Negotiated Procedures in EU Competition Law
The enforcement of EU competition law in the field of antitrust, e.g., the sanction of abuse of dominant position and collusive agreements, increasingly uses negotiated procedures. Negotiating remedies with incriminated undertakings is a well-known practice in the field of merger control. The practice of settlements is also significantly developed in the United States. However, it remains a relative new approach under the EU competition law enforcement. This chapter presents the three main tools at the disposal of the EU Commission: the leniency program, the direct settlement, and the commitment procedures. It analyses their main challenges and issues in both legal and economic fields.
Negotiated Procedures Under EU Competition Law: An Introduction
Negotiated procedures under EU competition law mainly encompass three procedures: leniency, commitments, and direct settlements. We mainly consider the negotiated procedures implemented for the application of Articles 101 and 102 of the Treaty on the functioning of the European Union. We draw some parallels with remedies in merger and acquisition control.
These procedures are provided under European Union law using a specific framework. Firstly, they were organized around both soft law and hard law after a period of insecure practice on the shadow of law: Sunlight is said to be the best of disinfectants and the twilight zone in which settlements currently are negotiated, desperately needs light (Van Bael 1986). Secondly, these procedures stemmed from the practice of the European Commission. The Commission increasingly tries to organize its intervention on the market using cooperation with companies for the application of EU competition law (in our case, it is mainly antitrust law). Thirdly, these procedures are organized under the notion of mutual concessions which allows an approach based on rationality. Between main legal instruments and the peripheral ones, a particular dynamic has been installed to the advantage of the public authority. Under EU law, the European Commission is clearly at the center of the proceedings. From that perspective, negotiated procedures have to be discussed above all around the question of their essential nature: Do these procedures pertain to a logic of cooperation with the public agency or to a real negotiation between two partners?
Understanding the reality of these procedures implies to put into light the interests for companies and the public authority, appreciate both legal and economic approach, and consider the problems of the procedures under fundamental rights.
An Overview of EU Negotiated Procedures for Articles 101 and 102 TFEU
The Negotiated Procedures Before the Negotiated Procedures
Understanding the specificities of EU competition law-related negotiated procedures supposes to consider the historical dynamic that led to them, especially the experience of the ad hoc agreements that were implemented in the field anticompetitive practices before the EU 1/2003 Regulation, and to make some connections with the case of remedies in merger controls.
The informal practice of the negotiated practices is a specific situation under EU competition law. Indeed, the European Commission has started in the 1960s to relay on informal arrangements following the fundamental principle that no situation is ever lawful or unlawful forever (see, e.g., cases Nicholas frères (Commission Decision 64/502/CEE, 30 July 1964) and Henkel-Colgate (Commission Decision 72/41/CEE, 23 December 1971). The European Commission was at this time in charge of a very innovative field, and this type of cooperation could have been seen as a will to implement softly antitrust law. The first decisions applying such an approach were mentioned in the reports on competition law by the European Commission and have mainly concerned agreement cases (abuses of domination cases appeared in the beginning of the 1980s). For example, in its first report in 1971, the Commission explained such situation by the need of saving resources. In its fifth report, issued in 1975, the Commission mentioned the “friendly” nature of its intervention. Anyway, in that period, the informal intervention of the European Commission was not well known by public or academics, and the Commission itself was not really able to explain the nature of such procedures (when questioned, e.g., by a resolution of the European Parliament in 1987).
As a consequence, the informal development of negotiated procedures has created some uncertainties, particularly since it was not possible to isolate each procedure according to its specificities. From this perspective, the creation of a formal architecture allowed an individual and global understanding of negotiated procedures. The formal scheme also had to respond to the need for legal certainty and clarification regarding practices involving cooperation through reciprocal concessions. The resulting procedures, without claiming similarity, converge on several points but need at the same time to be presented over their singularity.
When working on the proposal of a new framework for the application of Articles 101 and 102 (former 81 and 82), the Commission provided that: “The second way in which the proposal will increase the protection of competition is by allowing the Commission to concentrate on the detection of the most serious infringements” (EU Commission 2000). Negotiated procedures aimed indeed to increase efficiency in law application by the liberation of available resources. This has to be considered as a real philosophy at the European level which leaded to the creation of a formal framework of three procedures qualified as negotiated (Mezaguer 2015).
The first procedure corresponds to leniency programs. These procedures were created only under soft law. Indeed, in 1996, 2002, and 2006, the European Commission has adopted three communications for the organization of the proceedings. The first communication provided that these procedures were intended to apply competition rules with efficiency. The 1996 communication on leniency introduced the first formal instrument providing a legal framework for negotiated procedures under EU competition law. Nevertheless, in the first times of the regulation 1/2003, which constitutes the main instrument of EU antitrust law, no mention of leniency procedures was made. Finally, Regulation 2015/1348 has mentioned such procedures but only related to Regulation 773/2004 which provides only procedural rules. The legal situation of leniency is rather paradoxical.
However, leniency has become a major instrument of cartel resolution even in member states of the EU. Moreover, the European model is a reference for member states even if, in a 20 January 2016, DHL Express, C-428/14 case, the European Court of Justice has provided that the creation of leniency program was not an obligation for member states.
Leniency gives several ways of cooperation to the competition authority and to the incriminated undertakings from different perspectives. Firstly, the company denouncing the cartel runs for immunity if it shows a “true spirit of cooperation.” This situation was generalized under the 2002 communication and differs from the US situation while even the first company is recognized guilty (but without any fine). The condemnation of the first company to a zero euro fine will probably have a specific importance for follow-on civil actions (even if the present framework is questionable, see, for instance, Cauffman (2011) and Mezaguer (2015)). Nevertheless, the first company to denounce must obtain a reward far superior to those who follow it so that the leniency program can be efficient. A leniency program should initiate a denunciation race among the cartelists to be efficient.
After this first company, leniency will allow other cartelists to receive rewards (between 5 and 50% depending on the period) for not disputing the facts, for giving valuable material for the proof, and for going through useful cooperation with the Commission. From this perspective, cooperation implies express, clear, and precise recognition of the facts (Tokai Carbon, Court of First Instance, 29 April 2004, joint cases T-236, 239, 244, 246, 251, and 252/01). Lower-rank leniency maintains incentives for the companies to engage a race for cooperation. From this perspective, companies are no longer supposed to help in the mere initiation of the investigation, as it is the case for the first-rank leniency, but must reinforce the Commission in its work of qualifying the infringement. Indeed, it is well known that “a reduction in the fine will be granted for a contribution during the administrative procedure only if that contribution enabled the Commission to establish an infringement with less difficulty and, where appropriate, to put an end to that infringement” (Conclusions of the Advocate General Geelhoed, Commission v SGL Carbon, 19 January 2006, case C-301/04 P). Finally, the Commission benefits from a wide margin of interpretation to reward companies. This range of reductions distinguishes the leniency from the direct settlement procedure.
Direct Settlement Procedures
The transaction procedure corresponds to direct settlements. This procedure has been created through both a Communication of 2 July 2008 (2008/C-167/01) and a Regulation of 30 June 2008 (n°622/2008) of the European Commission. This Regulation has modified the specific procedural regulation 773/2004, which entirely relies on the European Commission, and not the general one. Even if the use of regulations contrasts with the soft law, the European Commission is still at the center of decisional power. Moreover, the direct settlement procedure is also seen as a piece of a general transactional scheme for cartel resolution with the leniency program. Under the direct settlement procedure, companies who plead guilty before the Commission can expect a 10% fine reduction. At the creation of the procedure, former competition commissioner Neelie Kroes (2005) suggested that “we may need to look at how some form of plea bargaining procedure could bring advantages.” Under the actual framework for direct settlement, companies that “plead guilty” and take a commitment not to contest the conclusions of the Commission receive a 10% reduction of the fine as a reward (the reward is combinable with leniency ones). Consequently, direct settlement is a hybrid procedure between American “plea-bargaining” and French-style “non-contestation des griefs.” It is more a simplified procedure than a negotiated one.
Commitment procedures were the first ones which were included in the general Regulation 1/2003 since their creation (Article 9). Commitment procedure has to be distinguished from leniency and direct settlement first of all because it does not apply to cartels. Indeed, Regulation 1/2003 clearly provides that such a procedure is not possible when the Commission intend to impose a fine. As for other “negotiated” procedures, commitment procedure relies on an efficiency-based objective. Concerning the question of its application under Article 101 or 102 of the TFEU, The Alrosa/De Beers case (Court of Justice, Commission v Alrosa, case C-441/07, 29 June 2010) has shown that Article 9 could be used in both situations (Mezaguer 2015).
Under the commitment procedure, things are clearer. Indeed, when the Commission intends to adopt a decision (requiring that an infringement be brought to an end), the companies can offer commitments meeting the concerns of the public authority, which are expressed in a preliminary assessment. From that perspective, the Commission adopts a decision making those commitments binding on the companies. Moreover, Article 9 of Regulation 1/2003 provides that “Such a decision may be adopted for a specified period and shall conclude that there are no longer grounds for action by the Commission.” Before issuing a decision making the commitments bidding the Commission must submit them to a market test procedure to invite all the interested parties to make comments. These ones aim at helping the Commission to discuss these initial proposals and to require if necessary the proposal of modified ones.
What Are the Reasons to Commit into These Procedures?
We analyze the determinants of the choice to opt for a negotiated procedure by taking successively the point of view of the competition authority and the one of the undertakings.
The Theoretical Advantages of Negotiated Procedures for a Competition Agency
We first present the common advantages of all the negotiated procedures in competition laws for an enforcement agency before considering specifically some advantages related to leniency programs and to commitment procedures (Wils 2008).
Firstly, negotiated procedures aim at reducing administrative costs for the enforcement agency. Indeed, the negotiated option may lead to a shorter duration and to reduce the burden of proof. Secondly, a negotiated settlement allows the competition authority to obtain more rapidly the end of the prejudicial practice. Such a result is also obtained possibly more surely, as the firm chooses and implements itself the remedy that it had proposed on a voluntary basis. Thirdly, the negotiated procedure in itself limits the information asymmetries between the undertaking and the authority. The last one has not demonstrated the existence of an abuse or of an agreement and has not assessed its effects. In addition, for the commitment procedures, the uncertainties related to the adequacy and to the proportionality of the remedies proposed by the undertaking are limited through the market test procedure, which allows the authority to benefit from the opinions of the different stakeholders (consumers, competitors, etc.). Fourthly, it limits the risk induced by an adversarial procedure. To the extent that the competition authority has neither to asses the net effect of the market practice at stake on the consumer welfare nor to consider the defense of the incriminated undertaking, it reduces at the minimum the risk of being disavowed by the appeal court. Fifthly, negotiated procedures, especially the commitment ones, lead to implementation of compliance programs and by doing so favor the dissemination of a competition culture within the organization. Sixthly, the guarantees about the effectiveness of the remedies are enhanced by the fact that a failure in their implementation would lead to an automatic fine, irrespective of any assessment of the effect of this nonfulfillment. For instance, Microsoft was fined on this basis for its negligence in its implementation of the remedies negotiated in the MS Explorer case, as we will see below.
In a more specific way, we can consider that negotiated procedures have two main types of advantages for competition authorities. It avoids the burden of the characterization of competition law provisions infringement through material or economic evidences. For instance, in the case of leniency programs, the material evidences are brought by the undertaking applying for leniency. The second main advantages consist in the effect of the decision on market structure or on the dominant undertakings’ future behavior. A fine mainly produces a deterrence effect. It does not lead to correct the effects of the previous market practices. In a very opportunistic spirit, the fine can be seen by a dominant firm or by the cartelists as the cost of doing business. On the contrary, a negotiated decision leads to behavioral or even structural measures that may remedy to an unsatisfactory situation on markets and to some extent to reestablish a level playing field on the market. It may ensure for the future a fairer and more effective competition.
An adversarial decision, as the Google Shopping one (June 2017) or the Android one (July 2018), for instance, might lead to equivalent corrective measures through the injunctions to provide an equal treatment to rival comparison shopping services and its own services in the first case or to end its tying practices and to allow the development of fork Android operating systems, in the second case. However it remains that these two Commission decisions are both appealed before the General Court. Even if, the General Court and the Court of Justice will uphold these injunctions, their implementation will must be strictly monitored. Such remedies will be challenged and at best implemented in a noncooperative way. At the opposite, a commitment procedure participates to a jointly constructed competition regulatory approach and not only to an ex post legal enforcement of competition law provisions. It remains that the negotiation at stake is not really a horizontal bargaining between two equal partners but rather a transactional agreement with a public authority within a vertical relationship. The EU Commission Google Shopping case demonstrated that the two “partners” were not in equivalent position.
The Advantages Considered on the Incriminated Firms’ Side
For the incriminated undertaking, opting for a negotiated procedure may reduce significantly the procedure duration. Indeed, the shorter the case, the less expensive its costs in terms of financial resources, management attention, and reputational effect (especially on the stock market). In addition, avoiding any recognition of guilt may induce two main benefits: Firstly, it makes successful follow-on actions for damages less probable, and, secondly, it allows to stay away from any fine increase in a future case grounded of the aggravating circumstance of repeated offense.
In the specific case of leniency programs, the undertaking applying for the leniency may hope exiting from a cartel agreement without any legal (defense) costs or administrative sanction, as fines. In the case of a direct settlement, the undertaking benefits from a fine reduction. In other words, the fine may be reduced outside the scope of leniency since the undertaking does not challenge the theory of damage presented by the competition agency or its assessment of effects. In addition, the commitment procedure allows the undertaking to avoid to be fined and to have to recognize to have breach the law. In addition, the undertaking still benefit from informational asymmetries allowing to propose the less costly remedies possible.
Considering all these advantages on both sides, negotiated procedures seem to pertain to a win-win strategy (Bellis 2013).
The US Origins of Negotiated Procedures in Competition Law: What Can We Learn for EU Ones?
The Antitrust Division head, Thurman Arnold, has played an essential role in this resolved use of these settlements rather than opting for adversarial procedures before courts (Waller 2004). In the competition law-related field, the negotiated procedures constitute a US transplant. It is worthwhile to consider the US antitrust history to put into relief the main features and the underlying logic of these procedures. Although the real start of the large implementation of settlement procedures by the Antitrust Division of the Department of Justice (DoJ) can be dated in the late 1930s and in the late 1940s, the fisrt Antitrust Division’s consent decrees was the US v Otis Elevator Company in 1906.
How to explain this specific choice at this moment of American antitrust history? The F.D. Roosevelt administration was disappointed about the results of the cooperation with dominant firms during the National Industrial Recovery Act (NIRA) implementation before its invalidation by the Supreme Court. Big firms were suspected of having not fairly play the game of an economic coordination based on government support to promote investment and employment. The coordination among firms effectively led to stop price drops, but it mainly allowed firms to increase their markups without effective counterparts. This disappointment has pleaded for a public antitrust enforcement renewal, especially because, the government benefited from a large portfolio of easy-to-win cases. The NIRA agreements supervision had led government agencies to accumulate data and evidence about collusive practices. The government position was also comforted by the TNEC report conclusions. The Temporary National Economic Committee established in 1938 aimed at analyzing the monopoly powers in the US economy. While government accumulated evidence about collusions and monopolization practices, why did Th. Arnold opted for settlements and not for conventional antitrust procedures? The reasons were twofold. The first one was to obtain quickly effective results by avoiding endless legal procedures. The second one was also related to a procedural concern: averting the legal risk induced by a still conservative Supreme Court case law.
This historical experience is all the more relevant for us that the EU Commission itself has used these kinds of procedure after sector-specific enquiries in order to avoid General Court and Court of Justice legal control and to circumvent member states’ reluctances to accept legal proposal aiming at liberalizing some economic sectors as utilities. We may provide the example of the energy sector enquiry in 2005–2007. A large number of formal procedures were opened after this enquiry against gas and electricity dominant operators across the EU (Hancher and de Hauteclocque 2011). For all except one, the final decision was not an infringement one but a negotiated one. Even nowadays, far-reaching and broad scope competition law remedies are obtained through commitment procedures in the EU energy sector as testified in the May 2018 Gazprom decision (case 39.816 Upstream gas supplies in Central and Eastern Europe, 24 May 2018).
However, US and EU procedures and practices remain specific. In the US case, for instance, for the Antitrust Division of the DoJ, an antitrust settlement is a horizontal contract between the firm and the agency that requires judicial supervision. Indeed, the 1974 Tunney Act requires an ex ante judicial review of the DoJ consent decrees. Whatever the supervision of these agreements, it remains that the US antitrust enforcement realized a shift from a litigation-oriented model toward a more regulatory-based regime. The balance between courts and agencies has shifted dramatically toward the last ones. Ginsburg and Wright (2012) showed that by the 1980s, already 97% of the DoJ antitrust cases were settled. From 2004 to nowadays, almost all its cases were resolved through these negotiated procedures. The tendency is the same considered on the FTC side.
In cartel-related cases, the rise of negotiated procedures was later but equally important. The US corporate leniency program was first introduced in 1978. It was revised in 1993 and completed by an individual leniency program 1 year later. Its scope of application covers agreements aiming at setting prices, market or consumer sharing devices, and bid-rigging practices. From the initial 1978 procedure to the 1993, three major revisions were implemented: (1) leniency is now automatic for qualifying companies if there is no preexisting investigation; (2) leniency is still available even if cooperation begins after the investigation is underway; and (3) all employees who come forward with their company and cooperate are individually protected from criminal prosecution. The real start of the US leniency program can be dated 1993: from 1993 to 2010, US enforcement data reveal a 20-fold increase. Nowadays, in the USA 90% of the penalties imposed by the DoJ were linked to leniency-related cases (OECD 2018).
The institutional specificities of the US enforcement regime may explain this precocious and fast development. Opting for a negotiated procedure might be a rational choice for an enforcement authority while considering the judicial and political risks associated to unfruitful lawsuits. In addition, the burden of the rule of reason had grown earlier in the USA as the shift toward an effects-based approach in antitrust laws enforcement started at the late 1970s. This tendency also raises a theoretical question: are the settlements more efficient in terms of administrative performance (deciding cases quicker and easier) or in terms of obtaining concessions from the firms for not-so-easy cases for which the enforcement agency has no certainty about its own chances to be successful before a court? Such a game relies on the fact that the competition authority does not disclose its evidence and remains vague on the theory of damage or on the assessment of the damage to competition. As we have already mentioned for the EU competition law case, the enforcement agency does not issue a statement of objections but only a communication of competition concerns. The second player – the incriminated firm – does not know what the competition agency exactly knows and what its real chance of being convicted are. Because of the asymmetry of information that benefits to the authority, a risk-adverse undertaking may prefer enter in a commitment procedure. Indeed, the trade-off between prohibition and commitment decisions cannot be analyzed without taking into account uncertainties related dimensions (Gautier and Petit 2018).
Is the tendency observed for the EU competition law enforcement as significant as it is for the US Case? From 2007 to 2017, we count 19 Article 7-based decisions (antitrust prohibitions) and 32 Article 9-based ones (antitrust commitments). If we consider the case of cartels, we may count 40 cartel prohibition decisions (based on an adversarial procedure) and 25 based on settlements. However considering on the period from 2013 to 2017, the balance is rather different with 7 adversarial procedures and 18 negotiated ones (EU Commission 2018). The same constraints tend to produce the same results. In addition, we have to keep in mind that competition law enforcers are engaged in convergence process.
Economic and Legal Concerns Related to the Recourse to These Procedures
This conclusion illustrates some of the economic and legal issues raised by the recourse to negotiated procedures. We first consider the case of leniency programs before considering the one of commitments. We finally consider the nature of these procedures in order to draw a dividing line between negotiated ones and transactional ones.
A Law– and Economic–Based Discussion of the Possible issues Raised by Leniency Programs and Commitment Procedures
The case of leniency programs raises several issues within the economic field. For instance, what about the incentives to collude while the expected cost of the sanction is reduced while a firm anticipates that she will be the first to betray its partners in crime? Do these procedures only lead to dismantling only poorly efficient cartels? Should it be necessary to grant a monetary reward to the cartel member who reports a cartel agreement before any investigation (Brisset and Thomas 2004)? Considered at the legal point of view, how to consider the capacity of a cartelist, possibly the initiator of the cartel, to escape at any sanction after a breaching of competition laws? How to articulate public and private enforcement, especially if we consider the follow-on actions aiming at obtaining damages? The near predominant part of leniency procedures in the cartel-related competition law enforcement undoubtedly raises issues in terms of restorative justice. At the same time, controversies over differences in the treatment of unilateral practices in the USA and the European Union can be read through the prism of relative weight differences between public and private enforcement (Cosnita-Langlais and Tropeano 2018). The rise of leniency programs in the US case and its consequences in terms of private enforcement do not raise the same issues as in the EU where follow-on actions have to be encouraged (see, for instance, Bueren and Smuda 2018).
The development of commitment procedures also leads to raise several issues in the economic field. For instance, how taking into account information asymmetries to assess the adequate, effective, and proportionate character of remedies? It raises significant adverse selection-related concerns. Do the behavioral or structural remedies proposed sufficient to address competitive concerns? For instance, in case of asset divestitures, are the values of these last ones properly selected? Will the future buyers able to exert an effective competitive pressure? The EU procedure of the up-front buyer aims at limiting the risk to transfer the asset to a market player who has not the financial or technically capacities to compete or has excessive incentives to collude or to avoid a too fierce competition with to dominant firm. For instance, a divestiture benefiting to a major competitor may create a symmetry among the main competitors within the relevant market and by doing so enhance the risk of collective dominance.
These concerns are not the only one induced by the information asymmetries at stake in commitment procedures. The supervision of the proper implementation of remedies also raises moral hazard-related issues. Will the undertaking implement properly and efficiently the remedies it has proposed? According to EU regulations, a failure to comply with commitments that a Commission’s decision made binding leads to an automatic sanction. Microsoft experienced the situation with its €561 million fine imposed to its failure to provide European users a screen choice of web browsers from May 2011 to July 2012 despite its 2009 commitments (see the EU Commission decision, case AT.39530, Microsoft, 06/03/2013).
Symmetrically, information imperfections may lead the antitrust enforcement authority to require excessive remedies. Farrell (2003) illustrated this case for mergers remedies with the scalp, over-fixing, and broad scope phenomena. The first one corresponds to an application of disproportionate remedy from a dominant firm in order to sanction its past behaviors or to address its structural dominance. The second one consists in requiring remedies going beyond what is necessary by taking into account the information asymmetries that the undertaking does benefit. It plays the role of a security margin. The third phenomenon corresponds to remedies unfitted to the damage theory presented in the communication of the competition concerns. It might correspond to a situation in which the competition authority takes advantage of the negotiated procedure to address several issues even if all of these ones are not closely related to the case.
Such phenomena may be difficult to observe in adversarial procedures mainly because of the judicial control exerted on them. However, this control is by far relaxed under the EU competition law by the Court of Justice judgment in Alrosa (EU Court of Justice 2010). To the extent that the remedies are voluntarily proposed by the undertaking, the EU Commission has not to check if less demanding or less intrusive remedies might be proposed. If the EU Commission has also to perform a proportionality test, this last one is limited to the remedies effectively proposed by the undertaking. In other words, if the dominant undertaking only proposes structural remedies, the authority has not to verify if behavioral ones may allow to obtain similar effects. These specificities may lead to concerns about competition authorities’ capacity to obtain “excessive” remedies in these negotiated procedures. It may be illustrated, for instance, by the case of divestitures. These last ones are seldom used in adversarial decisions (Article 7) but can be observed in Article 9 ones. The case of the European energy sector is emblematic of such difference. The EU case may be all the more specific that the incumbent has special duties regarding the effectiveness of competition. This duty may increase the probability of being fined under a conventional procedure. It enhances the incentives to opt for negotiated procedures, and it simultaneously increases the potential cost of a negotiation failure if the Commission will decide to go back to a conventional procedure. The Google case is striking example of such a risk. Taking into account this one may induce some bias in the “negotiations” by leading firms to propose “disproportionate” remedies in order to have a greater probability to see these ones accepted.
Indeed, the use of negotiated procedures raises issues in terms of remedies proportionality. If we insist on the importance of information asymmetries, we may fear that a dominant and better-informed dominant undertaking may propose insufficient remedies or may behave strategically during their implementation in order to reduce their effect. In the same way, we might take into consideration the risk that the competition agency tends to opt for settlements while its expectations to win before courts are unfavorable. The risk in such a case is to negotiate unsatisfactory remedies to close the procedure. However, as we have underlined, the symmetrical risk cannot be minimized, especially if the dominant undertaking does prefer avoiding a prohibition decision, taking into account its reputational impacts, its induced risks in terms of follow-on actions, and possibly the possible fine increases in future decisions on the basis of the aggravating circumstances pronounced in case of recidivism.
This competition authority’s strong position in the bargaining may lead to costly remedies for the incriminated dominant undertaking. We can provide an example in the domain of mergers with the Bayer/Monsanto case (decision of the European Commission; 11 April 2018, case M8084). Bayer took the commitment to sell to BASF a part of its activities in order to prevent a possibly non contestable position in the market of seed and pesticides. The Commission has required an up-front buyer condition. It led to limit the number of potential acquiring firm and possibly to reduce the transfer price. The up-front buyer requirement aims preventing to transfer the assets to a non-efficient market operator who cannot exert a long-term credible competitive threat on the dominant firm. Such a requirement makes sense in order to protect the competitive process, while it has an adverse effect on the dominant firm’s interests.
At the legal point of view, commitments procedures may also raise several concerns. Firstly, what is the proper scope of competition law remedies? Should these ones concern prices? On the principle, it has not to. The competition authority has not the play the role of a price regulator. Nevertheless, as soon as an essential facility is at stake, commitments deal with access price-related issues. Compulsory licensing-based remedies also raise the same concern. An even more far-reaching question could be put into relief for remedies aiming at reinforcing the competitive situation of a given market.
Again, the Gazprom case can be relevant to illustrate this situation. In 2015, the Commission sent to Gazprom a statement of objections. According to the Commission’s preliminary view, this company breached EU competition rules by pursuing an overall strategy to partition gas markets along national borders in several member states in Central and Eastern Europe. This strategy may also have enabled Gazprom to charge higher gas prices. The remedies proposed by Gazprom and negotiated with the EU Commission both address these competitive concerns and deepen the gas internal market. They do not sanction an anticompetitive behavior by pronouncing a fine in a deterrence purpose as a prohibition decision would do. These remedies pertain to the building of competitive markets. The competition field will be not the same before and after the remedies. It is not an issue to reestablish the condition of a free and undistorted competition but an issue to create a competitive market.
What are the remedies in this specific case? A first one undoubtedly pertains to a logic of guaranteeing the end of the alleged anticompetitive practices. Gazprom commits to remove all the contractual provisions that imposed geographical restrictions or that limit the customer’s capacity to resell Russian gas. A second remedy concerns gas prices. A structured process to ensure competitive gas price will be put in place in order to guarantee that Russian gas price will be aligned with the prices observed on Western European market places. The third remedy may contribute to change the competitive structure of the gas market itself: “Gazprom will enable gas flows to and from parts of Central and Eastern Europe that are still isolated from other Member States due to the lack of interconnectors, namely the Baltic States and Bulgaria.” In other words, this commitment will oblige Gazprom to open its network for intra-EU gas exchanges. This remedy is a quasi-structural one. It will play as an alternative to new investment in new gas infrastructures within the EU.
A Legal Perspective on the Commitment Procedure
The rise of commitment procedures may raise other concerns in the legal field. Firstly, the negotiated procedures under the EU competition regulations lead to limit the scope of judicial control. It may question the effectiveness of the guarantees that protect the fundamental rights of the undertakings. Remedies affect their freedom of contract and their property rights. In the same vein, their entitlement to a fair trial may be altered. Secondly, we may wonder what could be the undesirable collective consequences of a near from generalized recourse to these procedures. It may reduce the quality of the jurisprudence itself. Case law is a public good at the economic sense of the term. A commitment decision reveals a poor information compared to a prohibition decision. The disappearance of the adversarial stage of the procedure hinders discussions about the theory of damage, about the balance of the effects, and about the adequacy and the proportionate character of the remedies. Altering the struggle for law deteriorates the quality of the signal produced by the case law. It may have several consequences. A first one is to reduce the capacity of the different stakeholders to anticipate the decisions. It impairs the legal certainty attached to the legal rule definition and its implementation. By doing so it increases the dominant undertaking’s propensity to opt for such procedures. Eventually, the higher the number of cases settled, the higher the possibility to observe the development of parallel case law, specific to negotiated procedures and all the more robust that it is not balanced by any judicial control exerted by the General Court and by the Court of Justice.
We might finally wonder if negotiated procedures under EU competition regulation do really imply an effective negotiation. We have noted that a commitment procedure is not a private contract that must be validated by a court as it is the case in the USA. The bargaining between the incriminated undertaking and the authority cannot be only conceived in a horizontal way. Indeed, there is a significant verticality at stake. The EU Commission is not a player as another one. The Commission benefits from a large margin of discretion in favoring this kind of procedure for a given case (through communicating competition concerns and not issuing a statement of objections). The Commission also decides unilaterally to accept or not the commitments proposed by the undertaking and to come back to an infraction decision.
The Google Shopping, Android, and AdWords cases are particularly striking. Considering that the initial negotiated procedure was unsuccessful (e.g., that the commitments proposed by Google were not sufficient to address its competitive concerns), the Commission unilaterally decided to go back to an Article 7 procedure and to send in 2015 a statement of objections. Three procedures were launched. A first one led to the Google Shopping decision of June 2018 (with a €2.42 million fine). A second one came to the Android decision of July 2018 (with a €4.34 million fine). A third one, corresponding to AdWords related practices is still expected.
On the one hand, it tends to enhance the credibility of the Commission. Commitments are not suggested to dominant undertakings for weak cases, and the Commission demonstrates that it may refuse insufficient proposals. The Commission’s behavior may be analyzed as a reputational investment. On the other hand, these decisions contrast with the Recital n°13 of Regulation 1/2003 according to which: “Commitment decisions are not appropriate in cases where the Commission intends to impose a fine.” Negotiated procedures in antitrust appear more as a competition policy tool (with all the characteristics associated to public policy in terms of verticality) than a “contractualization” of the competition law enforcement in a pure horizontal logic.
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