Europe’s premier antitrust watchdog has been in the spotlight recently. Amid a frenzy of multi-million dollar deals, the European Commission has been stepping up its control over merger activity. And companies on both sides of the Atlantic have come to realize just how powerful this regulator can be.
In recent months the commission has been busy planning amendments to its system for implementing Articles 81 and 82 of the EC Treaty. Sound like something only a lawyer would be interested in? Well, not really. It refers to the proposed overhaul of the EU’s antitrust enforcement powers, which will transform the environment for all types of joint ventures apart from mergers and give the EU, among other things, the power to force divestitures or break up any company that has violated the law. Competition chief Mario Monti heralds the proposed changes as an essential part of the modernization process of European law. At best, his critics see it as an ill-conceived and flawed misjudgement, at worst as a recipe for disaster.
Common culture
So what exactly does the proposal say? First, it plans to get rid of the current notification system whereby any company undertaking a joint venture which may restrict competition can get exemption from the commission. Under the terms of the proposal, that power will go to the national courts in each individual EU country. Here, EU law would be moving closer to the American system, where companies have to apply a ‘rule of reason’ when deciding whether or not a particular action is anti-competitive.
Announcing the plans, Mario Monti said: ‘Increased involvement of the national competition authorities and courts is at the heart of the proposal. It is important that the decision-making bodies should be closer to the individual so as to disseminate more widely a common competition culture and to foster the acceptance of community rules.’
Second, the commission wants ‘a more level playing field and less red tape for businesses’. It aims to achieve this ‘by applying all decision-making authority of single rule of law whenever trade between member states is affected.’ So EU law will override any national law on issues involving trade between member states.
Third, the proposal intends to ‘strengthen the means that the commission has at its disposal to detect and punish cartels and other infringements of the rules.’ This means that whereas now the commission can only search offices in order to help enforce rules, it wants the power to search the private homes of company employees suspected of infringement. And what about the timing of the legislation?
The devil’s in the detail
While many favor the broad concept of competition policy reform, few are so crazy about the detail. Alec Burnside, partner specializing in competition law at Linklaters and Alliance’s Brussels office, comments: ‘In principle I’m for it as long as it’s done in the right way. It is actually very attractive for a company not to have to go to the commission every five minutes to get things approved. But as it stands, a company won’t know whether or not it’s doing the right thing and that makes its situation very insecure.’ Oliver Kaiser, co-chair of the competition sub-committee of the American Chamber of Commerce in Brussels, agrees that in their present form the reforms are going to make life hard for companies doing business in Europe. ‘Making investment decisions is going to become more difficult and the administrative burden on companies is going to increase,’ he says.
Kaiser’s two main arguments with the proposed reforms are, as Burnside points out, that they don’t offer companies any legal certainty and they will result in the re-nationalization of competition law. He explains: ‘By doing away with the notification system, companies are going to have to self-assess whether or not an agreement is anti-competitive. They won’t be able to ask the EU for its opinion which, in practice, will make agreements more risky’ – not least because of the potential for inconsistent application of the rules by different national courts. Adds Kaiser: ‘Each country has a different legal system with different traditions and different competition cultures. On top of that they’re going to have to apply very economically-based criteria to decisions and they’re just not used to that. They don’t have the economic expertise,’ he says.
Network error
But it’s the commission’s proposal to hand over responsibility for enforcing EC competition law to a ‘network’ made up of the commission and representatives of member states’ competition authorities that concerns Julian Joshua, a cartel buster of old and competition specialist at US law firm Morgan Lewis & Bockius in Brussels. He believes the commission should remain the primary enforcer of EU law in cases involving serious violations, and that the creation of an enforcement network will only lead to more red tape and frustration for listed companies in Europe. The end result will be a balkanization of EU antitrust legislation, Joshua claims, as confusion over interpretation and enforcement of the law at the national level will lead to conflicts between member states and Brussels. ‘The new regulation is supposed to leave the commission free to act as the primary antitrust enforcer, but it’s not clear what jurisdiction Brussels will have,’ he adds. ‘The proposals as they stand don’t even require a member state or group of states to consult the commission before launching an investigation on their own into a suspected violation of EC law, which could lead to evidence disappearing in other countries.’
Attempts in the US to adopt a similar antitrust enforcement regime to the EC’s network have met vocal opposition. In a report earlier this year, the American Bar Association criticized the sharing of enforcement responsibility for federal antitrust between the Justice Department and the state attorneys-general as a ‘hodge-podge’ whose desirability ‘was not intuitively obvious’.
But Kaiser is wary of drawing parallels between EU and US law. ‘The situation there is very different. You’ve got one language for a start and although different states do things differently, there’s more scope for consistency than in Europe where you’re dealing with 25 different legal systems.’
Burnside agrees and says the rules could also lead to ‘forum shopping’, whereby a company might shop around to decide where it can get what it wants from a court. ‘You could also have a situation where there are parallel investigations going on in different countries and the matter is treated totally differently in each. As well as leading to inconsistent judgements it could seriously delay reaching any agreement on a particular deal.’ Erik Berggren, competition policy advisor for Unice, an umbrella organization lobbying on behalf of European employers, is of the same mind: ‘One authority needs to be responsible for one particular case or things will become chaotic and companies may find themselves in a double jeopardy situation.’ He adds that the re-nationalization of competition law goes against the whole philosophy of the joint market.
Kaiser also feels the reforms are being proposed at the worst possible time for Europe. ‘Their introduction will coincide with the entrance of new member states which may be less used to dealing with competition policy. There’s no telling how their judges and competition authorities will interpret the new rules.’
As well as being criticized for ‘re-nationalization’, the commission is being accused of taking too much power away from member states. Part of the proposed reform suggests that where agreements fall under national law as well as EU law, European rules should prevail. In countries such as the UK in particular, which has just passed a new competition law, such an idea is very controversial. In Germany too, the commission’s move is seen as extremely political and critics feel that the EU is overreaching its authority.
Other critics worry more about the extension of EU authority over individual companies. Proposed reform of Articles 81 and 82 would to increase EU enforcement powers, including the power to conduct home raids. ‘This is pretty draconian, if you think about it. The commission is asking for more freedom than is healthy,’ comments Burnside. Erik Berggren is also concerned: ‘Everyone believes these rights are going too far. As the proposal stands they’re undermining the principle of innocent until proven guilty. There is no safeguard for probable cause, reasonable cause.’
Power games
The proposal also gives the EU the power, long held by the US Department of Justice, to force divestitures or even break up companies. It says, ‘The commission is empowered to impose all remedies necessary to bring the infringement to an end, including structural remedies…This may in particular be the case with regard to cooperation agreements and abuses of a dominant position, where divestiture of certain assets may be necessary.’ Again, critics are not against the principle. ‘It’s understandable that they want to increase their powers of enforcement,’ accepts Kaiser, ‘but at the same time they’ve got to increase the rights of defense for companies.’ Kaiser also stresses that parallels with the US shouldn’t be over-stretched. ‘It’s a different situation there. The courts have a much bigger role to play. In Europe there are ways to challenge commission decisions but they take forever. They’re just not practical for businesses.’ Kaiser is also uneasy about the EU taking on a triple role. ‘You’ve got the EU playing judge, jury and executioner all at the same time and that’s not necessarily healthy.’
But much of the debate over the EC’s plans for antitrust legislation is missing the point, claims Joshua. For him the biggest single problem with EU law is the inordinate delays involved in antitrust enforcement – the bureaucracy of the European justice system means that cases can languish for up to 15 years with the commission and the courts in Luxembourg before all appeals are exhausted.
Worryingly, the EC’s white paper review makes no proposals to speed up the glacial progress through various instances of many European antitrust investigations. ‘The balkanization of the law will create new problems, but the white paper doesn’t deal at all with the main problem – the delays,’ he concludes. His solution? The EC needs to go back to the drawing board, and consider drafting a treaty revision that will permit less subjective enforcement of Europe’s antitrust laws.
Closed doors
For some critics, the element of all this that jars the most, apart from the detail of what the proposal actually says, is that, they feel, there has not been a proper consultation process and corporate views have not been adequately represented. ‘All this is being discussed behind closed doors by civil servants in the European Council rather than in a public forum,’ complains Joshua. ‘It’s the biggest change in competition law since the merger regulation twelve years ago, and the parties most affected are keeping their heads below the parapet.’
Critics also feel that the commission’s labeling of the proposed changes as ‘modernization’ is misleading. ‘It’s very cleverly worded,’ comments one competition lawyer. ‘By calling it modernization it makes anyone who’s against it immediately a reactionary. A lot of us are saying that of course we want modernization, we just have different views on what is the right way to go about it.’
So what do companies themselves think about the proposed legislation? No-one was prepared to go on the record, either about the specifics or about the general idea of the commission having the power to potentially break up companies. Whether they don’t know about it, or just don’t care, is unclear. Burnside thinks that most don’t know. ‘Some of the big multinationals are obviously aware of the proposal because they’ve got people devoted to keeping them informed on competition issues but all too many aren’t.’ Burnside puts this apparent disinterest down to a lack of urgency. ‘The change in law won’t happen for at least three years so most companies think it’s far enough away not to have to do anything about it right now.’
Bodies like Unice and the American Chamber of Commerce, however, are hopeful they can get some change effected on companies’ behalf. ‘We’re lobbying very actively on our own and in conjunction with the other trade organizations,’ says Unice’s Berggren.
Alec Burnside is concerned, however, that their actions are too late to make any real impact. ‘They’re now fighting a rearguard action rather than being involved in the actual debate.’ Again their aim is not to have the legislation abandoned altogether but to have what they see as essential revisions made. ‘The proposals as they stand will make things much worse,’ comments Berggren. Most critics seem united in the wish for the commission to maintain some kind of advisory role in terms of deciding whether investment decisions are anti-competitive or not. Comments Berggren: ‘Particularly in borderline cases, the commission needs to continue to deliver a decision.’ Otherwise, critics say, companies could wake up in a couple of years to find the world a much less certain place.
