Cartels and abuse of dominant positions

THE COMPETITION RULES

6. One of the activities of the Community listed in Article 3 of the EC Treaty is "a system ensuring that competition in the internal market is not distorted". The removal of State-imposed barriers to the free movement of goods and services across national boundaries is accompanied by prohibitions on enterprises to stop them agreeing, for example, to divide and share national markets or to fix prices. Community competition policy has played an important role in the development of an integrated/Single market and acts as a dynamic force in the European economy. The competition rules applicable to undertakings are set out in Articles 81 and 82 (formerly 85 and 86 - "the Competition Rules"). Article 81 contains a prohibition on restrictive agreements but with the possibility of exemption where the agreement contains countervailing economic benefits in which consumers share. Prohibited agreements are automatically void. Article 82 prohibits abuse of dominant positions. These two rules play a key part "in establishing a common market" as provided for in Article 2 of the EC Treaty.

THE COMMISSION'S ENFORCEMENT ROLE

7. Under the scheme set out in the Treaty (in Articles 84 and 85) the Commission and the Member States share responsibility for enforcing the Competition Rules. In practice the Commission (through its Directorate General for Competition - "DG Competition") takes on the enforcement role almost single-handed, though the Commission has recently brought forward proposals designed to increase the involvement of national competition authorities and courts. The procedural rules under which the Commission currently carries out this role are contained in Regulation 17/62, which is applicable to all sectors except transport where special rules apply. The Commission has the power to take decisions requiring the termination of infringements and also to grant negative clearance or an exemption to a particular agreement or practice. The procedure is, as the Community Courts have said on a number of occasions, an administrative one. The Commission investigates the facts, makes known its objections to the undertakings concerned, considers the parties' response and, finally, takes any decision necessary in the circumstances of the case. Such decision may require termination of agreements or behaviour and may, depending on the gravity and length of the infringement, impose a fine.

8. The Commission, though investigator, prosecutor and judge, is not without check, nor the parties without safeguards. The parties have rights of defence, including the right to reply in writing to the Commission's statement of objections and then, if the parties wish, to be heard orally. Decisions of the Commission may be the subject of appeal to the Court of First Instance and from there, on points of law, to the Court of Justice. Further, during the Commission's administrative procedure, a number of steps have been made subject to the superintendence of the Hearing Officer.

THE HEARING OFFICER

9. The post of Hearing Officer was established in 1982 in response to concern about the efficiency of the Commission's procedures in enforcing the Competition Rules and criticism of a perceived lack of objectivity in those procedures. The Select Committee had itself produced a report[9] which considered ideas then being canvassed for the introduction of an "independent person" in the procedures. Having regard to the difficulties involved in such an appointment, we suggested the creation of an additional post of Director in the Commission's Competition Directorate to preside over the oral hearing and to assume responsibility within the Directorate for the subsequent conduct of the case. That, we believed, would be a useful step in the direction of divorcing the functions of prosecutor and judge.

10. Initially the role of the Hearing Officer was limited to the organisation and conduct of the oral hearing. Subsequently, his responsibilities were widened to ensure that the rights of the parties were adequately protected, in particular as regards safeguarding the confidentiality of documents and business secrets and giving effect to the parties' rights of access to the Commission's file. He also has a role to play in relation to time limits that are set by the Commission for parties to respond to various aspects of the procedure. The Hearing Officer does not, however, act as a judge, even if at first sight his title might suggest it. His current terms of reference are contained in a Commission decision of 12th December 1994 ("the 1994 Decision"), which is reproduced in Appendix 3. It should be noted that the Hearing Officer does not have the responsibility or powers to deal with all allegations of pre-hearing unfairness or irregularity on the part of the Commission. He would not, for example, investigate an allegation of pre-judgment or violation of the presumption of innocence in finding somebody guilty, without more, by a press statement or an unauthorised leaking at a very early stage within the Competition Directorate.

BUSINESS SECRETS

11. In carrying out its enforcement role the Commission will receive or obtain a substantial amount of confidential commercial information. The Commission has to decide whether it needs to disclose business secrets in order to make its case. The Court of Justice has, however, made clear that documents which might contain the business secrets of one party should not be disclosed to another without the first party having the opportunity to challenge that decision. It is for the Commission in the first place to assess whether or not a particular document contains business secrets. It will do this in a reasoned letter to the undertaking concerned who must then be given an opportunity to give its views on the matter. In practice a time-limit will be fixed within which the undertaking should make a written response. If the Commission continues to maintain that the document in question does not contain business secrets, the Commission must adopt a decision which contains an adequate statement of reasons and which must be notified to the undertaking concerned. The responsibility for the above procedure has been delegated to the Hearing Officer.[10] The Commission must, before implementing its decision, give the undertaking an opportunity to bring an action before the Court in order to have the Commission's assessment reviewed and to prevent disclosure of the documents in question.

ACCESS TO THE FILE

12. Following its investigation of the facts, if the Commission considers that the evidence points to an infringement that should be the subject of a decision, a formal procedure is opened and a statement of objections, setting out the Commission's case, is served on the undertaking(s) concerned. The statement of objections contains the basic facts as understood by the Commission. The reasons for the applicability of Article 81 or 82 are explained and, in the case of a notified agreement, the grounds for the refusal of an exemption under Article 81(3) are also set out. Relevant documentary evidence is annexed, together with a list of other documents on the Commission's file to which the undertaking concerned may have access.

13. To protect the rights of defence the Court of Justice has consistently held that the Commission must show the undertakings the evidence on which it relies. They must also be given access to the Commission's file ie the opportunity to see documents in addition to those that the Commission considers are necessary proof to support its case. Access to the file was not, however, provided for in Regulation 17, though it is now mentioned in the Hearings Regulation, Regulation 2842/98 (Article 13) and in the detailed rules of the Merger Control regime (see Article 13(3) of Regulation 447/98). The purpose of giving access to the file is to ensure "equality of arms"[11] and that the undertakings in question are able properly to defend themselves against the objections made against them in the statement of objections. The Hearing Officer has a general responsibility for ensuring that access is provided.

THE ORAL HEARING

14. The undertakings concerned have a right to be heard (Article 19(1) of Regulation 17). They must have the opportunity to respond to the arguments put by the Commission and to make their views known to the Commission. The Commission will also give access to its file on the case, as described above. The right to be heard is normally and primarily exercised in writing by way of a reply containing observations on the accuracy of the facts, validity of the arguments (legal and economic) and other matters set out in the statement of objections. The undertaking may also put in evidence of its own in support of its defence. The statement of objections will specify a time-limit (usually two months) within which any written reply must be made.

15. The undertakings concerned will also be offered the opportunity to be heard orally. The date for this is usually fixed for a day or days a few weeks after the expiry of the time for the written reply. There is no obligation on the parties to have an oral hearing nor can the Commission require them to have one. But it is rare for the parties not to exercise their right to an oral hearing. Representatives of the Member States may be present and take part in the oral hearing.[12] Witnesses may be heard to corroborate facts set out in the defence.[13] The Regulations expressly provide that the hearing shall not be public.[14]

16. The Hearing Officer is responsible for the arrangements for the oral hearing and he presides over it.[15] There is no set form of procedure laid down in the Regulations for the oral hearing, the conduct of which is largely under the control and supervision of the Hearing Officer. The Hearing Officer will try to agree the agenda in advance with the parties and their lawyers. In practice this will tend to follow the order of the statement of objections. There is, therefore, scope for the lawyers to take the opportunity to organise matters and to co-ordinate their representations. If the parties cannot sort things out the Hearing Officer will allocate and police time-limits for speaking. The Hearing Officer will rule on whether a party should be heard separately in order, for example, to protect confidential information. There is no fixed order of procedure.

17. The purpose of the oral hearing is to give the parties the opportunity to supplement their written defence by making oral presentations to the Commission. They will typically bring along lawyers and other experts, such as economists, and give a presentation and elaborate on specific points that they think are particularly important. The case team (comprising a case officer with conduct of the case and the relevant head of the unit of the Competition Directorate) and other officials (such as representatives of the Commission's Legal Service, the co-ordination division of DG Competition and officials from other Directorates if necessary) will be present. It is not, however, an adversarial process like a trial in an English court. It is much more a presentation by the parties to the Commission. There is no obligation on the Commission to respond to points or questions.

18. The hearing also gives the Member States an opportunity to participate in that hearing and the representatives of the Member States can ask the parties questions during the course of the hearing. Oral hearings will generally last anything from half a day to two or three days but they can extend exceptionally to a week or more. It depends on the number of parties involved and the complexity of the issues. There were 13 hearings in Article 81 and Article 82 cases in 1997 and 11 in 1998. In 1999 there were nine hearings. As mentioned there is no obligation on the parties to have an oral hearing. Experience has, however, shown that the position adopted by the Commission has in a few cases been reversed, and in many modified, as a result of the arguments presented by the parties.

19. The oral hearing does not necessarily conclude the procedure between the Commission and the parties. Further exchanges may take place and discussions may continue with a view to settlement, for example by way of amendment of the agreement or practice and/or giving of an undertaking.

THE HEARING OFFICER'S REPORT

20. Article 8 of the 1994 Decision provides, "The Hearing Officer shall report to the Director-General ... on the hearing and the conclusions he draws from it". The report[16] is normally a short (four to five pages) document made up of four sections.[17] The first section comprises general observations on the course of the hearing, recording inter alia the participants, the presence of Member States. The second section deals with any procedural problems that have arisen in the course of an oral hearing, such as the use of new arguments at the hearing not previously submitted to third parties. The third section, normally the most detailed part of the report, deals with questions of substance. It summarises the main issues raised by the Commission in its statement of objections, describes the arguments put forward by the parties and third parties, as well as any developments at the hearing. The fourth section, usually no more than one page, contains the Hearing Officer's own assessment of the case (dealing with both procedure and substance, including commenting on the strength of evidence and the question and level of any fine) and his provisional conclusions from the oral hearing.[18] The Competition Commissioner will also be regularly informed of the results, in practice a copy of the report being sent to his cabinet. Only rarely has it been necessary for the Hearing Officer formally to exercise his right to refer his observations direct to the Commissioner. His report is not, however, available to the parties. Nor can the Hearing Officer demand that his report be annexed to the draft decision sent to all Commissioners.[19]

21. After the hearing is completed the Commission has to draft its decision, having taken account of everything that has been said. There remains a substantial amount of work for the Commission in preparing the decision. Moreover, as mentioned, the oral hearing does not necessarily conclude the procedure between the Commission and the parties. Further exchanges may take place and discussions may continue with a view to settlement, for example by way of amendment of the agreement or practice and/or giving of an undertaking. Where the case is concluded by a decision, a draft of the decision is sent to the Member States and is discussed at a meeting of the Advisory Committee (made up of representatives from Member States' competition authorities). Following that, a draft decision, with any consequent amendments, is submitted to the Commission (ie the college of Commissioners). The opinion of the advisory committee is attached to the draft decision, as well as a further report from the Hearing Officer.

22. Article 10 of the 1994 Decision refers to a "final report". The Hearing Officer may report to the Commissioner and to the DG Competition on the final proposal for any decision. This final, usually brief, report will comment, in the light of subsequent developments, on the consistency of the decision being proposed with what happened at the oral hearing and with the Hearing Officer's assessment/report after the hearing.[20] Article 10 provides that the Commissioner, at the Hearing Officer's request, may decide that the final report should be attached to the draft decision sent to all the Commissioners. In practice a final report is not issued in every case. Where the Hearing Officer has no criticism of the draft decision, he may make an oral report to that effect. If he says nothing, it is assumed that he agrees with DG Competition.[21]

23. Within the Competition Directorate, in addition to the Hearing Officer's report, Directorate A, which comprises the co-ordination unit, also submits its own comments to the Competition Commissioner (rather than the college of Commissioners). A written report by the Commission's Legal Service will be sent directly to the President of the Commission (rather than the Competition Commissioner).

Merger control

THE MERGER CONTROL REGULATION

24. In contrast to the procedure relating to the application of Articles 81 and 82, the Merger Control Regulation (Regulation 4064/89, as amended) introduced a compulsory system of prior notification for "concentrations" with a Community dimension. Companies risk fines and the invalidity of their transaction if they fail to notify. Concentrations generally must not be put into effect before notification or before the concentration has been declared compatible with the common market by Commission decision. The Commission must carry out an initial examination within one month of notification to ascertain whether the merger falls within the scope of the Regulation and if so whether serious doubts are raised as to its compatibility with the common market (Phase I). If such doubts exist a further examination (up to four months in length) is set in motion to determine whether the concentration creates or strengthens a dominant position as a result of which competition would be significantly impeded (Phase II). Where the Commission finds that a concentration significantly impedes competition, it must declare it incompatible with the common market. The Commission has power, however, to accept undertakings from the parties to avoid prohibiting the merger. In practice the vast majority of mergers notified are cleared at the end of Phase I.

25. The procedural rules governing the notification and appraisal of concentrations are set out in the Merger Control Regulation and the Implementing Regulation.[22] To assist it in the performance of its task the Commission has coercive powers of enquiry analogous to Articles 11 and 14 of Regulation 17. Before any final (end of Phase II) decision on the concentration is reached the parties must be told the case against them and given the opportunity to respond. The Commission may order remedial action to be taken if it considers such action necessary. It has powers to impose fines and penalties to back up its powers of enquiry and powers to take suspensive and remedial action. During the procedure the Commission may be assisted by the competent authorities of the Member States. As in cases under Articles 81 and 82, decisions of the Commission are subject to judicial review by the Community Courts.

PHASE II PROCEEDINGS

26. The role of the Hearing Officer was extended in 1990 to include merger cases. Mergers that cannot be cleared in the first month are subject to a detailed investigation and assessment during the Phase II proceedings. Though, unlike Article 81 and 82 cases, there is no question of an "infringement" of competition laws, the procedure is a contentious one, at least in the sense that the Commission, if it wishes to proceed to a decision prohibiting the proposed merger, must set out its case to the parties and give them the opportunity to respond. The Commission must supply a statement of objections to which the parties can respond in writing. They may also have an oral hearing, typically a two day event, in which third parties, particularly those objecting to the merger, may play a prominent role. The Hearing Officer has an important role in allocating time between the parties and third parties, and ensuring that the issues which are pursued are relevant and the potentially combative meeting proceeds smoothly. There were 12 hearings in 1999.[23]

27. The merging parties do not always ask for an oral hearing because in order to avoid a decision of incompatibility they may, given the strict four month timetable for Phase II, prefer to devote more time to negotiating undertakings with the Commission. Typically the Commission will not deliver its statement of objections until the end of nine weeks and the parties may, in practice, have only days in which to inspect the Commission's file and submit their written reply. There may be as little as a fortnight between the statement of objections and the oral hearing. The parties to the merger, mindful of the imminence of the three-month deadline for the submission of proposals for remedies, may decline the opportunity for an oral hearing. They may take the view that a clearance of the merger should be obtainable from the Commission in return for concessions, and that the time remaining would be better used in negotiating a mutually acceptable package. Or the parties may call for a hearing, but rather than contesting the analysis, arguments and assessments in the Commission's statement of objections and arguing for an outright clearance (of which there have been very few at the end of Phase II proceedings) use it to stage a debate on remedies to any perceived competition problems the merger might cause.[24]

10   Article 5 of the 1994 Decision. Back

11   The 'equality of arms' principle ensures that each party to a proceeding should have an equal opportunity to present their case and that no party should enjoy any substantial advantage over their opponent. Dombo Beheer: Judgment 27 October 1993, Series A no 274, p19, para 35. Back

12   Article 11 (2) of Regulation 2842/98 Back

13   Article 4(2) of Regulation 2842/98 Back

14   Article 12(3) of Regulation 2842/98 Back

15   Article 10 of Regulation 2842/98 and Article 7 of the 1994 Decision. Back

16   The Committee is grateful to the Commission for supplying an example of a Hearing Officer report. The document was supplied on a confidential basis and is not printed with this Report. Back

17   The style and format of the report would seem to depend much on the Hearing Officer himself as well as the nature of the case. Dr Johannes reported that when he was Hearing Officer "In about 70 to 75 per cent of all cases the report consisted of two sentences: "I share the opinion of the service as the assessment of Article 81/82." The second sentence: "The parties did not claim any violation of the right of defence and I myself could not see any" - signature" (Q 241). Back

18   QQ 165,174, 177. Back

19   Article 9 of the 1994 Decision only entitles the Hearing Officer to go direct to the Competition Commissioner (Q 227). Back

20   Q 181. Back

21   QQ 223, 225, 228, 230. Back

22   Regulation 447/98. Back

23   Q 3. Back

24   Alec Burnside, The governance of EC Merger Control - Bumps in the level playing field, Paper presented to the EC Merger Control 10th Anniversary Conference, Brussels, 14-15 September 2000. Back