This paper – which can be found here – asks whether national competition agencies in Europe (NCAs) have the power to sanction anticompetitive activity taking place outside their territory.
The question went unaddressed in Regulation 1/2003, which set up the system of decentralized competition enforcement currently in place in the EU. According to this paper, the members of the European Competition Network (ECN) used to proceed on the basis of a common understanding that each authority would only pursue cross-border cartels for their domestic effects – with the Commission pursuing EU-wide cartels. However, in recent cases some NCAs have departed from this practice and imposed fines that took into account the EU-wide effects of cartels.
This article reviews the NCA’s practice as regards the sanctioning of extra-territorial cartel activity, and the academic and political debate about whether this practice is legitimate and appropriate. It does so as follows:
Section 2 reviews the enforcement practices of a number of NCAs. It describes how these authorities have traditionally adopted a strict approach to sanctions, and imposed fines only for the effects of the anticompetitive activity in their respective jurisdictions. More recently, however, a number of NCAs, including the Netherlands and Spain, have started imposing penalties on the basis of the EU-wide effects of anticompetitive practices.
Section 3 looks at the debate regarding the lawfulness of NCAs taking into account anticompetitive effects that took place outside the relevant Member state when sanctioning anticompetitive practices. The author identifies two main positions in this debate:
- Under the first approach: ‘the competence to sanction conduct also for its foreign effects is considered to stretch beyond the territorial limitations of national enforcement powers and must therefore rest on an express legal basis agreed between Member States.’ This position starts from the traditional public international law standpoint that states are only empowered to sanction conduct to the extent that that conduct has caused harm on their territories; and that ‘the right to fine foreign effects at a minimum requires the express consent of the relevant other Member States.’ Since Regulation 1/2003 and the ECN Notice are silent on the issue, proponents of this approach consider unlawful the practice of taking extra-jurisdictional effects into account when setting penalty amounts.
- Under the second approach: ‘the competence for NCAs to sanction cross-border cartels for their full effects in the EU is considered to be derived from the objective of decentralized enforcement of Article 101 under Regulation 1/2003 and the need for Member States to give full effect to this object’. The basic idea underpinning this approach is that infringements should be dealt with by a single authority, and that under existing EU rules NCAs are not prevented from imposing sanctions for conduct and effects taking place outside their territory. The principles of effectiveness and sincere cooperation override the public international law principle of territoriality, and require NCAs to be able to impose such sanctions. To hold otherwise would be inefficient, risk under-enforcement, and ignores the existence of institutional mechanisms that facilitate comity under the ECN.
The following section contains an assessment of this debate and proposals for the future. The author then notes that: ‘both approaches to assessing the legality of NCAs fining foreign effects are in many respects unsatisfactory’. He also concludes that: ‘there is a clear need for legislative action on this topic to create legal certainty in accordance with the common views of Member States. This could be done in the context of the recently proposed ECN+ Directive, but it could also occur through an amendment of the Regulation [1/2003]’.
From his perspective, giving NCAs the right to take foreign effects into account when imposing sanctions seems an appropriate step to help achieve effective decentralized cartel enforcement. However, he further submits that this will require:
- political consensus between Member States on matters related to: (i) when a NCA may bar other NCAs from sanctioning an anticompetitive conduct, in order to create a one-stop-shop for sanctions that reflect both domestic and foreign anticompetitive effects; (ii) the system for case allocation between NCAs; and (iii) the distribution of financial gains arising from fines;
- a more robust procedural framework for NCAs deciding: ‘key aspects such as (1) the process of identifying the authority that will take on the responsibility for EU-wide sanctioning, (2) the process of requesting and obtaining the consent of other NCAs to the sanctioning by the lead NCA ‘on their behalf’, (3) the obligations for NCAs to assist the lead NCA in not just investigating but also prosecuting and sanctioning a cross-border cartel in its entirety, and (4) the obligation for NCAs to refrain from pursuing cases (either ex officio or in response to a complaint or leniency application) for which another NCA has already been given the sole responsibility.’
- enhanced safeguards for businesses, particularly as regards such matters as: (i) ensuring ne bis in idem; (ii) establishing due process guarantees for cross-border evidence-gathering exercises; (iii) ensuring that diverging fining practices between NCAs do not act to the detriment of the infringing party or lead to regulatory forum shopping; (iv) enhancing the transparency of the ECN’s decision-making procedures, and (v) the judicial review of case allocation decisions.
This is a thorough and comprehensive paper on a thorny topic. It identifies some issues created by the possibility of imposing remedies for cross-border conduct in an imperfectly integrated trade area, and will likely prove a valuable contribution to discussions around the ECN + Directive.
The debate the author describes is reminiscent – and linked to – debates about the nature of the EU: whether the EU is a pure international public law creature, or whether it is a sui generis entity; and, if it is sui generis, what are the practical implications of this. The paper also does a good job of explaining how the challenges arising from conduct with effects that extend beyond a country’s domestic legal sphere can ultimately only be resolved by political action at the international level.