
Lastly, and relatedly, there is an institutional dimension. If a business conduct is found to be restrictive by object, it will likely be easier to punish similar behaviour in the future – and defendants will have greater incentives to settle – than if it is found to be restrictive by effect. This increases the chances of success by competition agencies in court.
If this is indeed what is going on, then the enforcement activities of competition agencies do not really risk limiting the deterrent effect of competition provisions against effects restrictions – because effects restrictions are being identified and sanctioned as object restrictions, and arguably being over-deterred. The problem, in such a context, is courts adopting too-wide an approach to object restrictions.
I’m obviously not saying that I know what the impact of these developments will be better than someone who just wrote a really impressive piece of research on the topic. But I do think that the results of this research can be used to argue for different conclusions regarding their impact on deterrence. And that might merit more research.