Άρθρα
06/05/2010
Consequences for the Violation of EC Competition Rules*
By Dr. Loucas Aristodemou**


Introductory Words
It is well known that the economic philosophy of the EU is based on the idea of the so called “Free Market" and “Free Competition”. But, does real competition exists? Since freedom itself is very relative, how free can the market be and how free can be the competition?
For us, as consumer organizations, in real terms, the market and the competition can be free only for those that have the power and the means to manage and manipulate freedom.
I think that, the international crisis we all live these days, it is more than sufficient proof that this manipulation ability is an exclusive privilege of the financial, industrial, commercial and other big economic and financial enterprises and institutions.

I. The objectives of EC Competition Law enforcement
Considered broadly, the enforcement of antitrust prohibitions, such as EC Articles 81 and 82 (recently changed into 101 and 102) could be said to involve three tasks: 1st clarifying the content of the prohibitions, 2nd preventing violations of these prohibitions, and 3d dealing with the consequences when violations have happened.

  1. The content of prohibitions: The first task of antitrust enforcement is to clarify the content of the antitrust prohibitions. Indeed, Articles 81 and 82 contain only generally worded standards. Their content is clarified through judgments or decisions in individual cases, as well as through guidelines issued by the Competition Authorities.
  2. Preventing violations: The second task of antitrust enforcement is to prevent violations of the antitrust prohibitions. To see the different ways in which one could try to prevent violations from occurring, one could start by asking under what conditions companies and their decision-making people are likely to commit antitrust violations: (a) they need an opportunity to commit a violation; (b) they need to be willing to commit a violation. Company managers do not necessarily just maximize profits for themselves and their principals. They may feel a moral responsibility to stay within the law whether or not they are likely to be caught and (c) the companies or individuals (managers) need incentives to commit violations, in that the expected benefits to them of the violations exceed the expected costs. One could thus try to prevent antitrust violations by influencing any of these three conditions.
    a. Reducing the opportunities to commit violations
    One could try to reduce the opportunities to commit violations. This can be done through anticipatory intervention. Under the EC Merger Regulation, the prohibition of concentrations which significantly impede effective competition is enforced through a system of mandatory prior notification and authorization. Most jurisdictions have similar ex ante enforcement mechanisms for mergers. Injunctions, ordering impending or on-going violations to be stopped, are also a form of anticipatory intervention.
    b. Reducing the willingness of business to violate Competition Rules
    One could try to prevent antitrust violations by reducing business people's willingness to commit violations, through a strengthening of their normative commitment to the antitrust rules. Competition Authorities could try to do this through competition advocacy. The imposition of punishment for violations also plays an important role. Indeed, the public punishment of those who violate the antitrust prohibitions not only has a deterrent effect, in that it helps creating a credible threat of punishment for those who would be willing to commit violations on the basis of a profit calculation, but also has moral effects, in that it sends a message to the spontaneously law-abiding, reinforcing their moral commitment to the rules
    c. Modifying the balance of expected benefits - costs of violations
    One can try to prevent antitrust violations by altering the balance of expected benefits and expected costs of violations. This can be done by prosecuting and punishing violations, creating a credible threat of penalties which weighs sufficiently in the balance of expected costs and benefits so as to deter calculating companies from committing antitrust violations. Apart from such deterrence, other methods could also be used to alter the balance of expected costs and benefits. To be successful from the cartelists' perspective, price-fixing or similar cartel agreements require effort to determine the agreed price or other factors, to allocate the joint profit through quotas or otherwise, and to monitor and punish cheating by the cartel members.
    Antitrust enforcement can increase the cost of setting up and running cartels in different ways. One very important measure is to make cartel agreements legally unenforceable, as Article 81(2) does.
    The cost of setting up and running cartels can also be increased through leniency policies and through the use of other aggravating or attenuating circumstances affecting the amount of the penalty imposed on those violations which are detected and punished.
    Finally, the possible use of injunctions to stop continuation of violations which are detected when still on-going also has an impact on the expected benefits of violations.
  3. Dealing with the consequences of violations: The third task of antitrust enforcement is to deal with the consequences of violations. It is generally accepted that attempts to prevent violations of antitrust prohibitions, such as Articles 81 and 82, are unlikely ever to lead to a 100% elimination of all violations. The reasons for this are both (a) economic and (b) psychological.
    a. The economic reason is that the enforcement measures to prevent violations are normally not without cost. The detection, prosecution and punishment of violations has a significant administrative cost, which includes both the cost borne by the public sector (cost of Competition Authorities, Prosecutors and Courts) and the cost borne by the businesses and individuals concerned (cost of lawyers, experts and loss of precious time). Apart from administrative costs, the pursuit of deterrence could also have undesirable side-effects. Given the existence of these costs, it is unlikely to be optimal to pursue full prevention of competition rules violations.
    b. The psychological reason is that, in the probability estimates they make, people tend to rely disproportionately on those incidents which can easily be brought to mind. This implies that, even if the Competition Authorities managed at some point in time to detect so many violations and to impose such high fines that all companies will be deterred from committing new violations, this situation will not last long, as over time the memory of those successful prosecutions will fade, and violations will thus again be committed. If it is thus unrealistic to achieve total prevention of all violations of the antitrust prohibitions, it can be a further task for antitrust enforcement in dealing with the consequences of violations of competition rules that have taken place. In cases where the anticompetitive harm caused by the violation is still unfolding, it may be possible to limit or mitigate the harm through the use of injunctions.

II. The role of fines
Fines represent the principal tool in the European Commission's enforcement of EC competition law. Unlike other countries i.e. US, where there is a formidable congeries of weapons against undertakings which breach competition rules, there are no criminal penalties, such as imprisonment for individuals in EU. Moreover, private enforcement of EC competition law is minimal.
Thus, fines represent the main tool to remedy of and deter violations of competition rules. The European Court of Justice indicated in “Musique Diffusion France” (Pioneer), that the underlying rationale for the imposition of fines is to ensure the implementation of Community competition policy.
The meting out of fines, therefore, serves two objectives (a) the suppression of illegal activity and (b) the prevention of recidivism. With regard to the first task of clarifying the content of the antitrust prohibitions, fines do not appear to play a significant role.
Fines are however an important instrument in the prevention of violations. The imposition of fines on companies that are found to have breached the anti-trust prohibitions could in three ways contribute to preventing such violations: (a) it may have a deterrent effect, by creating a credible threat of being prosecuted and fined which weighs sufficiently in the balance of expected costs and benefits to deter calculating companies from committing antitrust violations, (b) it may, at the same time, have a moral effect in that, it sends a message to the spontaneously law-abiding, reinforcing their moral commitment to the antitrust prohibitions, (c) through leniency policies and through the use of other aggravating or attenuating circumstances affecting the amount of the fine imposed, the cost of setting up and running cartels can be raised.
Finally, whereas fines will normally have disgorgement of the unjust enrichment as one of their effects, the proceeds of fines normally go to into the public coffers and budgets rather than to the consumers which are the real victims of the antitrust violations.
In this way, fines could at most, be said to contribute to the pursuit of corrective justice through compensation in an abstract and indirect and, of course, unjust way. (This is the case of the recent imposition of high fines against the fuel cartel in Cyprus by the Committee of the Protection of Competition). After a period of almost five years, during which the consumers paid exaggerated high prices to the oil companies, the imposed fines went into the state coffers, leaving the consumers with the damage.

III. Resent Evolution in EC Fining Policy

  1. There has been a resent evolution (2005) in Commissions fining policy, however, consisting in: (a) the promulgation of both the Commission’s Guidelines on fines in 1998 which aims to make decisions over fines more transparent and impartial, (b) the toughening of the fines, which is particularly evident when one notes the condign fines of €462 million imposed on Hoffman-La-Roche and € 497 million imposed on Microsoft, (c) the development of the leniency notice, which provides an incentive for cartel members to admit to their anti-competitive conduct. Since the adoption of the 1998 Guidelines, the majority of the fines imposed by the Commission have been for cartel activity.
    The Commission has, however, shown an increasingly heavy-handed approach towards other infringements of Article 81 and abuses of dominant position under Article 82.
  2. New EC Guidelines on Anti-trust Fines (2006)
    On 1st of September 2006, The European Commission published new Guidelines on the method it will use when setting fines for undertakings that have infringed the competition rules. The new Guidelines themselves explain the choice of new method for determining the basic amount of the fines as follows: “The combination of the value of sales to which the infringement relates and of the duration of the infringement is regarded as providing an appropriate proxy to reflect the economic importance of the infringement as well as relative weight of each undertaking in the infringement”.
  3. The tendency to criminalize Anti-trust Enforcement in EU
    During the last years it appears to be a tendency in EU Member States or even at the level of the EU institutions to criminalize antitrust enforcement. This is undoubtedly inspired by US antitrust enforcement criminal antitrust legislation. In the US may historically in turn, have been inspired by older European precedents.
    The tendency to criminalize antitrust enforcement is primarily illustrated by the examples of Ireland and the UK, but also by other phenomena such as the introduction of leniency programs in an increasing number of EU Member States.
    In Ireland violations of the national law prohibitions equivalent to Article 81 and 82 EC, are criminal offences, punishable with fines on companies, and imprisonment and/or fines for individuals.
    A comparable system has been adopted in Estonia. In the UK the Enterprise Act 2002 has added a criminal cartel offence, limited to hard-core cartels, punished with imprisonment and/or fines for individuals only, as well as a sanction of director disqualification for individuals, to a system which otherwise relies on administrative fines on companies for breach Articles 81 and 82 EC and the equivalent prohibitions under national law.

IV. The Wax Cartel (Paraffin mafia) – Fines based on 2006 Guidelines
9 groups from 10 countries, Shell, ENI, ExxonMobil, Tudapetrol , MOL, RWE Hansen & Rosenthal, Repsol, Sasol, and Total joined in a cartel for paraffin wax in the European Economic Area (EEA) between 1992 and 2005. All participants fixed prices for the products concerned. The companies held regular meetings to discuss prices, allocate markets and/or customers and to exchange sensitive commercial information.
The EC fined the cartel members €676 million. Shell was not fined because it revealed the existence of the cartel to the Commission. Sasol’s fine was increased by 50% because it was the leader of the cartel. ENI’s fine was increased by 60% because it had already been fined for cartel activities again. The cooperation of three groups was rewarded. Sasol, Repsol, and ExxonMobil were granted a reduction of their fines of 50%, 25% and 7% respectively.


References:

  1. Antonio Capobianco – Private Antitrust enforcement of EC Competition Rules: Recent developments
  2. Wouter P. J Wills - Optimal Antitrust fines: Theory and Practice
  3. Wouter P. J. Wills - The European Commission’s 2006 Guidelines on Antitrust fines: A legal Economic Analysis
  4. Damien Geradin & David Henry – The EC Fining Policy for Violations of Competition Law: An Empirical Review of the Commission Decisional Practice and the Community Courts’ Judgments
  5. Wouter P. J. Wills – Amsterdam Policy Center for Law and Economics (ACLE) Conference Remedies and Sanctions in Competition (Amsterdam, 17-18 February 2005)
  6. The Wax Cartel IP/08/1434, Brussels, 1st October 2008


* Riga - Latvia, 04 - 06 March, 2010 – (CONCORDIA – EU Network to promote training courses for National Judges, on EC Competition Law)
**President of the Cyprus Consumers’ Union & Quality of Life


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