Application of Articles 81 and 82 of the EC Treaty

The new arrangements for applying the anti-trust procedures, which were introduced by Council Regulation (EC) No 1/2003, are designed to ensure more effective enforcement of the European Community competition rules in the interest of consumers and businesses, while easing the administrative burden of firms doing business in Europe. Via decentralised application of the competition rules and by strengthening a posteriori control, the Regulation will lighten the European Commission’s workload and increase the part played by national authorities and courts in implementing competition law while guaranteeing its uniform application.

ACT

Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty [See amending acts].

SUMMARY

Background

This new Regulation, adopted by the Council on 16 December 2002 and implementing the rules on competition laid down by Articles 81 and 82 of the EC Treaty, will replace Regulation (EEC) No 17/62 with effect from 1 May 2004, the deadline for implementation in the Member States.

Regulation No 17/62 established a centralised monitoring system under which agreements liable to restrict and affect trade between Member States must, in order to qualify for an exemption, be notified to the Commission. The Commission’s exclusive power to authorise agreements which restrict competition but which meet the conditions of Article 81(3) (formerly Article 85(3)) of the EC Treaty has led to a large number of agreements being notified by companies, a fact which has undermined efforts to promote a rigorous and decentralised application of the rules on competition.

With a view to simplifying administrative formalities for firms and enabling the Commission to take more effective action against serious infringements of the rules on competition, the Commission launched, with the publication of its 1999 White Paper, a long process of reform which has resulted in the publication of this new Regulation.

This reform brings about the transition from a system of centralised authorisation based on prior notification to a legal exception system which, being based on the decentralised application of the rules on competition and a strengthening of a posteriori control, lightens the Commission’s workload and increases the role of national authorities and courts in implementing competition law, while guaranteeing that it is uniformly applied.

Scope

The Regulation lays down rules implementing the provisions of the EC Treaty relating to agreements, decisions by associations of undertakings and concerted practices which may restrict competition (Article 81) and abuses of a dominant position (Article 82). It sets out neither to amend Articles 81 and 82 of the EC Treaty nor to prevent the Member States from adopting stricter national laws and implementing them on their territory.

It does not apply to the following:

• international tramp vessel services (see Article 1(3)(a) of Regulation No 4056/86 laying down detailed rules for the application of Articles 85 and 86 of the Treaty to maritime transport);maritime transport services that take place exclusively between ports in one and the same Member State (see Article 1(2) of Regulation No 4056/86);
• air transport between the Community and third countries.

In exceptional circumstances, and where required by Community public interest, the Commission may adopt a declaratory decision finding the prohibition of Articles 81 and 82 of the Treaty to be inapplicable.

Cooperation between the Commission and Member States’ competition authorities

The direct effect of the legal exception system established by the Regulation is to increase the responsibility of undertakings since, given that they are no longer subject to a prior-notification requirement, they will have to ensure in good faith that agreements do not affect free competition and do not infringe the Community rules in this area. However, in order to avoid any abuse, the competition authorities in Europe – including the Commission – and the national courts will themselves assume greater responsibility in ensuring that the rules on competition are complied with, while coordinating their respective activities. To that end, efforts are required to encourage an exchange of information between the various institutions.

This should involve constant communication by the Commission and the Member States’ competition authorities of all de facto or de jure information, including confidential information, which might help identify violations of the rules on competition. The Commission must also transmit a copy of the most important documents and, at the request of the competition authorities, furnish any document necessary to an assessment of the case. For their part, the Member States’ competition authorities are responsible for informing the Commission of any decision relating to the application of Articles 81 and 82 of the Treaty not later than thirty days before it is adopted. To facilitate the exchange of information, the Regulation also provides for the creation of a European competition network.

To avoid any overlap and ensure a uniform and coherent application of European competition law, the Regulation maintains the rule that Member States’ competition authorities are automatically relieved of their competence if the Commission initiates its own proceedings. Nevertheless, the latter undertakes to consult the national authority in question before initiating proceedings. In addition, when the competition authority of a Member State or the Commission receives a complaint concerning an agreement, a decision by an association of undertakings or a concerted practice which is being or has been dealt with by another competition authority, it may suspend its proceedings or reject the complaint.

The Court of Justice reviews the Commission’s activities and may rule against decisions by the Commission to impose a fine or periodic penalty payment. For its part, the Commission will, before taking a decision or imposing a fine or periodic penalty payment, consult the Advisory Committee on Restrictive Practices and Dominant Positions at one of its meetings or by written procedure. This Committee, made up of representatives of Member States’ competition authorities, serves as a forum for discussing cases that are being handled by the various competition authorities in Europe.

Finally, regarding the cooperation which must exist between the competition authorities in Europe – including the Commission – and national courts, the Regulation lays down that the Member States may ask the Commission to transmit to them information in its possession or its opinion on questions concerning the application of the Community competition rules. In addition, Member States undertake to forward to the Commission a copy of any written judgment of national courts relating to the application of Article 81 or 82 of the Treaty. The Regulation also makes provision for the Commission and Member States’ competition authorities to submit written or oral observations to the national courts.

Powers of the European Commission

In order to ensure that the rules on competition concerning agreements, decisions of associations of undertakings and restrictive practices (Article 81) and abuses of a dominant position (Article 82), which are liable to be anticompetitive, are applied, the Commission has a number of powers to take decisions, to conduct investigations and to impose penalties. It exercises these powers when, following a complaint or on its own initiative, it finds in a given case that there has been a violation of Article 81 or 82 of the Treaty.

Under the new Regulation, the Commission is able to take the following decisions:

• a decision finding and terminating an infringement: If the Commission finds there to be an infringement of Article 81 or 82 of the Treaty, it may adopt a decision requiring the undertakings and associations of undertakings concerned to bring the infringement to a end or finding that the infringement has been brought to an end;
• a decision ordering interim measures: In cases of justified urgency, the Commission, acting on its own initiative, may, on the basis of a prima facie finding of infringement, order interim measures;
• a decision making commitments binding: Where the Commission intends to adopt a decision requiring that an infringement be brought to an end and where the undertakings concerned offer commitments to meet its concerns, it may make those conditions binding for a specified period. It may reopen the proceedings if the facts of the case change, the undertakings act contrary to their commitments or the decision is based on incomplete, incorrect or misleading information;
• a decision finding that Articles 81 and 82 are inapplicable: The Commission may, for reasons of Community public interest, find that, on the basis of the facts of which it is aware, Article 81 does not apply to an agreement, a decision by an association of undertakings or a concerted practice either because the conditions of Article 81(1) are not met or because the conditions for a derogation under Article 81(3) are met. It may do likewise for cases of dominant positions, as referred to in Article 82 of the Treaty.

In order to ensure a proper right of defence, the Commission, before taking a decision, will give the undertaking or association of undertakings in question the opportunity of being heard on the aspects to which it objects. The parties concerned also have the right of access to the Commission’s file, provided that this does not result in business secrets being divulged. However, in order to safeguard professional secrecy, any information gathered may be used solely for the purpose for which it was acquired. The Commission and the national competition authorities are also under an obligation not to divulge any information they have acquired or exchanged.

Where the trend of trade between Member States, the rigidity of prices or other circumstances suggest that competition may be being restricted or distorted within the common market, the Commission is able to conduct an inquiry into a particular sector of the economy or into a particular type of agreement across various sectors. In so doing, it may:

• request information: The Commission may, by simple request or by decision, ask governments, Member States’ competition authorities, undertakings and associations of undertakings to provide any information it needs to carry out the duties assigned to it by the Regulation; any natural or legal person who might have useful information is required to supply any information asked of them; the Commission may also ask governments and Member States’ competition authorities for any information it requires to carry out its duties;
• take statements: The Commission may interview any natural or legal person who consents to be interviewed;
• conduct inspections: the Commission may conduct any necessary inspections of undertakings and associations of undertakings, and the latter are required to submit to such inspections; to this end, its officials are empowered to:

– enter the premises, land and means of transport of undertakings and associations of undertakings,
– enter any other premises, land and means of transport of undertakings and associations of undertakings if a reasonable suspicion exists that books or other records related to the business and to the subject-matter of the inspection might be held there,
– examine the books and other records related to the business,
– take copies of or extracts from such records,
– seal any business premises and books or records for the period of the inspection,
– ask any representative or member of staff of the undertaking or association of undertakings for information and record their answers.

The officials authorised by the Commission to conduct inspections will exercise their powers upon production of a written authorisation specifying the subject matter and purpose of the inspection and the possible penalties. In good time before it is conducted, the Commission must give notice of the inspection to the competition authority of the Member State concerned. The competition authority of a Member State may, in its own territory, carry out any measure under its national law on behalf and for the account of the competition authority of another Member State or, on request, on behalf of the Commission in order to establish whether there has been an infringement of Article 81 or 82 of the Treaty.

The Commission may impose the following penalties on undertakings and associations of undertakings:

• Fines: The Commission may impose on undertakings and associations of undertakings fines not exceeding 1% of the total turnover in the preceding business year where, intentionally or negligently,

– they supply incorrect, incomplete or misleading information in response to a request or do not supply information within the required time-limit,
– they produce the required books or other records related to the business in incomplete form during inspections or refuse to submit to inspections which have been ordered,
– they refuse to reply to a question or reply in an inaccurate, incomplete or misleading manner,
– seals affixed by officials authorised by the Commission have been broken.

The Commission may also impose fines on undertakings and associations of undertakings not exceeding 10% of the total turnover realised in the preceding business year by each of the undertakings which participated in the infringement where they infringe Article 81 or 82 of the Treaty, contravene a decision ordering interim measures or fail to comply with a commitment made binding by a decision of the Commission. In fixing the amount of the fine, the Commission must take account of the gravity and the duration of the infringement. When a fine is imposed on an association of undertakings and the association is insolvent, the Commission may require payment from each of the undertakings which were members of the association at the time of the infringement. The financial liability of each undertaking may not exceed 10% of its total turnover in the preceding business year. Decisions to impose a fine do not fall within the scope of criminal law.

• Periodic penalty payments: The Commission may also impose on undertakings and associations of undertakings periodic penalty payments not exceeding 5% of their average daily turnover in the preceding business year per day and calculated from the date appointed by the decision, in order to compel them to:

– put an end to an infringement,
– comply with a decision ordering interim measures,
– comply with a commitment made binding,
– supply complete and correct information which it has requested,
– submit to an inspection which it has ordered.

Where the undertakings have met the obligation which the periodic penalty payment was intended to enforce, the Commission may decide to reduce the definitive amount.

The Commission’s power to impose fines or periodic penalty payments is limited to a period of three or five years, depending on the infringement committed. The limitation period, which begins on the day on which the infringement is committed, will be interrupted by any action taken by the Commission or a Member State’s competition authority for the purpose of proceedings in respect of an infringement. The period will suspended for as long as the Commission’s decision is the subject of proceedings pending before the Court of Justice. By contrast, the limitation period for the enforcement of penalties is five years.

Where the Commission is intending to take a decision ordering an infringement to be brought to an end, making the commitments offered by undertakings binding, finding Article 81(1) of the Treaty to be inapplicable or imposing a fine or periodic penalty payment on undertakings, it is required to consult the Advisory Committee on Restrictive Practices and Dominant Positions, itself made up of representatives of the Member States’ competition authorities. The Commission is also authorised to take such measures as may be appropriate in order to enforce its decisions.

Block exemption regulations

The new Regulation does not replace the various regulations that, pursuant to Article 81(3) of the EC Treaty, grant block exemptions to certain categories of agreements, decisions or concerted practices. The regulations include:

• Regulation No 19/65 on application of Article 81(3) of the Treaty to certain categories of agreements and concerted practices;
• Regulation No 2821/71 on application of Article 81(3) of the Treaty to certain categories of agreements, decisions and concerted practices;
• Regulation No 3976/87 on application of Article 81(3) of the Treaty to certain categories of agreements, decisions and concerted practices in the air transport sector;
• Regulation No 1534/91 on application of Article 81(3) of the Treaty to certain categories of agreements, decisions and concerted practices in the insurance sector;
• Regulation No 479/92 on application of Article 81(3) of the Treaty to certain categories of agreements, decisions and concerted practices between liner shipping companies (consortia).

The Commission and the competition authority of a Member State may also withdraw the benefit of a block exemption regulation in specific cases.

Transitional provisions

Applications and notifications submitted under Regulation No 17/62 and applications and notifications submitted under Regulations (EEC) Nos 1017/68, 4056/86 and 3975/87 will lapse as from 1 May 2004, the deadline for implementation of the new Regulation in the Member States.

Other provisions

In order to ensure proper enforcement of Community competition law, Member States are required to designate the administrative and judicial authorities empowered to apply Articles 81 and 82 of the Treaty before 1 May 2004, the deadline for implementation in the Member States.

The new Regulation amends the following regulations:

• Regulation (EEC) No 1017/68 applying rules of competition to transport by rail, road and inland waterway;
• Regulation (EEC) No 2988/74 concerning limitation periods in proceedings and the enforcement of sanctions relating to transport and competition;
• Regulation (EEC) No 4056/86 laying down detailed rules for the application of Articles 81 and 82 of the Treaty to maritime transport;
• Regulation (EEC) No 3975/87 laying down the procedure for the application of the rules on competition to undertakings in the air transport sector;
• Regulations (EEC) Nos 19/65, 2821/71 and 1534/91 on application of Article 81(3) of the Treaty to categories of agreements, decisions and concerted practices;
• Regulation (EEC) No 3976/87 on application of Article 81(3) of the Treaty to certain categories of agreements, decisions and concerted practices in the air transport sector;
• Regulation (EEC) No 479/92 on application of Article 81(3) of the Treaty to certain categories of agreements, decisions and concerted practices between liner shipping companies (consortia).

The new Regulation revokes the following regulations:

• Regulation No 17 implementing Articles 81 and 82 of the Treaty;
• Regulation No 141 exempting transport from the application of Council Regulation No 17.

REFERENCES

Regulation (EC) 1/2003 – 24.01.03 – OJ L 1 of 4.01.2003

Amending acts:
Regulation (EC) No 1419/2006 – 18.10.2006 – OJ L 269 of 28.9.2006
Regulation (EC) No 411/2004 – 9.3.2004 – OJ L 68 of 6.3.2004

RELATED ACTS

Comission Regulation (EC) No 773/2004 of 7 April 2004 relating to the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty (Text with EEA relevance) [Official Journal No L 123 of 27.04.2004].

This Regulation lays down detailed rules for a number of important aspects of proceedings initiated by the Commission, such as hearings, complaints and access to the file. It replaces Commission Regulation (EC) No 2842/48 of 22 December 1998 on the hearing of parties in certain proceedings under Articles 85 and 86 of the EC Treaty, which must therefore be repealed.