European Competition Law Annual 2013: Effective and Legitimate Enforcement of Competition Law 9781849467452, 9781782257813, 9781509900473

This volume contains papers presented at the 18th Annual EU Competition Law and Policy Workshop. The papers examine mean

306 21 8MB

English Pages [683] Year 2016

Report DMCA / Copyright

DOWNLOAD FILE

Polecaj historie

European Competition Law Annual 2001: Effective Private Enforcement of EC Antitrust Law 9781472559456, 9781841131986

The European Competition Law Annual 2001 is the sixth in a series of volumes following the annual workshops on EU Compet

315 75 3MB Read more

European Competition Law Annual 2011: Integrating Public and Private Enforcement of Competition Law - Implications for Courts and Agencies 9781474201797, 9781849463515

This volume contains the written contributions and oral proceedings of the “16th Annual EU Competition Law and Policy Wo

307 98 9MB Read more

European Competition Law Annual 2005: The Interaction between Competition Law and Intellectual Property Law 9781472560056, 9781841136455

This is the tenth in a series of volumes based on the annual workshops on EU Competition Law and Policy held at the Robe

383 58 4MB Read more

European Competition Law Annual 2004: The Relationship Between Competition Law and the (Liberal) Professions 9781472559883, 9781841136127

The European Competition Law Annual 2004 is ninth in a series of volumes following the annual workshops on EU Competitio

373 19 13MB Read more

European Competition Law Annual 2008: Antitrust Settlements under EC Competition Law 9781472560650, 9781841139586

This is the thirteenth in a series on EU Competition Law and Policy produced under the auspices of the Robert Schuman Ce

301 133 4MB Read more

European Competition Law Annual: 2006: Enforcement of Prohibition of Cartels 9781472560148, 9781841137513

This is the eleventh in the series on EU Competition Law and Policy produced by the Robert Schuman Centre of the Europea

324 70 4MB Read more

Alternative Enforcement of Competition Law 9789462746091, 9789462367074

Competition authorities are known for imposing enormous fines on companies that have infringed the law. However, most au

277 21 2MB Read more

European Competition Law Annual 1998: Regulating Telecommunications 9781472558954, 9781841130996

The 1998 Volume on the regulation of communications markets is the third in a successful series of European Competition

250 114 3MB Read more

European Competition Law Annual 2012: Competition, Regulation and Public Policies 9781474201803, 9781849465823

Every year, top-level market regulators, academics and legal and economic practitioners contribute to the Annual Competi

282 52 7MB Read more

European Competition Law Annual 1997: The Objectives of Competition Policy 9781472558817, 9781901362671

This volume of essays contains contributions by a group of specialists in the area of competition law, including heads o

289 55 33MB Read more

European Competition Law Annual 2013: Effective and Legitimate Enforcement of Competition Law
9781849467452, 9781782257813, 9781509900473

Author / Uploaded
Philip Lowe
Mel Marquis
Giorgio Monti (editors)

Table of contents :
Contents
List of Sponsors
List of Participants
Table of Cases
Effective and Legitimate Enforcement of Competition Law: A Riddle Wrapped In a Mystery Inside an Enigma?
1. Introduction
2. A riddle ... the deterrence trap
3. Wrapped in a mystery ... the compliance trap
4. Inside an enigma ... a legitimacy trap?
5. Conclusion: regulation and the politics of markets
From Regulation 1 to Regulation 2: Enforcement of EU Law by National Sanctioning Regimes and the Need for Further Convergence
1. Introduction
2. Effective and efficient cartel prosecution
3. Sanctioning cartel infringements in Germany-challenges
4. Framework for reform
5. Solutions
6. Outlook: towards a 'Regulation 2'
The Federal Trade Commission and Monetary Remedies
1. Introduction
2. Summary of the 2003 policy statement
3. The FTC's 2012 Withdrawal
4. The FTC's reasons for withdrawing the statement are not persuasive
5. Would a reduction in private antitrust enforcement justify additional efforts by public enforcers to pursue monetary remedies?
6. When is it appropriate for an enforcement agency to pursue disgorgement?
The Principle of Effectiveness, Competition Law Remedies and the Limits of Adjudication
1. Introduction
2. The principle of effectiveness and remedial discretion
3. Legitimate remedies and the limits of adjudication
4. Remedial discretion and commitment decisions: exploring the limits of adjudication
5. Conclusions
Negotiated Remedies in the Modernisation Era: The Limits of Effectiveness
1. Negotiated remedies in the modernisation era
2. The limits of effectiveness
3. Conclusion
Behavioural Remedies for Antitrust Infringements-Opportunities and Limitations
1. Introduction
2. The purposes of remedies
3. Practical considerations
4. Conclusion
Behavioural versus Structural Remedies in EU Competition Law
1. Introduction
2. Behavioural versus structural remedies
3. Conditions under Regulation 1/2003
4. Conclusion
Bibliography
The Antitrust Conversation (Continued)
1. Introduction
2. US amicus practice in general
3. American antitrust amici: an update
4. Outside the US
5. A look to the future
Enforcement of Article 106(1) TFEU by the European Commission and the EU Courts
1. Introduction
2. European Commission cases
3. 'Indirect enforcement' of Article 106(1) by the Court of Justice: case law on Article 106(1) TFEU arising from preliminary rulings
4. Conclusions
Hard Look Review of Anticompetitive State Action
1. The state action problem and leading responses
2. The hard look alternative
3. Comparing the three models
4. Conclusion
Parallel Proceedings in EU Competition Law: Rethinking Ne Bis In Idem as a Limiting Principle
1. The problem and the structure of the enquiry
2. Inadequacy of discretionary prosecutorial restraint as a limiting principle
3. Ne bis in idem as a limit to parallel proceedings
4. The function of the ne bis in idem principle in limiting multiple proceedings and decisions in EU competition law
Reflections on Parallel Enforcement, Fundamental Rights and the Rule of Law in the Competition Law Context
1. Legal succession in fines and fundamental rights
2. ThyssenKrupp Nirosta
3. The Swiss Publigroupe judgment and Regulation 1/2003
Creating a Respected Brand: How Competition Agencies Signal Quality
1. Introduction
2. Brands and public institutions
3. Forces that determine the quality of a competition agency's brand
4. Conclusion
International Cooperation in Antitrust Enforcement: A Canadian Perspective
1. Introduction
2. Canada's approach to international cooperation in antitrust enforcement
3. Legitimacy of information sharing
4. International coordination of merger control and merger remedies
5. International cooperation on criminal matters
6. Conclusion
Effectiveness of Enforcement Cooperation in Developing Countries: What Role Can Existing Institutions Play?
1. Introduction
2. The WTO effort to incorporate competition in trade agreements
3. The International Competition Network and the cooperation agenda
4. Major problems in antitrust enforcement in developing countries
5. The role of the SADC: some reflections on the experience of three African countries (Zambia, Zimbabwe and Tanzania)
6. What kind of cooperation for cross-border cases?
7. Conclusion
The Need for International Cooperation in Merger Enforcement
1. Introduction
2. The scope for disagreement on international mergers
3. The costs of international disagreements
4. Does it matter?
5. Will the situation get better or worse?
The UK Competition Regime: Developments and Further Proposals for Change
1. Introduction
2. Institutional changes
3. Private enforcement/CAT jurisdiction
4. EU-level developments
5. Regulatory appeals consultation
6. Judicial independence
What Is To Be Done?
1. The Hearing Officer
2. Other reforms
Quis custodiet ipsos custodes?
1. Competition law and the challenge for the judge
2. Theories and fashions change
3. Differences between countries
4. Differences in priorities
5. Does 'old' law help when considering 'new' cases?
6. The Court is robust and radical in some fields
7. The European Courts as locomotives of legal innovation and policy change
8. Where do we stand as to the ECHR?
9. The ECHR and competition decision-making
Interaction between Public and Private Enforcement of Competition Law
1. Full judicial review of decisions of the European Commission and of national competition authorities
2. Disclosure of evidence
3. Interim measures
4. Final decisions and remedial powers
5. Limitation periods and joint and several liability
6. Quantification of harm
Selected References

Citation preview

EUROPEAN COMPETITION LAW ANNUAL 2013: Effective and Legitimate Enforcement of Competition Law

ii

EUROPEAN COMPETITION LAW ANNUAL 2013 Effective and Legitimate Enforcement of Competition Law

Edited by

Philip Lowe, UK Competition and Markets Authority Mel Marquis, European University Institute and Giorgio Monti, European University Institute

OXFORD AND PORTLAND, OREGON 2016

Published in the United Kingdom by Hart Publishing Ltd 16C Worcester Place, Oxford, OX1 2JW Telephone: +44 (0)1865 517530 Fax: +44 (0)1865 510710 E-mail: [email protected] Website: http://www.hartpub.co.uk Published in North America (US and Canada) by Hart Publishing c/o International Specialized Book Services 920 NE 58th Avenue, Suite 300 Portland, OR 97213-3786 USA Tel: +1 503 287 3093 or toll-free: (1) 800 944 6190 Fax: +1 503 280 8832 E-mail: [email protected] Website: http://www.isbs.com © The editors 2016 The editors have asserted their right under the Copyright, Designs and Patents Act 1988, to be identified as the authors of this work. Hart Publishing is an imprint of Bloomsbury Publishing plc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission of Hart Publishing, or as expressly permitted by law or under the terms agreed with the appropriate reprographic rights organisation. Enquiries concerning reproduction which may not be covered by the above should be addressed to Hart Publishing Ltd at the address above. British Library Cataloguing in Publication Data Data Available ISBN: 978-1-50990-047-3 ISSN: 1467-744X Typeset by Compuscript Ltd, Shannon

CONTENTS List of Sponsors vii List of Participants xi Table of Casesxiii Effective and Legitimate Enforcement of Competition Law: An Overview

xxix

Mel Marquis PART I: Effective Enforcement of Competition Law 1. Effective sanctions and compliance I Christine Parker, Effective and Legitimate Enforcement of Competition Law: A Riddle Wrapped In a Mystery Inside an Enigma? II Konrad Ost, From Regulation 1 to Regulation 2: Enforcement of EU Law by National Sanctioning Regimes and the Need for Further Convergence 2. Effective remedies III Joshua D Wright, The Federal Trade Commission and Monetary Remedies IV Ioannis Lianos, The Principle of Effectiveness, Competition Law Remedies and the Limits of Adjudication V Damien MB Gerard, Negotiated Remedies in the Modernisation Era: The Limits of Effectiveness VI Giorgio Monti, Behavioural Remedies for Antitrust Infringements—Opportunities and Limitations VII Frank P Maier-Rigaud, Behavioural versus Structural Remedies in EU Competition Law

13

31

85

105 139 185 207

3. Agencies as amici curiae VIII Stephen Calkins, The Antitrust Conversation (Continued)231 4. Infringement procedures and public measures distorting competition IX José Luis Buendía Sierra, Enforcement of Article 106(1) TFEU by the European Commission and the EU Courts 279 X Daniel A Crane, Hard Look Review of Anticompetitive State Action 307

vi Contents PART II: Legitimate Enforcement of Competition Law I Renato Nazzini, Parallel Proceedings in EU Competition Law: Rethinking Ne Bis In Idem as a Limiting Principle II Wolfgang Kirchhoff, Reflections on Parallel Enforcement, Fundamental Rights and the Rule of Law in the Competition Law Context III William E Kovacic, Creating a Respected Brand: How Competition Agencies Signal Quality

353

383 393

PART III: Effectiveness and Legitimacy in International Enforcement Cooperation I Julie Soloway, Charles Layton and Eric Richmond, International Cooperation in Antitrust Enforcement: A Canadian Perspective 433 II Alberto Heimler, Effectiveness of Enforcement Cooperation in Developing Countries: What Role Can Existing Institutions Play? 447 III Antonio Capobianco, John Davies and Sean Ennis, The Need for International Cooperation in Merger Enforcement469 PART IV: Issues for Courts and Perspectives on the Judicial Role I Gerald Barling, The UK Competition Regime: Developments and Further Proposals for Change II James S Venit, What Is To Be Done? III Ian S Forrester, Quis custodiet ipsos custodes? Assessing the Judicial Role in a Lawful System of Competition Enforcement IV Mario Siragusa, Interaction between Public and Private Enforcement of Competition Law Conclusions

523 543

557 587 593

Philip Lowe Selected References599

SPONSORS OF THE EU COMPETITION LAW AND POLICY WORKSHOP

Baker Botts LLP Contact: James Rill, Esq 1299 Pennsylvania Ave, NW Washington, DC 20004 USA Tel.: +1 202 639 78 83 Fax: +1 202 639 78 90 E-mail: [email protected] Cleary, Gottlieb, Steen & Hamilton Contact: Mario Siragusa Piazza di Spagna, 15 I-00187 Rome Italy Tel.: +39 06 695 221 Fax: +39 06 692 00 665 E-mail: [email protected] Compass Lexecon Contact: Atilano Jorge Padilla Davidson Building 5 South Hampton Street B-1000 London WC2E 7HA Tel.: + 44 20 7632 5005 Fax: + 44 20 7632 5155 E-mail: [email protected] CRA International Contact: Cristina Caffarra 99 Bishopsgate London EC2M 3XD UK Tel.: +44 20 7664 3700 Fax: +44 20 7664 3998 E-mail: [email protected]

viii Sponsors Hengeler Müller Contact: Jochen Burrichter Benrater Strasse 18–20 D-40213 Düsseldorf Germany Fax: +49 211 83 04 222 E-mail: [email protected] Latham & Watkins LLP Contact: Sven Völcker Boulevard du Régent, 43–44 B-1000 Brussels Belgium Tel.: + 32 2 788 62 42 Fax: + 32 2 788 60 60 E-mail: [email protected] Martínez Lage, Allendesalazar & Brokelmann Contact: Santiago Martínez Lage Claudio Coello 37 ES-28001 Madrid Spain Tel.: +34 91 426 44 70 Fax: +34 91 577 37 74 E-mail: [email protected] RBB Economics Contact: Andrea Lofaro RBB Economics London The Connection 198 High Holborn London, WC1V 7BD UK Tel.: +44 20 7421 2414 Fax: +44 20 7421 2411 E-mail: [email protected] Skadden, Arps, Slate, Meagher & Flom LLP Contact: James Venit 523 Avenue Louise B-1050 Brussels Belgium Tel.: +32 2 639 03 00 Fax: +32 2 639 03 39 E-mail: [email protected]

Sponsors ix White & Case LLP Contact: Assimakis Komninos 62, rue de la Loi B-1040 Brussels Belgium Tel.: +32 2 219 16 20 Fax: +32 2 219 16 26 E-mail: [email protected] WilmerHale LLP Contact: John Ratliff Bastion Tower Place du Champ de Mars/ Marsveldplein 5 B-1050 Brussels Belgium Tel.: +32 2 285 49 08 Fax: +32 2 285 49 49 E-mail: [email protected]

x

18th ANNUAL EU COMPETITION LAW AND POLICY WORKSHOP EFFECTIVE AND LEGITIMATE ENFORCEMENT OF COMPETITION LAW

Organisers Philip Lowe, Mel Marquis and Giorgio Monti Contributing authors Gerald Barling High Court, London José Luis Buendía Sierra Garrigues, Brussels Stephen Calkins Irish Competition Authority, Dublin Antonio Capobianco OECD, Paris Daniel A Crane University of Michigan School of Law John Davies OECD, Paris Sean Ennis OECD, Paris Ian S Forrester White & Case, Brussels Damien MB Gerard Université catholique de Louvain Alberto Heimler Scuola Nazionale di Amministrazione, Rome Wolfgang Kirchhoff German Federal Supreme Court William E Kovacic George Washington School of Law, Washington, DC and UK Competition and Markets Authority, London Charles Layton Blakes, Toronto Ioannis Lianos University College London Philip Lowe UK Competition and Markets Authority, London Frank P Maier-Rigaud NERA, Berlin; Université catholique de Lille Mel Marquis European University Institute, Florence Giorgio Monti European University Institute, Florence Renato Nazzini LMS, Milan; King’s College, London Konrad Ost Bundeskartellamt, Bonn Christine Parker Monash University, Melbourne Eric Richmond Blakes, Toronto Mario Siragusa Cleary Gottlieb Steen Hamilton, Rome Julie Soloway Blakes, Toronto James S Venit Skadden Arps, Brussels Joshua D Wright George Mason University School of Law

xii

TABLE OF CASES 1. Judgments of the Courts of the European Union A Joined Cases C-89, 104, 114, 116, 117 and 125 to 129/85 A Ahlström Osakeyhtiö and others v Commission [1993] ECR I-1307�� 498, 572 Joined Cases C-204/00 P, C-205/00 P, C-211/00 P, C-213/00 P, C-217/00 P and C-219/00 P Aalborg Portland A/S and Others v Commission [2004] ECR I-123�� 34, 354 Case C-196/08 Acoset SpA v Conferenza Sindaci e Presidenza Prov Reg ATO Idrico Ragusa and Others [2009] ECR I-9913��300 Case 145/83 Adams v Commission [1985] ECR 3539��566 Case C-303/05 Advocaten voor de Wereld VZW v Leden van de Ministerraad [2007] ECR I-3633��386 Case T-128/98 Aéroports de Paris v Commission [2000] ECR II-3929��197 Case C-437/09 AG2R Prévoyance v Beadout Père et Fils SARL [2011] ECR I-973�� lii, 293 Case T-342/99 Airtours plc v Commission [2002] ECR II-2585�� 498, 548, 572 Case C-617/10 Åklagaren v Hans Åkerberg Fransson, EU:C:2013:105��356 Case C-62/86 AKZO Chemie BV v Commission [1991] ECR I-3359��192 Case C-97/08 P Akzo Nobel NV and Others v Commission [2009] ECR I-8237�� 5, 33 Case C-67/96 Albany International BV v Stichting Bedrijfspensioenfonds Textielindustrie [1991] ECR I-5751�� 264, 298 Joined Cases C‑628/10 P and C‑14/11 P Alliance One International Inc and Standard Commercial Tobacco Co Inc v Commission, EU:C:2012:479�� 5, 33 Case C-32/11 Allianz Hungária Biztosító Zrt and Others, EU:C:2013:160�� 120, 573 Case T-170/06 Alrosa Company Ltd v Commission [2007] ECR II-2601�� 62, 140, 213, 490 Case T-224/00 Archer Daniels Midland v Commission [2003] ECR II-2597�� 356, 379 Case C-397/03 P Archer Daniels Midland Co v Commission [2006] ECR I-4429��358 Case C-347/06 ASM Brescia SpA v Comune di Rodengo Saiano [2008] ECR I-5641��302 Case C-295/05 Asociación Nacional de Empresas Forestales (Asemfo) v Transformación Agraria SA (Tragsa) and Administración del Estado [2007] ECR I-299�� lii, 299 Case C-220/06 Asociación Profesional de Empresas de Reparto y Manipulado de Correspondencia v Administración General del Estado [2007] ECR I-12175��289 Case C-410/04 Associazione Nazionale Autotrasporto Viaggiatori (ANAV) v Comune di Bari and AMTAB Servizio SpA [2006] ECR I-3303��300

xiv Table of Cases Case C-457/10 AstraZeneca AB v Commission, EU:C:2012:770��362 Case T-395/94 Atlantic Container Line AB and Others v Commission [2002] ECR II-875�� 63, 114, 161, 193 Case T-24/90 Automec v Commission [1992] ECR II-2223�� 69, 161, 202, 220 Case T-9/92 Automobiles Peugeot SA v Commission [1993] ECR II-493��203 Case C-322/93 P Automobiles Peugeot v Commission [1994] ECR I-2727��203 C-280/06 Autorità Garante della Concorrenza e del Mercato v Ente tabacchi italiani—ETI SpA and Others [2007] ECR I-10893�� lix, 34, 387 B Case T-15/02 BASF AG v Commission [2006] ECR II-497�� 168, 575 Case C-185/95 P Baustahlgewebe GmbH v Commission [1998] ECR I-8417��492 Case C-387/02 et al Silvio Berlusconi and Others [2005] ECR I-3565��48 Case C-413/06 P Bertelsmann AG and Sony Corporation of America v Independent Music Publishers and Labels Association (Impala) [2008] ECR I-4951�� 490, 548 Case 30/87 Corinne Bodson v SA Pompes funèbres des régions libérées [1988] ECR 2479��572 Case 7-72 Boehringer Mannheim GmbH v Commission [1972] ECR 1281�� 332, 379 Case C-297/07 Klaus Bourquain [2008] ECR I-9425��369 Case C-310/93 P BPB Industries and British Gypsum v Commission [1995] ECR I-865��575 Joined Cases C-46 and 48/93 Brasserie du Pêcheur SA v Bundesrepublik Deutschland and the Queen v Secretary of State for Transport, ex parte: Factortame Ltd and others [1996] ECR I-1029��569 Case T-219/99 British Airways plc v Commission [2003] ECR II-5917; appeal dismissed: Case C-95/04 P, [2007] ECR I-2331��72, 507, 566 Case T-289/03 British United Provident Association Ltd (BUPA), BUPA Insurance Ltd and BUPA Ireland Ltd v Commission of the European Communities [2008] ECR II-81��303 Case C-7/97 Oscar Bronner GmbH v Mediaprint Zeitungs-und Zeitschriftenverlag GmbH [1998] ECR I-7791��572 Case C-681/11 Bundeswettbewerbsbehörde and Bundeskartellanwalt v Schenker & Co AG and Others, EU:C:2013:404�� 6, 47 C Case C-67/13 P Groupement des cartes bancaires (CB) v Commission, EU:C:2014:2204��573 Case 8/72 Cementhandelaren v Commission [1972] ECR 977��560 Case C-386/10 P Chalkor AE Epexergasias Metallon v Commission [2011] ECR I-13085��44, 77, 576 Case T-15/89 Chemie Linz v Commission [1992] ECR II-1275��365 Joined Cases T-25, 26, 30–32, 34–39, 42–46, 48, 50–65, 65, 68–71, 87, 88, 103 and 104/95 Cimenteries CBR and Others v Commission [2000] ECR II-491�� 169, 365

Table of Cases xv Case 283/81 CILFIT and Lanificio di Gavardo SpA v Ministry of Health [1982] ECR 3415��lix Joined Cases C-94 and 202/04 Cipolla and Macrino [2006] ECR I-11421��313 Joined Cases T-125 and 127/97 The Coca-Cola Company [2000] ECR II-1733��114 Case C-441/07 P Commission v Alrosa Company Ltd [2010] ECR I-5949�� 62, 126, 140, 186, 213, 490, 550 Case C-42/92 P Commission v Anic Partecipazioni SpA [1999] ECR I-4125�� 34, 365 Case C-301/04 P Commission v SGL Carbon AG [2006] ECR I-5915��45 Case C-308/04 P SGL Carbon AG v Commission [2006] ECR I-5977�� 332, 356 Case C-328/05 P SGL Carbon AG v Commission [2007] ECR I-3921�� 332, 356, 575 Case C-419/07 Commission v Sweden, EU:C:2008:387��290 Case C-12/03 P Commission v Tetra Laval [2005] ECR I-987��549 Case C-141/02 P Commission v T-Mobile Austria GmbH, formerly max.mobil Telekommunication Service GmbH [2005] ECR I-1283�� 265, 281 Case C-441/11 P Commission v Verhuizingen Coppens, EU:C:2012:778��365 Case T-342/11 Confederación Española de Empresarios de Estaciones de Servicio (CEEES) and Asociación de Gestores de Estaciones de Servicio v Commission, EU:T:2014:60��151 Case T-93/02 Confédération nationale du Crédit mutuel v Commission [2005] ECR II-143��284 Case C-198/01 Consorzio Industrie Fiammiferi [2003] ECR I-8055��317 Joined Cases 56 and 58/64 Établissements Consten SARL and Grundig-Verkaufs-GmbH v Commission [1966] ECR 299�� 114, 572 Case C-320/91 Paul Corbeau [1993] ECR I-2533��288 D Case T-38/02 Groupe Danone v Commission [2005] ECR II-4407�� 176, 575 Joined Cases C-189/02 P, C-202/02 P, C-205/02 P to C-208/02 P and C-213/02 P Dansk Rørindustri and Others v Commission [2005] ECR I-5425��151 Case 43/75 Defrenne v Société Anonyme Belge de Navigation Aérienne Sabena [1976] ECR 455��570 Case T-279/02 Degussa v Commission [2006] ECR II-897��575 Case C-280/08 P Deutsche Telekom AG v Commission [2010] ECR I-9555�� lxi, 362 Joined Cases T-107 and 354/08 Diamanthandel A. Spira BVBA v Commission, EU:T:2013:367��172 Case T-169/08 Dimosia Epicheirisi Ilektrismou AE (DEI) v Commission, EU:T:2012:448, set aside and remanded: C-553/12 P Commission v Dimosia Epicheirisi Ilektrismou AE (DEI), EU:C:2014:2083�� 263, 286, 287 E Case T-87/05 EDP—Energias de Portugal, SA v Commission [2005] ECR II-3745��490

xvi Table of Cases Case C-260/89 Elliniki Radiophonia Tiléorassi AE and Panellinia Omospondia Syllogon Prossopikou v Dimotiki Etairia Pliroforissis and Sotirios Kouvelas and Nicolaos Avdellas and others [1991] ECR I-2925��296 Joined Cases C-240/12 and T-211/13 Eni SpA v Commission, EU:T:2014:132��356 Joined Cases T-360/09 E.ON Ruhrgas and E.ON AG, EU:T:2012:332��81 Case C-125/07 P Erste Group Bank AG v Commission [2009] ECR I-8681�� 34, 575 Case T-153/06 European Association of Euro-Pharmaceutical Companies, EU:T:2008:54��42 Joined Cases T-374, 375, 384 and 388/94 European Night Services Ltd v Commission [1998] ECR II-3141��573 Case 6-72 Europemballage Corporation and Continental Can Company Inc v Commission [1973] ECR 215��513 Case C-266/06 P Evonik Degussa GmbH v Commission [2008] ECR I-81*��38 Case C-226/11 Expedia Inc v Autorité de la concurrence and Others, EU:C:2012:795�� 487, 573 F Joined Cases T-271 and 245/03 Fédération nationale des syndicats d’exploitants agricoles (FNSEA) v Commission [2004] ECR II-271��356 Case T-34/92 Fiatagri UK Ltd and New Holland Ford Ltd v Commission [1994] ECR II-905; appeal dismissed: Case C-8/95 P, [1998] ECR I-3175��188 Case C-469/03 Filomeno Mario Miraglia [2005] ECR I-2009�� lviii, 372 Joined Cases T-217 and T-245/03 FNCBV and Others v Commission [2006] ECR II-4987��575 Joined Cases C-68/94 and 30/95 France v Commission (Kali und Salz) [1998] ECR I-1375��548 Case T-339/04 France Télécom SA v Commission [2007] ECR II-521��42 Case T-340/04 France Télécom SA v Commission [2007] ECR II-573��42 Case C-189/95 Harry Franzén [1997] ECR I-5909��304 G Case C-58/12 P Groupe Gascogne SA v Commission, EU:C:2013:770��492 Case C-467/04 Giuseppe Francesco Gasparini [2006] ECR I-9199��lvii, 332, 363 Case T-370/09 GDF Suez SA v Commission, EU:T:2012:333��81 Case T-168/01 GlaxoSmithKline Services v Commission [2006] ECR II-2969��547 Joined Cases C-501/06 P, C-513/06 P, C-515/06 P and C-519/06 P GlaxoSmithKline Services and Others v Commission and Others [2009] ECR I-9291�� 547, 563 Case 293/83 Gravier v City of Liège [1985] ECR 593��571 Joined Cases C-187 and 385/01 Hüseyin Gözütok and Klaus Brügge [2003] ECR I-1345��369 Case T-38/02 Groupe Danone v Commission [2005] ECR II-4407�� 176, 575 Case C-67/13 P Groupement des cartes bancaires (CB) v Commission, EU:C:2014:2204��573 Case T-310/94 Gruber + Weber GmbH & Co KG v Commission [1998] ECR II-1043�� 63, 115, 161, 189

Table of Cases xvii Case C-385/07 P Der Grüne Punkt—Duales System Deutschland GmbH v Commission [2009] ECR I-6155��492 Joined Cases 18 and 35/65 Gutmann v Commission [1966] ECR 103��328 H Case C-438/02 Krister Hanner [2005] ECR I-4551��304 Case T-64/12 Henkel AG & Co KGaA and Henkel France v Commission, EU:T:2013:116��359 Case C-51/92 P Hercules Chemicals NV v Commission [1999] ECR I-4235��491 Case T-30/89 Hilti AG v Commission [1991] ECR II-1439��190 Case C-53/92 P Hilti AG v Commission [1994] ECR I-667��190 Case 85/76 Hoffmann-La Roche & Co AG v Commission [1979] ECR 461�� 512, 565 Case C-41/90 Klaus Höfner and Fritz Elser v Macrotron GmbH [1991] ECR I-1979��296 Case T-209/01 Honeywell v Commission [2005] ECR II-5527��548 Case C-199/92 P Hüls AG v Commission [1999] ECR I-4287��491 I Case T-36/91 Imperial Chemical Industries plc v Commission [1995] ECR II-1847��176 Case T-184/01 R IMS Health v Commission [2001] ECR II-3193��191 Case C-418/01 IMS Health GmbH & Co OHG v NDC Health GmbH & Co KG [2004] ECR I-5039��561 Case T-76/89 Independent Television Publications Ltd v Commission [1991] ECR II-575��114 Case C-231/14 P Innolux Corp v Commission, EU:C:2015:451��419 Case C-429/07 Inspecteur van de Belastingdienst v X BV [2009] ECR I-4833�� xxxv, 41, 255 Case C-583/11 P Inuit Tapiriit Kanatami and others v Parliament and Council, EU:C:2013:625��133 Joined Cases 6 and 7-73 Istituto Chemioterapico Italiano S.p.A. and Commercial Solvents Corporation v Commission [1974] ECR 223�� 67, 185 Case C-213/00 P Italcementi—Fabbriche Riunite Cemento v Commission, EU:C:2003:84��328 Case 41/83 Italy v Commission [1985] ECR 873��572 J Case 222/84 Marguerite Johnston v Chief Constable of the Royal Ulster Constabulary [1986] ECR 1651��571 K Case C-350/07 Kattner Stahlbau GmbH v Maschinenbau- und MetallBerufsgenossenschaft [2009] ECR I-1513��293 Case C-272/09 P KME Germany AG v Commission [2011] ECR I-12789�� 44, 576

xviii Table of Cases Case C-389/10 P KME Germany AG, KME France SAS and KME Italy SpA v Commission [2011] ECR I-13125��77 Case C-557/12 Kone AG and Others v ÖBB-Infrastruktur AG, EU:C:2014:1317��109 Case C-52/09 Konkurrensverket v TeliaSonera Sverige AB [2011] ECR I-527��262 Case C-367/05 Norma Kraaijenbrink [2007] ECR I-6619��362 Case C-288/05 P Jürgen Kretzinger [2007] ECR I-6441��362 Case T-223/00 Kyowa Hakko Kogyo Co Ltd v Commission [2003] ECR II-2553��379 L Case T-54/03 Lafarge SA v Commission [2008] ECR II-120*��176 Case T-7/93 Langnese Iglo GmbH v Commission [1995] II-1533�� 63, 161 Case C-279/95 P Langnese-Iglo v Commission [1998] ECR I-5609�� 114, 360 Joined Cases C-468 to 478/06 Lelos kai Sia EE v GlaxoSmithKline [2008] ECR I-7139��563 Case T-128/11 LG Display v Commission, EU:T:2014:88; appeal dismissed: Case C-227/14 P, EU:C:2015:258�� 330, 359 Joined Cases C‑238/99 P, C‑244/99 P, C‑245/99 P, C‑247/99 P, C‑250/99 P to C‑252/99 P and C‑254/99 P Limburgse Vinyl Maatschappij and Others v Commission [2002] ECR I‑8375�� 355, 575 M Case T-203/01 Manufacture française des pneumatiques Michelin v Commission [2003] ECR II-4071��507 Case C-62/00 Marks & Spencer plc v Commissioners of Customs & Excise [2002] ECR 6325��571 Case T-111/08 MasterCard, Inc and Others v Commission, EU:T:2012:260; appeals dismissed: Case C-382/12 P, EU:C:2014:2201��lxxii, 152, 330 Joined Cases C-295 to 298/04 Vincenzo Manfredi v Lloyd Adriatico Assicurazioni SpA [2006] ECR I-6619�� 108, 376 Case C-2/91 Wolf W Meng [1993] ECR I-5751��264 Case C-179/90 Merci Conventionali Porto di Genova SpA v Siderurgica Gabriella SpA [1991] ECR I-5889�� 296, 573 Case T-201/04 Microsoft Corp v Commission [2007] ECR II-3601�� 66, 152, 197, 561 Case C-567/07 Minister voor Wonen, Wijken en Integratie v Woningstichting Sint Servatius [2009] ECR I-9021��304 Case 395/87 Ministère Public v Jean-Louis Tournier [1989] ECR 2521��573 Case C-119/05 Ministero dell’Industria, del Commercio e dell’Artigianato v Lucchini SpA [2007] ECR I-6199��389 Case C-235/92 P Montecatini Spa v Commission [1999] ECR I-4539��354 Case C-49/07 Motosykletistiki Omospondia Ellados NPID (MOTOE) v Elliniko Dimosio [2008] ECR I-4863�� lii, 263, 290

Table of Cases xix N Case 322/81 Nederlandsche Banden Industrie Michelin v Commission [1983] ECR 3461�� 114, 558 O Case C-245/91 Ohra Schadeverzekeringen NV [1993] ECR I-5851�� liii Case T-402/13 Orange v Commission, EU:T:2014:991�� lvi, 360 Case C-7/97 Oscar Bronner GmbH v Mediaprint Zeitungs-und Zeitschriftenverlag GmbH [1998] ECR I-7791��572 P Case C-458/03 Parking Brixen GmbH v Gemeinde Brixen and Stadtwerke Brixen AG [2005] ECR I-8585��300 Case 294/82 Parti écologiste “Les Verts” v European Parliament [1986] ECR 1339��569 Case 267/86 Pascal Van Eycke v ASPA NV [1988] ECR 4769��lv Case 730/79 Philip Morris Holland BV v Commission [1980] ECR 2671��197 Case C-439/09 Pierre Fabre Dermo-Cosmétique SAS v Président de l’Autorité de la concurrence [2011] ECR I-9419�� 119, 573 Case 25-62 Plaumann & Co v Commission [1963] ECR 95��133 Case C-209/10 Post Danmark A/S v Konkurrencerådet, EU:C:2012:172�� 513, 573 Case T-353/94 R Postbank NV v Commission [1994] ECR II-1141��505 Case C-379/98 PreussenElektra AG v Schhleswag AG [2001] ECR I-2099��264 Case C-375/09 Prezes Urzędu Ochrony Konkurencji i Konsumentów v Tele2 Polska sp. z o.o., devenue Netia SA [2011] ECR I-3055�� 46, 330, 354, 386 Case C-68/12 Protimonopolný úrad Slovenskej republiky v Slovenská sporiteľňa as, EU:C:2013:71�� 6, 47 R Joined Cases C-241 P and 242/91 P Radio Telefís Éireann (RTE) and Independent Television Publications Ltd (ITP) v Commission (Magill) [1995] ECR I-743�� 185, 219, 561 Case C-163/96 Silvano Raso [1998] ECR I-533��297 Case 120/78 Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein [1979] ECR 649��570 Case 2/74 Jean Reyners v Belgium [1974] ECR 631��571 Case C-18/88 Régie des télégraphes et des téléphones v GB-Inno-BM SA [1991] ECR I-5941��296 Case T-342/07 Ryanair Holdings plc v Commission [2010] ECR II-3457�� 511, 546 S Case T-241/01 Scandinavian Airlines System v Commission [2005] ECR II-2917��576

xx Table of Cases C‑501/11 P Schindler Holding Ltd and Others v Commission, EU:C:2013:522�� 38, 499 Case T-310/01 Schneider Electric SA v Commission [2002] ECR II-4071�� 548, 572 Case C-573/07 Sea Srl v Comune di Ponte Nossa [2009] ECR I-8127��302 Case C-451/03 Servizi Ausiliari Dottori Commercialisti Srl v Giuseppe Calafiori [2006] ECR I-2941�� lii, 299 Case C-308/04 P SGL Carbon AG v Commission [2006] ECR I-5977�� 332, 356 Case C-328/05 P SGL Carbon AG v Commission [2007] ECR I-3921�� 332, 356, 575 Case C-289/04 P Showa Denko KK v Commission [2006] ECR I-5859��356 Case C-320/95 P Società Finanziaria Siderurgica Finsider v Commission [1994] ECR I-5697��575 Joined Cases T-68, 77 and 78/89 Società Italiana Vetro SpA, Fabricca Pisana SpA and Vernante Pennitalia v Commission [1992] ECR II-1403��572 Case T-30/91 Solvay SA v Commission [1995] ECR II-1775�� 176, 505 Case C-110/10 P Solvay SA v Commission [2011] ECR I-10439��505 Case C-345/89 Alfred Stoeckel [1991] ECR I-4047��571 Case T-241/97 Stork Amsterdam v Commission [2000] ECR II-309��360 Case C-53/03 Syfait and others v GlaxoSmithKline AEVE and GlaxoSmithKline plc [2005] ECR I-4609��563 T Case C-295/12 P Telefónica SA v Commission, EU:C:2013:619�� 152, 584 Case C-295/12 P Telefónica SA, Telefónica de España SAU v Commission, EU:C:2014:2062��584 Case T-5/02 Tetra Laval BV v Commission [2002] ECR II-4381��548 Case T-83/91 Tetra Pak International SA v Commission [1994] ECR II-755�� 115, 190 Joined Cases T-144, 147 to 150 and 154/07 ThyssenKrupp Liften Ascenseurs NV v Commission [2011] ECR II-5129��375 Case C-352/09 P ThyssenKrupp Nirosta v Commission [2011] ECR I-2359�� 39, 386 Case T-24/07 ThyssenKrupp Stainless AG v Commission [2009] ECR II-2309�� 355, 374 Case C-340/99 TNT Traco SpA v Poste Italiane SpA and Others [2001] ECR I-4109��303 Joined Cases T-236, 239, 244 to 246, 251 and 252/01 Tokai Carbon and Others v Commission [2004] ECR II-1181, upheld on appeal: Case C-328/05 P SGL Carbon v Commission [2007] ECR I-3921��575 Joined Cases T-71, 74, 87 and 91/03 Tokai Carbon and Others v Commission [2005] ECR II-10��575 Case C-301/04 P Tokai Carbon v Commission [2006] ECR I-5915�� 45, 361 Case T-155/06 Tomra Systems ASA and Others v Commission [2010] ECR II-4361; appeal dismissed: Case C-549/10 P, EU:C:2012:221�� 496, 566 Case C-145/88 Torfaen Borough Council v B&Q plc [1989] ECR 3851��571

Table of Cases xxi Case C-17/10 Toshiba Corporation v Úřad pro ochranu hospodářské soutěže, EU:C:2012:72�� 330, 354, 513 Case T-39/06 Transcatab SpA v Commission [2011] ECR II-6831��356 Case C-491/07 Vladimir Turanský [2008] ECR I-11039��369 U Case C-119/97 P Union française de l’express (Ufex), formerly Syndicat français de l’express international (SFEI), DHL International and Service CRIE v Commission [1999] ECR I-1341�� 187, 215 Case C-250/06 United Pan-Europe Communications Belgium SA and Others v Belgium [2007] ECR I-11135�� lii, 298 V Case C-436/04 Leopold Henri Van Esbroeck [2006] ECR I-2333��362 Case 26/62 NV Algemene Transport- en Expeditie Onderneming Van Gend en Loos v Netherlands Inland Revenue Administration [1963] ECR 3��569 Case C-150/05 Jean Leon Van Straaten v Staat der Nederlanden [2006] ECR I-9327�� lviii, 361 Case C-439/08 Vlaamse federatie van verenigingen van Brood- en Banketbakkers, Ijsbereiders en Chocoladebewerkers (VEBIC) VZW [2012] ECR I-12471�� xxxiv, 40, 109 Case 238/87 Volvo (UK) Ltd v Veng AB [1988] ECR 6211��561 W Case C-91/08 Wall AG v La ville de Francfort-sur-le-Main and Frankfurter Entsorgungs- und Service (FES) GmbH [2010] ECR I-2815��302 Case T-116/04 Wieland-Werke v Commission [2009] ECR II-1087��576 Case 14/68 Walt Wilhelm and others v Bundeskartellamt [1969] ECR 58�� lvi, 327 Case C-2/91 Wolf Meng [1993] ECR I-5751�� liii Z Case C‑212/08 Zeturf Ltd v Premier Ministre [2011] ECR I-5633��314 Case C-439/11 P Ziegler SA v Commission, EU:C:2013:513��580 2. Decisions of the European Commission Antitrust Commission Decision of 23 December 1993 in Case IV/32.745—Astra��65 Commission Decision of 13 July 1994 in Case IV/C/33.833—Cartonboard��188 Commission Decision of 10 April 2013 in Case AT.39727—CEZ�� 150, 215 Commission Decision of 16 July 2008 in Case COMP/C2/38.698—CISAC��181 Commission Decision of 13 March 2011 in Case COMP/39579— Consumer Detergents��328 Commission Decisions of 14 September 2007 in Case COMP/39.140—Daimler Chrysler��166

xxii Table of Cases Commission Decision of 22 February 2006 in Case COMP/B-2/38.381—De Beers��61 Commission Decision of 25 July 2001 in Case COMP/36.915—Deutsche Post AG (Deutsche Post II—Interception of cross-border mail)��198 Commission Decision of 11 October 2007 in Case COMP/37.966—Distrigaz��166 Commission Decision of 25 July 2013 in Case AT.39847—E-Books�� 163, 196 Commission Decision of 4 December 1991 in Case IV/33.157—Eco System/Peugeot��203 Commission Decision of 14 December 1985 in Case IV/30.698—ECS/AKZO��192 Commission Decision of 29 September 2010 in Case COMP/39.315—ENI��150 Commission Decision of 22 December 1987 in Cases IV/30.787 and 31.488—Eurofix-Bauco v Hilti��188 Commission Decision of 14 September 2007 in Case COMP/39.141—Fiat��166 Commission Decision of 3 December 2009 in Case COMP/39.316—Gaz de France��130 Commission Decision of 26 November 2008 in Case COMP 39.389—German Electricity Balancing Market�� 130, 220 Commission Decision of 26 November 2008 in Case COMP 39.388—German Electricity Wholesale Market�� 130, 220 Case AT.39740—Google [2013] OJ C120/22��163 Commission Decision of 2 December 1981 in Case IV/25.757—Hasselblad��200 Commission Decision of 13 May 2009 in Case COMP/37.990—Intel��147 Commission Decision of 21 December 2000 in Case COMP/35.918—JCB��200 Commission Decision of 10 May 2007 pursuant to Article 86(3) of the EC Treaty, on the special rights granted to La Banque Postale, Caisses d’Epargne and Crédit Mutuel for the distribution of the livret A and livret bleu, C(2007) 2110 final�� 266, 283 Commission Decision of 17 March 2010 in Case COMP/39.386—Long-term contracts France��174 Commission Decision of 19 December 2007 in Case COMP/34.579—MasterCard��154 Commission Decision of 20 June 2001 in Case COMP/36.041/PO—Michelin��66 Commission Decision of 31 May 2002 in Case COMP/36.041/PO—Michelin��199 Commission Decision of 28 March 2012 in Case COMP/39452— Mountings for windows and window-doors��80 Commission Decision of 16 December 2009 in Case COMP/39.530—Microsoft (tying)�� 163, 195

Table of Cases xxiii Commission Decision of 3 July 2001 in Case COMP/38.044—NDC Health/IMS Health: Interim Measures [2002] OJ L59/18, withdrawn by Commission Decision of 13 August 2003 in Case COMP/38.044—NDC Health/IMS Health: Interim Measures [2003] OJ L268/69��561 Commission Decision of 14 September 2007 in Case COMP/39.143—Opel��166 Commission Decision of 23 October 2001 in Case COMP/37133—La Poste��283 Commission Decision of 22 March 2006 in Case COMP/38.173—Premier League��163 Commission Decision of 9 December 2009 in Case COMP/38.636—Rambus�� 130, 163, 178 Commission Decision of 12 April 2006 in Case COMP/38.348— REPSOL CPP SA—Distribution de Carburants et Combustibles��149 Commission Decision of 18 March 2009 in Case COMP/39.402— RWE gas foreclosure�� 130, 150 Commission Decision of 27 April 2014 in Case AT.39939—Samsung— Enforcement of UMTS standard essential patents��130 Commission Decision of 18 June 2012 in Case COMP/39736— Siemens/Areva��153 Commission Decision of 7 October 2008 in Case COMP/39.562— Slovakian postal legislation relating to hybrid mail services�� 282, 314 Commission Decision of 15 November 2011 in Case COMP/39.592— Standard & Poor’s�� 130, 163 Commission Decision of 23 January 2013 in Case AT.39839— Telefónica/Portugal Telecom�� 147, 153 Commission Decision of 22 June 2011 in Case COMP/39.525— Telekomunikacja Polska�� 63, 147 Commission Decision of 24 July 1991 in Case IV/31043—Tetra Pak II��198 Commission Decision of 14 September 2007 in Case COMP/39.142—Toyota��166 Commission Decision of 19 October 1994 in Case IV/34.446— Trans-Atlantic Agreement��193 Commission Decision of 17 February 1992 in Cases IV/31.370 and 31.446—UK Agricultural Tractor Registration Exchange��188 Commission Decision of 5 June 1991 in Case IV/32.879—Viho/Toshiba [1991] OJ L287/39��561 Commission Decision of 26 February 2014 in Case AT.39398—VISA MIF��130 Commission Decision of 27 June 2012 in Case COMP/39611— Water Management Products��188 Mergers Commission Decision of 22 November 2012 in CASE COMP/M.6541— Glencore International plc/Xstrata plc��476

xxiv Table of Cases 3. Judgments of the European Court of Human Rights Case No 17862/91, Cantoni v France, 11 November 1996��391 Case No 5100/71, Engel v Netherlands, 8 June 1976�� 354, 577 Case No 10890/84, Groppera Radio AG and Others v Switzerland, 28 March 1990��391 Case No 70982/01, Horciag v Romania, 15 March 2005��370 Case No 73053/01, Jussila v Finland, 23 November 2006��578 Case No 43509/08, Menarini Diagnostics v Italy, 27 September 2011�� 44, 354, 499, 579 Case No 37591/97, Metzger v Germany, 31 May 2001��40 Case No 28034/04, Müller v Austria (No 2), 18 September 2008��370 Case No 70982/01, Niedermeier v Germany, 3 February 2009��370 Case No 50178/99, Nikitin v Russia, 20 July 2004��370 Case No 4837/06, Segame SA v France, 7 June 2012��581 Case No 75602/01, Sundqvist v Finland, 22 November 2005��370 Case No 29881/07, Sievert v Germany, 19 July 2012��371 Case No 47650/99, Silvester’s Horeca’s Service v Belgium, 4 March 2004��581 Case No 18139/91, Tolstoy Miloslavsky v United Kingdom, 13 July 1995��391 Case No 59493/00, Withey v United Kingdom, 26 August 2003��370 Case No 14939/03, Zolotukhin v Russia, 10 February 2009�� 331, 362 4. US cases (courts and the agencies) 3M v LePage’s Inc, 542 US 943 (2004)��244 American Express Co v Italian Colors Restaurant, 570 US ___ (2013)��251 American Medical Association v FTC, 638 F2d 443 (2d Cir 1980)��396 American Needle, Inc v National Football League, 560 US 183 (2010)�� 242, 245, 246 Andrx Pharmaceuticals, Inc v Kroger Co, 543 US 939 (2004)��244 Armstrong Surgical Center, Inc v Armstrong County Memorial Hosp, 530 US 1261 (2000)��244 Bell Atlantic Corp v Twombly, 550 US 544 (2007)��57, 93, 250 Brown v Pro-Football, Inc, 518 US 231 (1996)�� 226, 242 California Retail Liquor Dealers Ass’n v Midcal Aluminum, Inc, 445 US 97 (1980)�� 268, 310 Cascade Health Solutions v Peacehealth, 479 F3d 726 (2007)��247 Comcast Corp v Behrend, 569 US __ (2013)��532 Continental TV, Inc v GTE Sylvania Inc, 433 US 36 (1977)�� 101, 236, 272, 562 Copperweld Corp v Independence Tube Corp, 467 US 752 (1984)��246 Credit Suisse Securities (USA) LLC v Billing, 551 US 264 (2007)�� 58, 94 CSU, LLC v Xerox Corp, 531 US 1143 (2001)��244 Dee-K Enterprises, Inc, v Heveafil SDN BHD, 539 US 969 (2003)��244 Dell Computer Corp, 121 FTC 616 (1996)�� 57, 91 Eastman Kodak Co v Image Technical Servs, Inc, 504 US 451 (1992)�� 226, 242 Ferguson v Skrupa, 372 US 726 (1963)��311

Table of Cases xxv Ford Motor Co v United States, 405 US 562 (1972)��161 FTC v Actavis, Inc, 570 US 756 (2013)�� 242, 247, 249, 569 FTC v The Hearst Trust, No 1:01CV00734 (DDC 2001)�� 56, 87 FTC v H.J Heinz, 246 F3d 708 (DC Cir 2001)��403 FTC v Lundbeck Inc, 650 F3d 1236 (8th Cir 2011)�� 56, 90 FTC v Mylan Labs, Inc, 62 F Supp 2d 25 (DDC 1999)�� 55, 86 FTC v Perrigo Co, No 1:04CV01397 (RMC) (DDC 2006)��56, 90, 102 FTC v Phoebe Putney Health System, Inc, 568 US ___ (2013)�� 226, 245 FTC v Schering-Plough, Inc, 548 US 919 (2006)��244 Greater Boston Television Corp v FCC, 444 F2d 841 (DC Cir 1970)�� 268, 308 Hartford Fire Ins Co v California, 509 US 764 (1993)�� 226, 242 F Hoffman La Roche Ltd v Empagran SA, 542 US 155 (2004)�� 242, 247 Illinois Tool Works Inc v Independent Ink, Inc, 547 US 28 (2006)�� 242, 250 Jaffee v Redmond, 518 US 1 (1996)��240 Joblove v Barr Laboratories, Inc, 551 US 1144 (2007)��244 Leegin Creative Leather Products, Inc v PSKS, Inc, 551 US 877 (2007)�� 101, 226, 245, 250, 508 Lochner v New York, 198 US 45 (1905)�� liv, 317 McFarling v Monsanto Co, 552 US 1096 (2008)��244 Dr Miles Medical Co v John D. Park & Sons Co, 220 US 373 (1911)��101 Monsanto Co v Spray-Rite Serv Corp, 465 US 752 (1984)�� 226, 242 Motor Vehicle Mfrs Ass’n v State Farm Mut Auto Ins Co, 463 US 29 (1983)��322 Motorola Mobility LLC, No 121-0120, 2013 WL 124100 (FTC 3 January 2013)��92 Neonatology Associates, PA v Commissioner of Internal Revenue, 293 F3d 128 (3d Cir 2002)��239 Nynex Corp v Discon, Inc, 525 US 128 (1998)��250 Pacific Bell Telephone Co v linkLine, 555 US 438 (2009)�� 57, 93, 246, 250 Parker v Brown 317 US 341 (1943)�� 268, 310 Pikes Peak Broad Co v FCC, 422 F2d 671 (DC Cir 1969)�� 268, 308 Rambus, Inc, No 9302 (FTC 5 February 2007)�� 57, 91 Robert Bosch GmbH, No C-4377 (FTC, 21 November 2012)�� 57, 91 Ryan v Commodity Futures Trading Commission, 125 F3d 1062 (7th Cir 1997)��238 SEC v Chenery Corp, 318 US 80 (1943)��323 Southern Motor Carriers Rate Conf, Inc v US, 471 US 48 (1985)��312 Statoil ASA v Heeremac VOF, 534 US 1127 (2002)��244 Texaco Inc v Hasbrouck, 496 US 543 (1990)�� 226, 242 Texas Indus Inc v Radcliff Materials, Inc, 451 US 176 (1980)�� 226, 242 Union Oil Co of Cal, 140 FTC 123 (2005)�� 57, 91 United States v Arnold, Schwinn & Co, 388 US 365 (1967)��101 United States v Carolene Prods Co, 304 US 144 (1938)��311 United States v Grinnell Corp, 384 US 563 (1966)��85 United States v Microsoft, No 98 Civ 1232 (CKK), 2002 (DDC 12 November 2002)��139 United States v Virginia, 518 US 515 (1996)��318

xxvi Table of Cases Verizon Communications Inc v Law Offices of Curtis V Trinko, 540 US 398 (2004)�� 57, 93, 242, 250 Voices for Choices v Illinois Bell Telephone Co, 339 F3d 542 (7th Cir 2003)��238 Weyerhaeuser Co v Ross-Simmons Hardwood Lumber Co, 549 US 312 (2007)��250 5. Other national jurisdictions Australia TPC v TNT Australia Pty Ltd and Ors [1995] ATPR 41-375��17 France Conseil Constitutionnel—Decision No 2013-331 QPC, 5 July 2013�� 500, 580 Decision of the Conseil de la concurrence No 07-D-31—Citroën, 9 October 2007��166 Germany Case 1 BvR 2172/96 of 26 February 1997��45 BGH, judgment of 29 June 2012—2 C_484/2010—Publigroupe, Bundesgericht Entscheidungen (BGE) 139 I 72��390 OLG Düsseldorf, judgment of 17 December 2012—V-1 Kart 7/12 (Owi), Wirtschaft und Wettbewerb 2013, 749—Silostellgebühren II�� 334, 385 BVerfG, decision of 30 August 2013—2 BvR 2752/11, WuW/DE-R 4081—ThyssenKrupp Nirosta��389 Case 2 BvR 2752/11—ThyssenKrupp Nirosta, Order of 30 October 2013��39 BGH, decision of 10 August 2011—KRB 55/10, Wirtschaft und Wettbewerb 2012, 81—Versicherungsfusion�� 333, 384 Ireland Doherty v South Dublin County Council [2007] 1 IR 246��256 Fitzpatrick v FK [2007] 2 IR 406��257 HI v Minister for Justice Equality and Law Reform [2003] IR 197��256 O’Brien v Personal Injuries Assessment Board (No 1) [2005] 3 IR 328��257 United Kingdom Case No 1178/5/7/11, 2 Travel Group PLC (in liquidation) v Cardiff City Transport Services Limited [2012] CAT 19��526 Case No 1166/5/7/10, Albion Water Limited v Dŵr Cymru Cyfyngedig [2013] CAT 6��526

Table of Cases xxvii American Cyanamid v Ethicon [1975] 2 WLR 316��204 Case No 1098/5/7/08, BCL Old Co Limited & Ors v BASF SE & Ors��526 Co-operative Insurance Society Ltd v Argyll Stores Ltd [1998] AC 1��204 Case No 1173/5/7/10, Deutsche Bahn AG & Ors v Morgan Crucible Company PLC & Ors��526 Devenish Nutrition Ltd v Sanofi-Aventis SA (France) [2009] 3 All ER 27, [2008] EWCA Civ 1086��353 Emerald Supplies Limited & Anr v British Airways plc [2010] EWCA Civ 1284; on appeal from [2009] EWHC 741 (Ch)��530 Case No 1077/5/7/07, Emerson Electric Co & Ors v Morgan Crucible Company PLC��526 English Welsh & Scottish Railway Ltd v Enron Coal Services Ltd [2009] EWCA Civ 647��526 Enron Coal Services Ltd (in liquidation) v English Welsh & Scottish Railway Ltd [2011] EWCA Civ 2��525 Ladd v Marshall [1954] EWCA Civ 1��538 Case No 1107/4/10/08, Merger Action Group v Secretary of State for Business, Enterprise and Regulatory Reform��539 Case No 1147/5/7/09, Moy Park Limited & Ors v Evonik Degussa GmbH and Degussa Limited��526 Napp Pharmaceutical Holdings Ltd v Director General of Fair Trading (Napp No 3) [2001] Comp AR 33, [2002] ECC 3��354 Napp Pharmaceutical Holdings Ltd v Director General of Fair Trading (Napp No 4) [2002] ECC 13��354 Pernod Picard/Campbell Distillers [2004] CAT 10��135 Skyscanner Limited v CMA [2014] CAT 16��131 Case No 1201/5/7/12, Vion Food Group Limited & Ors v Tessenderlo Chemie NV. and Britphos Limited��526 Wanadoo UK Plc v Office of Communications [2004] CAT 20��132

xxviii

Effective and Legitimate Enforcement of Competition Law: An Overview

Mel Marquis* This volume presents contributions prepared for the 18th edition of the Annual EU Competition Law and Policy Workshop, held on 19–20 July 2013 at the European University Institute in Florence. On that occasion the Workshop focused on the closely connected themes of effective enforcement and legitimate enforcement of competition law in national, European and international settings. The subjects are intertwined in the sense that they are mutually dependent. If a competition authority is granted far-reaching enforcement powers in the name of the public interest and uses them aggressively, for example, but if those powers are not tempered by adequate due process constraints protecting undertakings, including but not limited to independent and demanding ex post scrutiny, these enforcement arrangements would hardly be legitimate—there is no ‘output’ legitimacy in this context if output is taken to be the only relevant criterion. The legitimacy of process is thus an essential complement.1 Indeed, if the quality of process is sacrificed to ensure effectiveness and output, then trust in the regime is apt to break

* Mel Marquis is Part-Time Professor of Law at the European University Institute in Florence and Co-Director of the EU Competition Law and Policy Workshop. He is the CUFE Chair Professor at the Chinese University of Finance and Economics in Beijing and Professore a contratto at LUMSA University in Rome. Many thanks are due to all the Workshop participants for their efforts and contributions to this volume. As always, thanks also go to Philip Lowe and Giorgio Monti for their valuable contributions in relation to the planning and organization of the discussions, and to Claus-Dieter Ehlermann for his continuous support of the program. Valuable assistance has also been provided by Gonçalo Miguel Banha Coelho, who helped with organizational details, and by Jotte Mulder, who kindly prepared first drafts of the transcriptions. Gracious secretarial support has been provided by Laurence Duranel and Annick Bulckaen. Finally: a very bon vent to Annick as she departs from the EUI for the well-earned benefits of retirement. 1 Schmidt has introduced the notion of ‘throughput’ legitimacy, although this requires a certain corruption of the term throughput. See Vivien Schmidt, Democracy and Legitimacy in the European Union Revisited: Input, Output and ‘Throughput’, 61 Political Studies 2, 5–9 (2013). Of course, ‘throughput’ legitimacy is not a new concept: it refers to mechanisms of, for instance, efficacious operations (as opposed to efficient output), accountability, openness/transparency, inclusiveness, and in general the quality of governance processes and of (‘constructive’) interactions among relevant actors. It is however a new, and perhaps dubious, nomenclature. A better umbrella term for this variety of elements would be process legitimacy.

xxx Introduction down; this in turn is likely to generate perverse consequences and raise the risk of long-term damage to the cause of enforcement.2 For example, any ‘compliance’ with decisions (leaving aside incentives to circumvent them or to comply with them in bad faith) would in those circumstances be involuntary, a decidedly unsatisfactory situation in a world where a voluntary, internalized compliance culture is badly needed. Furthermore, if ‘users’ of the system as well as the broader public lose confidence in the competition authority and its powers, there may be a distinct risk that the authority will be substantially emasculated, and that over-enforcement will be supplanted by its opposite. In short, the effectiveness of enforcement can only be assured if legitimacy is assured. On the other hand, applying a counterpart logic, if a regime fails to prevent and sanction anticompetitive conduct effectively—if it fails to protect the public interest due to design or execution flaws or due to flawed policies, decision-making or institutions—that regime will likewise have no claim to legitimacy. As the present initial chapter will discuss, the rest of this book addresses the themes of both effectiveness and legitimacy from a variety of perspectives and by reference to a diverse range of dimensions. Background. The EU Competition Law and Policy Workshop is an ongoing program that explores topical policy and enforcement issues in the area of competition law, economics and governance.3 Each year the Workshop brings together a group of top-level EU and international policy makers, judges, legal practitioners, economic experts and scholars to take part in intensive debates that explore specific competition-related issues in an informal and non-commercial environment. Our hope is to stimulate critical reflection on the part of both the Workshop participants and the broader public. Structure of this chapter. This introductory chapter briefly presents the various contributions provided by the authors that participated in the 2013 Workshop. It is divided into the following sections: (1) (2) (3) (4)

Effective enforcement of competition law; Legitimate enforcement of competition law; Effectiveness and legitimacy in international enforcement cooperation; Issues for courts and perspectives on the judicial role.

2 Discussing this and related themes, see, eg Tom Tyler, ‘The Psychology of Self-Regulation: Normative Motivations for Compliance’, in Christine Parker and Vibeke L ehmann Nielsen, eds., Explaining Compliance: Business Response to Regulation, Edward Elgar, 2011, chapter 4. On the links between the rule of law and accountability mechanisms where power has been delegated to independent agents, see also Imelda Maher, ‘Functional and Normative Delegation to Non-Majoritarian Institutions: The Case of the European Competition N etwork’, 7 Comparative European Politics 414, 419–410 (2009), with references. 3 In this series, published by Hart of Oxford (see http://www.hartpub.co.uk/Series Details.aspx?SeriesName=European+Competition+Law+Annual), we have discussed, to name only a few topics: regulation and public policies, the interaction of public and private enforcement, judicial review by the EU Courts, and cartel settlements and commitment decisions. The next volume will address the subject of institutional change as numerous competition authorities see their structure, missions and powers being transformed.

Introduction xxxi The remainder of this chapter discusses the written contributions of the authors, and the standard caveat applies: the remarks made are selective and cannot substitute for a reading of the chapters themselves. Furthermore, no attempt is made to synthesize the transcriptions of the oral debates. The reader is invited to consult those discussions, also included in this book, and to read the Conclusions of Philip Lowe, for a more complete picture of the proceedings.

PART 1: Effective Enforcement of Competition Law A. Effective sanctions and compliance Christine Parker, ‘Effective and Legitimate Enforcement of Competition Law: A Riddle Wrapped in a Mystery Inside an Enigma?’ Parker begins her chapter with the observation that a competition agency bears the quasi-Sisyphean burden of having to face at least one new challenge for every challenge overcome. As she says, the enforcement strategies that must be employed to escape what she calls the ‘deterrence trap’ lure the agency into a ‘compliance trap’, which also implies a ‘legitimacy trap’. In describing this cascading process, Parker draws on previous empirical research focused on the Australian enforcement experience. The above-mentioned traps are explained as follows. A deterrence trap occurs when, in order to be truly deterrent, fines would actually have to be fixed at a level that exceeds an infringer’s ability to pay.4 The argument would also apply where the penalty constraint is imposed not by inability to pay but by a statutory cap, which may only approximate inability to pay or proportionality in a very imperfect way. To the extent this dilemma occurs, it throws serious doubt on systems such as that of the EU which are heavily dependent on the effectiveness of corporate fines.5 As Parker points out, however, some of the concerns associated with the deterrence trap may be mitigated or addressed by the reputational effects of condemnation and by—where applicable— individual responsibility. And of course, insofar as an agency can succeed in enhancing the compliance ethos of the business community, the need to rely

4 This proposition rests on a variety of factual predicates and should not be taken as universally assured. 5 Parker’s deterrence trap is one among several possible weaknesses of a system that relies heavily or exclusively on corporate fines. For a survey of issues, see Damien G eradin, Christos Malamataris and John Wileur, ‘The EU Competition Law Fining System’, in Ioannis Lianos and Damien Geradin, eds., Handbook on European Competition Law: Enforcement and Procedure, Edward Elgar, 2013, chapter 6.

xxxii Introduction on imperfect deterrence mechanisms recedes.6 However, as Australia’s ACCC (and its pre-1995 predecessor, the Trade Practices Commission) found ways to make compliance a pillar of its enforcement policy (including by means of including mandatory compliance terms such as corporate training and audits) to make up for an overly soft penalty regime, the agency found itself caught in a compliance trap. The essence of this problem seems to be that the acceptance of compliance conditions and mandated systems does not guarantee that a company will internalize a compliance ethic—that its compliance efforts will be motivated by a desire to be a good corporate citizen, and not by a hedonistic instinct to avoid pain and stigma. It seems that the agency may in fact be capable of contributing to this inauthentic form of compliance if it fails to respect the limits of its own powers—that is, if it becomes a bully. If the perception takes hold that compliance is being extracted in this way, one might expect the business community to activate hostile political powers, triggering a political crisis for the agency that could have long-term adverse consequences for its effectiveness. While Parker lays out the links from deterrence policy to compliance policy to the political problem, it may be added that the risk of an agency’s wings being clipped by politicians defending industrial interests may arise even without the second link in the chain: it has not been uncommon to see, in the age of the great cartel crusade, attempts to curtail the powers or resources of agencies in direct reaction to their aggressive use. Competition agencies in this regard resemble other organs operating in the complex environment of public policy and politics. As Parker explains, the strategy of the ACCC in response to the compliance trap was to advocate the criminalization of cartel conduct, which did in fact lead to the introduction in Australia of criminal penalties. But as many jurisdictions have discovered, the adoption of criminal laws does not of itself transform shared norms, values and practices. The roots of resistance may be deep, which can lead to the uncomfortable situation where an institution of doubtful legitimacy is enforcing laws of doubtful legitimacy. This is the legitimacy trap, and manifestations of it are drawn from interviews conducted by Parker and her fellow researchers. Again, the legitimacy trap is presented in terms of the Australian experience yet it would also be relevant in contexts where there is no criminal regime strictly speaking but where acceptance of the enforcement system is lacking, for example because (as alluded to at the beginning of this chapter) severe sanctions are unbalanced by procedural fairness and accountability. Such a legitimacy problem seems particularly corrosive for both the goal of deterrence and the ultimate goal of compliance. Indeed, as Parker explains, the legitimacy trap amplifies the other traps described above. Overall, the model is helpful in that it highlights what have 6 It is difficult to share the conviction of some agencies that the best means to ensure effective compliance is to rely predominantly on firm deterrence mechanisms such as, specifically, a leniency program and high fines.

Introduction xxxiii been called in a different context ‘equilibrating tendencies’, and it shows how a wide range of stakeholders, including the social structure itself, participate, in varying ways, in the design, execution and dissemination of competition enforcement. On the other hand, it will also be important to evaluate these processes applying a significant time dimension so that it can be gauged, for example, whether the traditional tendency—to view price fixing as the province of regulation and technocracy and not of criminal law—is capable of evolving.7 If so, and if the risks to legitimacy are managed in the meantime, then the triple trap model will be a valuable admonition but it will not seal the fate of aggressive enforcers if they employ a judicious policy mix in which infringements are prosecuted firmly and deterrence plays a part but voluntary compliance is incentivized to the point where the need for prosecution is minimized. Konrad Ost, ‘From Regulation 1 to Regulation 2: Enforcement of EU law by National Sanctioning Regimes and the Need for Further Convergence’. The chapter provided by Ost, as summarized in its title, suggests that competition enforcement in the EU is ready to build on the foundations introduced by Regulation 1/2003, and indeed that this is becoming a pressing need.8 In particular, Ost advocates a strengthening of the powers of NCAs since they are sometimes hamstrung by the peculiarities of national law, including

7 Andreas Stephan has considered how attitudes in the UK have changed or remained constant since 2007. (He also considers current attitudes in Germany, Italy and the United States, but diachronic analysis with regard to the UK is made possible by his earlier survey, where the UK was the focus.) On the one hand, price fixing continues to be perceived by most respondents as less serious than other corporate wrongdoing such as fraud, tax evasion or insider trading (although a significant part of the sample responded otherwise). However, public support for sending price fixers to prison has grown significantly (11% of respondents in favor in 2007; 27% in favor in 2014), a finding which Stephan thinks might be explained by the global financial crisis and the corporate misconduct that likely exacerbated it. It is easy to accept that corporate scandals have not endeared corporate executives to the public but there may be more general processes of evolving attitudes at play, as the UK public over time assimilates messages (such as: price fixing is repugnant) transmitted by public policy actors and various media. While core societal beliefs tend to be very resistant to change, norms and attitudes are more malleable and may change depending on a variety of shifting conditions. On the latter point, see Jingyuan Ma and Mel Marquis, ‘Business Culture in East Asia and Implications for Competition Law’, forthcoming in 51 Texas International Law Journal ___ (2016). 8 The recognition of need for broad legislative action at the level of the EU is growing. For example, see ‘Editorial comments’, 52 Common Market Law Review 1191, 1195 (2015). The editorial points out that legislative action would also provide an opportunity to overcome fragmented enforcement (in light of the Commission’s limited resources) by means of attributing to each NCA the power to sanction undertakings for effects beyond the national borders of the NCA concerned. See ibid, 1198. No hint of such a move emerges from the pending consultation launched on 4 November 2015 by the European Commission aimed at enhancing NCA powers and independence. (For information, see http://ec.europa. eu/competition/consultations/2015_effective_enforcers/index_en.html.) For an early reaction to the consultation process, see Giovanni Pitruzzella, ‘The Public Consultation on Regulation 1/2003: A Stronger Institutional Infrastructure for Fostering the EU Common Competition Culture’, 7 Journal of European Competition Law and Practice 1 (2016).

xxxiv Introduction national constitutional law as interpreted by national courts. The case study presented in this regard is German competition law enforcement, for which primary responsibility resides with the Bundeskartellamt. As Ost points out, the German enforcement framework has been defined largely by Regulation 1/2003 and by, in particular, the 2005 amendment to the German competition law, the GWB. Within this framework, it has become increasingly apparent that German enforcement is not as effective as it could be.9 Indeed, Ost refers to a number of ‘huge challenges’ to the integrity of enforcement at the national level. The first problem, briefly, concerns the increased number, duration and administrative burden of cases, which have stretched the BKA’s capacities. A second problem, with a more specifically legal dimension, arises from tensions between, on the one hand, the EU concept of an ‘undertaking’, which permits the Commission to sanction single economic entities as a whole and thus generally to ‘score’ higher fines while also holding parent companies jointly and severally liable; and on the other hand, the more restricted sanctioning powers of the BKA under German law. German administrative penal law recognizes a thick corporate veil, and the actions of a representative of one legal person generally cannot be attributed to another one. Strictly speaking this is true even if, for example, the latter entity exercises decisive influence over the former, although the BKA has partially maneuvered around this impediment by applying a theory of supervisory duty (as distinct from liability for breach of competition law), which is allowed under German law. Of course, where Article 101 is applied there can be no derogation from the EU definition of an undertaking, but from a German law perspective that definition is a matter of substantive law, whereas the sanctions that may be imposed by the BKA are regarded as belonging to national procedural law.10 One may add that under EU law such a national law would have to be disapplied if it were such as to compromise the effectiveness of EU law. The VEBIC judgment of the ECJ appears to be at least indirectly relevant in this respect,11 as does the case law linking the effectiveness of penalties at national

9 Some of the themes discussed by Ost are also raised in the chapter by Wolfgang irchhoff. Like Ost (and others—see the editorial above n 8), Judge Kirchhoff considers K further harmonization of rules such as those on sanctions (especially as regards legal succession) to be justified and necessary (see below). 10 If the ECJ were to hold that parental liability flowing from the single economic entity doctrine is to be considered substantively as part of the concept of an undertaking, it would be immaterial that the issue may traditionally have been conceived of at the national level as a rule of enforcement or procedure, and not of substance. The primacy of EU law—which includes primacy of the interpretations given to EU law by the Court—would be decisive. 11 Case C-439/08 Vlaamse federatie van verenigingen van Brood- en Banketbakkers, Ijsbereiders en Chocoladebewerkers (VEBIC) VZW [2012] ECR I-12471 (where the facts concerned the anomalous inability of the Belgian competition authority to effectively defend its own decisions in appellate proceedings).

Introduction xxxv level to the coherent application of the EU competition rules.12 Nevertheless, greater clarity with regard to the apparent clash of legal perspectives would be helpful. Ost also points to the traditionally conservative German approach to successor liability, which left open multiple paths to impunity for creative wrongdoers. This problem has been addressed in some respects by the 2013 amendment of the GWB, but certain loopholes remain, such as where an infringer’s assets are transferred to another entity, leaving a shell company behind.13 Still another idiosyncrasy relates to the application of the 10 per cent fining cap provided for in the GWB. Here the problem stems from the way the application of this cap is understood by the German Federal Court of Justice (Bundesgerichtshof), in particular because it diverges from the way the 10 per cent cap contained in Article 23 of Regulation 1/2003 is understood and applied at the level of the EU. According to the Bundesgerichtshof, the 10 per cent figure cannot be treated as a cap but rather must be construed as the top end of a range, this top end being reserved for the most egregious violations. To any who might propose that weaknesses in the German fining system could be overcome if criminal sanctions (strict sensu) were introduced, arguments are provided in opposition to such a move (section IV.3), not least because in Germany it would imply even longer, more cumbersome and more complex procedures. All of this leads Ost to call for action, including action at the level of the EU, to achieve greater harmonization of national procedures and sanctions. Such action is also made necessary, he says, by the fact that, if an investigation is reallocated within the ECN, the sanctions and procedures that apply to an undertaking may differ considerably and yet the undertaking has no right to challenge the reallocation. It is also apparent that Ost would favor harmonization in the form of a regulation as opposed to a directive, as a regulation could presumably establish greater clarity of obligations. National courts in this case would apply the regulation directly, and would not be applying, in the first instance, transposed laws of national character, which draw naturally on national concepts.

12 In the context of tax deductibility proceedings, see Case C-429/07 Inspecteur van de Belastingdienst v X BV [2009] ECR I-4833, paras 36–37 (‘To dissociate the principle of prohibition of anti‑competitive practices from the penalties provided for where that principle has not been observed would therefore deprive of any effectiveness the action taken by the authorities responsible for monitoring compliance with that prohibition and punishing such practices. Thus, the provisions of Articles 81 EC and 82 EC would be ineffective if they were not accompanied by enforcement measures provided for in Article 83(2)(a) EC. As the Advocate General stated at point 38 of his Opinion, there is an intrinsic link between the fines and the application of Articles 81 and 82 EC. The effectiveness of the penalties imposed by the national or Community competition authorities on the basis of Article 83(2)(a) EC is therefore a condition for the coherent application of Articles 81 EC and 82 EC.’ (emphasis added)). 13 Ost expects that ultimately the fate of the German rules on succession may be decided in the context of a preliminary reference to the ECJ.

xxxvi Introduction The European Commission has been exploring procedural and institutional issues and suggesting there is some scope for action.14 However, it is not clear that the Commission is being sufficiently bold in this regard.

B. Effective remedies Joshua Wright, ‘The Federal Trade Commission and Monetary Remedies’. The background and impetus for this chapter relate to the ambiguity of the FTC’s official position on the conditions in which it is appropriate to seek the equitable remedy of disgorgement in competition cases. The FTC had adopted a Policy Statement in 2003 providing guidance in this respect. According to that document, the FTC was to consider three criteria when deciding whether to pursue disgorgement, namely: whether the case involved a clear violation of the law; whether there was a reasonable basis for calculating the amount to be disgorged; and whether remedies in separate litigation brought against the defendant are likely to fail to fulfill the aims of the antitrust laws. However, in 2012, before Wright became an FTC Commissioner, and notwithstanding the dissent of Commissioner Ohlhausen, the FTC withdrew the Statement. The majority of Commissioners found the announced criteria to be too limiting and insufficiently robust. They also felt that the Statement had made the FTC too hesitant to seek disgorgement, and they intimated that the more rigorous constraints the Supreme Court had imposed on private plaintiffs in recent years justified more aggressive pursuit of this type of remedy. In this chapter, Wright files his own informal dissent against the FTC’s decision to retract the said Statement. In sections 4 and 5 he refutes the grounds given by the FTC, arguing, inter alia, that the available theory and evidence do not support the FTC’s assumptions that private suits have become difficult to win, and that the state of US law results in under-deterrence of anticompetitive conduct. If the Supreme Court has adopted anti-plaintiff decisions, Wright says, those decisions are ‘motivated by economic learning and an acceptance of the error-cost approach to designing liability rules in antitrust and not out of a concern related specifically to private antitrust suits’.15 Turning to the circumstances in which Wright considers disgorgement might be appropriate, he points to the following. First, he suggests that disgorgement should only be sought in hard core cartel cases or where a monopolist’s 14 As of this writing the Commission’s public consultation in this regard is still pending (see above n 8). See also Commission Staff Working Document, Enhancing competition enforcement by the Member States’ competition authorities: institutional and procedural issues (9 July 2014), SWD(2014) 231/2, http://ec.europa.eu/competition/antitrust/ legislation/swd_2014_231_en.pdf. The accompanying press release is at http://europa.eu/ rapid/press-release_IP-14-800_en.htm. 15 Page 101.

Introduction xxxvii restrictive conduct has no plausible efficiency justification. Vertical restraints cases, for example, would thus be excluded.16 He also cautiously embraces the criteria that were established by the FTC in the Statement. Above all, he thinks it is necessary to provide the business community with guidance on when the FTC might pursue disgorgement, without which there may be a risk that efficient activity will be deterred. Not long ago, Commissioner Ohlhausen and then-Commissioner Wright dissented formally from the FTC’s proposed consent order whereby, in addition to injunctive relief, Cardinal Health agreed to disgorge about 27 million dollars of ‘ill-gotten gains’ derived from the monopolized sale and distribution of low-energy radiopharmaceuticals in various metropolitan areas across the United States.17 In rather vague terms, the majority of Commissioners offered the following statement as regards its policy on disgorgement: ‘As always, the Commission will continue to exercise responsibly its prosecutorial discretion in determining which cases are appropriate for disgorgement. We regard disgorgement as one of many remedial tools at our disposal in competition cases, and will employ it judiciously to protect consumers and promote competition.’18 Ioannis Lianos, ‘The Principle of Effectiveness, Competition Law Remedies and the Limits of Adjudication’. This chapter explores the relationship between the principle of effectiveness, the use of remedies and the issue of the (il)legitimate exercise of public authority. It also offers normative views, from the point of view of legitimacy, as to how broadly the arena of adjudication should be understood, since the radius of interests directly and indirectly affected by a dispute can extend far beyond the interests of the ‘parties’. 16 See also Dissenting Statement of Commissioner Wright in Cardinal Health, Inc, File No. 101-0006 (17 April 2015), https://www.ftc.gov/system/files/documents/public_stateme nts/637771/150420cardinalhealthwright.pdf, page 3 (‘I would support a limitation on the Commission’s ability to pursue disgorgement only against naked price fixing agreements among competitors or, in the case of single-firm conduct, only if the monopolist’s conduct violates the Sherman Act and has no plausible efficiency justification. This latter category would include a monopolist’s fraudulent or deceptive conduct, or tortious activity such as burning down a competitor’s plant if such conduct violates the Sherman Act. I would also provisionally support disgorgement in a case if there were evidence demonstrating that a particular category of conduct shown to harm consumers was not adequately deterred through private suits and public enforcement actions seeking injunctive relief. This case does not belong in that category. Declining to pursue disgorgement in most cases involving vertical restraints has the virtue of taking the remedy off the table—and thus reducing the risk of over-deterrence—in the cases that present the most difficulty in distinguishing between anticompetitive conduct that harms consumers and procompetitive conduct that benefits them […].’). 17 See Statement of the FTC in the matter of Cardinal Health Inc, FTC File No. 1010006 (17 April 2005), https://www.ftc.gov/system/files/documents/public_statements/63 7781/150420cardinalhealthcommstmt.pdf. For other recent disgorgement cases, see FTC v AbbVie, Inc, No. 2:14-cv-05151-HB (E.D. Pa., filed 8 September 2014); Brief for FTC in Opposition to Cephalon’s Motion to Dismiss for Lack of Subject Matter Jurisdiction, FTC v Cephalon, Inc, No. 2:08-cv-2141 (E.D. Pa., filed 18 November 2013). 18 Ibid, page 6.

xxxviii Introduction The concept of the chapter is described in its introduction. A starting point is the fact that remedies tend to involve a certain degree of discretion on the part of the decision-maker; they may be molded according to particular circumstances, and thus remedy types are not necessarily prefabricated. This may open the door to risks associated with ‘discretionary remedialism’.19 Naturally, discretionary remedialism may find some justification on the basis of the principle of effective application of the law,20 yet it is equally obvious that this discretion cannot be unbounded. Some of the limits to which it is subject arise from the imperatives of fundamental rights protection, from other general principles of (EU) law, and from the correlativity of private law disputes (that is, the correlativity between the rights and duties of litigants).21 In the present contribution Lianos discusses a further limit: the legitimacy of the authority deciding on the remedy, given that some types of remedial intervention would stretch beyond the boundary of legitimate public action. As intended in this chapter, legitimacy refers to legitimacy-building mechanisms which guarantee that an undertaking will consider the remedies imposed upon it to be politically acceptable even if, presumably, it would prefer to do without them. Those mechanisms of legitimacy may differ depending on which form of social ordering is in play. It is suggested that, if the exercise of authority is such that the public agency’s functions ‘trespass’ upon those of another type of social ordering, then in order to avoid serious legitimacy problems the agency should submit to the legitimacy-building tools that govern that other sphere. The type of social ordering to which the imposition of remedies (and thus remedial discretion) belongs is (structural) ‘adjudication’,22 as opposed 19 Such risks may be particularly acute in the context of Article 9 commitment procedures, where the Commission enjoys significant discretion in a number of respects. (National practice sometimes appears quite different, as NCAs may in some cases be subject to firmer constraints; Lianos provides examples including, as noted below in the main text, the interesting Skyscanner case in the UK.) See for example pages 132–134. Similar concerns have been expressed by many, although the Commission’s procedure has also been defended by observers arguing that criticisms have been overstated. Among the body of literature on the subject, see Claus-Dieter Ehlermann and Mel Marquis, eds, European Competition Law Annual 2008: Antitrust Settlements under EC Competition Law, Hart Publishing, 2010; and see also Damien Gerard’s contribution to this volume (summarized below). 20 The term ‘principle of effectiveness’ may also evoke the notion of ‘optimal enforcement theory’. The latter theory, assuming for the sake of discussion that a consensus as to its meaning exists, may inform a normative understanding of the principle of effectiveness, and when the effectiveness principle is vindicated this may at the same time advance the interests embraced by that theory. But this would merely be an overlap since, by definition, they are distinct. The principle of effectiveness, in particular, is a multifaceted and potent legal concept. See, eg the remarks of Lianos at pages 108–112. 21 See page 117. 22 As noted below in the main text, Lianos later distinguishes ‘structural’ adjudication from the more classical ‘dispute resolution’ adjudication. (The words ‘limits of adjudication’ in the chapter title are a reference to this classical model.) The fact that the structural adjudication model in some ways resembles the managerial/administrative (regulatory) model leads Lianos to consider it suitable for resolving matters affecting a wide range of interests. See pages 123–124.

Introduction xxxix to contracting/bargaining, managerial/administrative discretion or legislation. Lianos mentions the example of managerial/administrative discretion, where an important legitimacy-building mechanism is the participation of affected interests in the remedial process. This type of discretion may often be seen in the sphere of economic regulation, and it is thus relevant here. The concern described above with regard to participation in the remedial process points to one of the chapter’s recurring issues: whether and the extent to which it is necessary to enhance participatory rights and to broaden the circle of those involved in the remedial process to include a community of diverse affected interests. To illuminate the implications of this community of diverse interests, Lianos revisits the web-like ‘polycentric’ dimension of disputes, as elaborated in the 1970s by Lon Fuller and as developed and glossed by later scholars. Polycentricity and the problems it raises for the standard process of adjudication—including the legitimacy problem where competition law remedies ‘trespass’ into areas traditionally inhabited by regulation—are discussed in section 3 of the chapter. It is observed in this context that competition law has features that accentuate the polycentric nature of disputes. For example, if a dominant firm and a rival engage in competition law litigation, other competitors as well as upstream suppliers and intermediate and final consumers may all be affected. Indeed, the outcome of the dispute may have repercussions in sectors and industries well beyond the relevant market. Lianos puts forward two sets of examples: (i) the Microsoft and Google cases, given their impact on innovation and competition in the global IT sector; and (ii) network industry cases, such as energy, telecoms or transport, which again tend to have far-reaching effects across sectors. At this point, Lianos explains that the adjudication model encompasses two sub-types. One of these, the ‘dispute resolution’ adjudication model, refers to a dispute that essentially concerns the arguments and evidence of the litigants themselves. But of more relevance for this discussion is the ‘structural’ adjudication model. The latter model allows for a broader spectrum of interests and affected persons, some of whom may be heard by the decision-maker—as in the case of amicus representations. And where the diversity of interests is prominent, it may in fact become increasingly difficult to distinguish this model from the regulatory model. In this light, Lianos describes the potential legitimacy problem as follows: Put simply, the more EU competition law moves towards the regulatory/managerial model, and ‘structural’ adjudication comes close to that, the more it should integrate the legitimacy-building mechanisms of that model, with the enhanced participation of the entities subject to the remedies as well as of all those whose interests may be affected (ie consumers, competitors in related markets and interests vicariously represented by organizations and citizen’s groups, [such as] environmental associations).23 Page 124.

23

xl Introduction Section 4 of the chapter extends the problems of discretion and of its limits from a legitimacy perspective to the use of the commitment procedure under Article 9 of Regulation 1/2003.24 The background to this discussion is the occasional characterization of this procedure by commentators and by the ECJ itself as exemplifying a ‘consensual’ (or ‘contract law’) model. The position taken here is that the more proper classification is the structural adjudication model, which in some ways blurs with the regulatory (managerial/ administrative) model, and which in normative terms requires a distinctive set of participation-oriented constraints. As Lianos contends in detail, the fact that the latter constraints are not embedded in the EU law on commitments (at least not to an adequate degree) may make Article 9 procedures almost irresistibly attractive in non-cartel cases from the Commission’s point of view. Whereas Article 7 procedures entail significant constraints,25 in an Article 9 case the Commission may be in a position to ‘use its bargaining power in order to achieve remedies that would not only attempt to reverse the situation to the status quo ante but would also aim to establish a new, allegedly more competitive, equilibrium […]’.26 This desired equilibrium may also involve the pursuit of wide liberalization and regulatory objectives, and the theory of harm in such cases may not be evidently solid enough to sustain an Article 7 claim of infringement. Lianos adds to this by criticizing the supposed dichotomy between a public law paradigm under Article 7 and the above-mentioned ‘contract law’ paradigm under Article 9. Clearly rejecting the proposition that the Article 9 procedure is consensual, he refers to the ‘psychological pressure’ imposed by the shadow of Article 7, which ‘enables the Commission to extract disproportionate remedies’ under Article 9.27 Since, for these reasons, 24 For further extended analysis of the Article 9 commitments procedure, see the contribution by Damien Gerard (summarized below). Several features of the commitment procedure noted by Lianos and mentioned in the paragraph corresponding to this footnote are also discussed critically by Gerard, above all in section 2 of his chapter. 25 See the contribution by Giorgio Monti (summarized below). 26 Page 128. Concerning the subject of the Commission’s superior bargaining power as well as the potential for its abuse and the consequences for substantive outcomes—on which views are not universal—see also the remarks made below in reference to the chapter by Damien Gerard. 27 Page 129. Such remedies must legally conform to the principle of proportionality— but it is the more diluted form of that principle as established in Alrosa. This is merely, as Lianos notes, a type of rationality test. However, the Commission deserves credit for holding itself to a standard somewhat higher than the one adopted by the ECJ. In the Commission’s Notice on best practices for the conduct of proceedings concerning Article 101 and 102 TFEU, [2011] OJ C308/6, para 115, the Commission states: ‘In light of the principle of proportionality, the Commission must verify that the commitments address the identified competition concerns and that the commitments offered do not manifestly go beyond what is necessary to address these concerns. When carrying out that assessment, the Commission will take into consideration the interests of third parties. However, it is not obliged to compare such voluntary commitments with measures it could impose under Article 7 of Regulation (EC) No 1/2003 and to regard as disproportionate any commitments which go beyond such measures.’ (emphasis added; citation omitted) The latter statement would be enforceable against the Commission in an action for annulment before the General Court on the basis of the principle of legitimate expectations.

Introduction xli Article 9 cases become a means of addressing issues—not necessarily confined to competition—which have wide implications for a variety of interests, they epitomize the notion of polycentric procedures. And again, they fit the model of structural adjudication.28 Yet interested third parties, including complainants, do not have extensive participatory rights in Article 9 cases. For Lianos, this constitutes a major weakness that needs to be addressed through procedural reform. He punctuates his argument with a discussion of the stricter standard to which the then-OFT was held by the UK Competition Appeal Tribunal in the Skyscanner case. Damien Gerard, ‘Negotiated Remedies in the Modernization Era: The Limits of Effectiveness’. A summary of this chapter may be prefaced by a word as to the meaning of the ambiguous term ‘effectiveness’, which appears in Gerard’s title. The intuitive meaning is arguably the successful vindication of the public interest in the enforcement of competition law, even if it is true that the content of the term ‘public interest’ in a given jurisdiction is typically contested. Gerard’s chapter, however, is based on an understanding of effectiveness rooted in the more subjective calculations of the competition law enforcer, which will have an interest in maximizing its own administrative resources when it can do so.29 The subjective and dynamic interests of a public authority thus do not ipso facto equate to the interests of the public. A possible example relates to fines: subjectively, a competition enforcer might derive great utility from the successful imposition of a massive financial penalty; yet it is not clear, and for the sake of discussion let us say it is far from clear, that aggressive fining policies have succeeded as an instrument of effectiveness from a public interest perspective. Another example is provided by a source cited in Gerard’s chapter, according to which an agency might select a case not in order to fulfill its public mission to the fullest extent (the source assumes this mission to be securing benefits for consumers), but because the agency expects the case will be relatively easy to settle.30 It is by no means unusual to regard the enforcer as a self-interested actor subject to legal and institutional constraints that limit (or fail to limit) bureaucratic drift,31 but it is perhaps helpful to emphasize the point because the use of terminology will be immediately understood, and because the manner in which ‘effectiveness’ is understood has implications for the way its relationship with legitimacy is conceptualized and evaluated.

Page 131. In section 2.1.2 of the chapter, Gerard also refers to a separate concept, the ‘substantive effectiveness’ of antitrust principles. 30 See page 143, footnote 20 (citing Ginsburg and Wright). Gerard proceeds, at page 145, to draw a distinction between effectiveness (again, from the perspective of the enforcer) and efficiency (welfare maximization). It appears from that discussion that the achievement of efficiency through enforcement constitutes, in Gerard’s view, the mission of the European Commission. 31 There is no shortage of literature on this, within and beyond the legal field. 28 29

xlii Introduction That being said, aside from the ‘limits of effectiveness’, the title also refers to ‘negotiated remedies’, by which Gerard means remedies in the form of commitments made binding, whether at EU or national level. This remedial tool is of a piece with leniency and cartel settlements, which in turn exemplify procedural modernization, one of the three sisters of the ‘legal and cultural revolution’, along with institutional and substantive modernization. The focus on commitments in this chapter is thus shared in common with the chapter by Lianos (see above). While Gerard ostensibly may seem to take a different view inasmuch as he stresses a paradigm of negotiation while Lianos rejects the consensual/contractual nature of commitments, both authors agree that: the implied threat of an infringement procedure makes the ‘voluntary’ nature of commitments suspect or illusory;32 and that the abundant use of commitments in non-cartel cases implies the expansive and to a large extent unchecked discretion of the European Commission. Gerard’s chapter is rich in detail and argumentation; this short tour will unavoidably be incomplete. As an initial matter, readers interested in the incentives driving both the authority and the undertakings concerned to engage in ‘negotiated solutions’ will want to pay particular attention to section 1.1.2, where numerous factors affecting those incentives are highlighted. To select just one example, a linkage with substantive modernization is discussed since, on the side of the enforcer, the additional costs and complexity of an infringement procedure that arise from the turn to an ‘effects-based’ approach can be substantial. In this sense, the advantages created by procedural modernization allow it ironically to cannibalize the potential gains (ie, potentially more efficient outcomes) that substantive modernization was intended to capture. In section 1.2, Gerard expresses concern with regard to the fact that commitment procedures focus on designing remedies rather than on establishing an infringement. In that setting, the theory of harm emerges from the mutual discussion of possible remedies and from the possible influence of third parties who are ‘rarely motivated by purely benevolent interests’.33 To that extent, the theory of harm may be biased, and—as already discussed—the applicable principle of proportionality under the relevant case law is a loose one that

32 As far as Gerard is concerned see, in particular, pages 157–158. Monti takes a different view and suggests that the leverage the Commission wields based on the constant possibility that it might withdraw from the commitment procedure under Article 9 and revert to the standard Article 7 infringement procedure is more apparent than real. As Monti notes, the Commission’s Notice on best practices (above n 27) indicates the Commission’s willingness to re-submit commitments if the market test is negative, thus keeping its Article 7 powder dry pending further efforts to resolve the case under Article 9. See Giorgio Monti, ‘Alrosa and Commitment Decisions in Perspective’, in Barry Hawk, ed, International Antitrust Law and Policy: Fordham Competition Law 2014, Juris Publishing, 2015, chapter 17. 33 Page 156.

Introduction xliii might not provide a sufficient safeguard against procedures and outcomes gone astray.34 The critique of this process leads to a call, in section 2, for a redoubled effort from the Commission to pursue ‘optimal’ outcomes and to address the existing ‘legitimacy gap’. The fundamental idea behind section 2, which is the heart of the chapter, is that the tension between procedural and substantive modernization as manifest in the commitments context can be reconciled by restoring (i) the principle of proportionality and especially (ii) the protection of fundamental rights, to their proper strength. Doing so, it is argued, would likewise restore the balance between effectiveness (maximization of administrative resources) and efficiency (maximization of welfare). With regard to proportionality and fundamental rights, Gerard suggests that due process may serve as a proxy for proportionality in terms of ensuring optimal outcomes, and that this would be a way to deal with the uncomfortable case law in this area. The discussion in section 2 covers a lot of ground. For example, it describes the shift to increasingly ‘regulatory’ (as opposed to corrective) remedies, and it underlines the problematic decline of solid, predictable new case law and the rise of a very influential but potentially error-inducing body of commitment decisions—not to mention the near-disappearance of judicial control by the EU Courts, which has further perverse consequences. As Gerard maintains, ‘commitment decisions tend to stretch the boundaries of antitrust legal standards with the paradoxical effect of affecting the overall predictability of the scope of Articles 101 and 102 TFEU’.35 In this way, the Commission pursues the (subjective) effectiveness of enforcement as defined above, but in reality the factors skewing its enforcement toward suboptimal commitment decisions have the effect of undermining the stability and ‘substantive effectiveness’ of antitrust principles.36 With a view toward closing the legitimacy gap arising from this troubling state of affairs, Gerard in section 2.2 enters into a detailed discussion of the need for greater respect for proportionality and due process (right to be heard, access to file, effective judicial protection). As he explains, and apart from their other virtues, due process helps to ensure that the Commission will identify the relevant issues and tailor its analysis while proportionality ensures that the substance of the adversarial process is translated into the appropriate outcome. Yet both principles are relaxed or truncated in the context of commitment procedures.37 In this part of the essay Gerard discusses, and registers 34 See above n 27 (the latter footnote recalling, however, that the Commission holds itself to an intermediate standard of proportionality falling somewhere between the Alrosa rationality test and the traditional standard that applies under Article 7). 35 Page 165. 36 Ibid. See also page 167. 37 Again, Monti has expressed doubts as to the criticisms lodged by Gerard and others regarding proportionality and due process (and hence the seemingly lopsided bargaining power of the Commission and the risk of suboptimal remedies), and has described them

xliv Introduction his disappointment with, the ECJ’s Alrosa judgment, for example because in his view it leaves ample scope for suboptimal remedies and lowers the bar as far as due process is concerned. On the other hand, it is acknowledged that the Commission has not run amok with its long leash but rather has cleaved to an intermediate proportionality principle (ie, a ‘manifestly disproportionate’ test) by virtue of its own scruples, typically (though not always) by limiting the duration of commitments made binding. Yet Gerard questions whether time limits have been too onerous in light of the pace and cycles of the industry concerned; and ultimately, he doubts that this self-discipline (even if the Commission’s soft law statements create legitimate expectations) will be satisfactory as a sustainable safeguard. Given the state of the case law, it seems that in order to counterbalance a relatively weak proportionality standard, a more robust application of due process requirements is needed (section 2.2.2).38 In Gerard’s view, the weaknesses of the commitment procedure call for a series of corrective measures. First of all, two systematic and enforceable obligations should be imposed on the Commission to ameliorate the ‘due process deficit’: (i) firms that propose commitments should be provided with full non-confidential versions of the observations of third parties who respond to the market test; and (ii) they should furthermore be provided with a reasoned decision if the Commission opts to reject market-tested commitments. Second, in order to restore the voluntary character of commitments, Gerard advocates immunity from fines for firms admitted to commitment proceedings if the commitment process fails and the Commission ultimately finds an infringement.39 Removing the sword from above the head of the undertaking concerned would in his view ‘radically contribute to closing the legitimacy gap … because it would force the Commission to “weigh carefully” the optimal character of negotiated solutions and would create a more balanced

as overstated—in particular given the enforceable soft law statements the Commission has made as regards the manner in which it conducts the commitment procedure. See Monti, ‘Alrosa and Commitment Decisions’, above n 32. 38 With regard to the principle of proportionality, Gerard accepts that it may be justified to apply a more relaxed standard in commitment cases; but not necessarily to the extent that the case law suggests. And his willingness to accept a looser proportionality standard is conditioned on the reforms he proposes as far as due process is concerned (see the main text below). He thus states, at page 172, that if such reforms are properly implemented, it is ‘not per se unacceptable for the Commission to benefit from reasonable flexibility in the application of the proportionality principle in commitment cases’. 39 This proposal was endorsed by Jenny in Frédéric Jenny, ‘Worst Decision of the European Court of Justice: The Alrosa Judgment in Context and the Future of Commitment Decisions’, in Barry Hawk, ed, International Antitrust Law and Policy: Fordham Competition Law 2014, Juris Publishing, 2015, chapter 16. Also published as 38 Fordham International Law Journal 701 (2015).

Introduction xlv framework for the negotiation of (the final set of) commitments’.40 Finally, Gerard calls for the further strengthening of judicial review by the EU Courts of the Commission’s infringement decisions so that full appellate jurisdiction is effectively exercised at least where the Commission has imposed a fine or periodic penalty payment. (In this he joins several others among the Workshop participants.) Beyond the other merits of robust review, this would help to re-establish a genuine choice for firms between offering to settle by way of commitments and, by contrast, fighting to the end.41 To the above-described proposals one could add other conceivable reforms as well, even if some of them might be unrealistic for the time being. Considering that in the next few years we are liable to witness a significant revision of Regulation 1/2003, an interesting opportunity for improvements may present itself. Will it be missed, is the question. Giorgio Monti, ‘Behavioural Remedies for Antitrust Infringements— Opportunities and Limitations’. As the title suggests, Monti’s essay concerns behavioral remedies imposed by the European Commission in the specific scenario where an infringement has been found under Article 7 of Regulation 1/2003.42 The aim of the discussion is to put more focus on the role of behavioral remedies in this setting, their scope, the (judge-enforced) principles that the Commission follows in designing them, and their practical and procedural dimensions. With regard to their role, Monti points out that they are to be understood as restoring the possibility of competition by giving the undertaking concerned the guidance needed to secure compliance—guidance

40 Page 181 (citation omitted). The need for a specific bar is however questioned by Monti: ‘[A] party who is fined after an unsuccessful, good faith attempt to make commitments may have a basis for a successful appeal against the fine. The issue remains to be explored and it may well be that in the future the Court will take the view that accepting to go down the commitment path creates a legitimate expectation that there will not be a fine’. Monti, above n 32. 41 Monti (above n 32) suggests that the oft-stated proposition that judicial review of Commission infringement decisions has been weak is overstated. He explains that such claims are largely based on the Commission’s ‘winning streak’ in Article 102 cases, and that the Commission’s success may be attributed above all to the expansive substantive scope of the prohibition. This latter observation is undoubtedly true, although one might still find it significant that the substantially greater financial impact of an infringement decision that emerged in the last dozen years did not of itself seem to prompt a more exacting review of Commission findings to temper the consequences of the prohibition. 42 Commitments in the context of the Article 9 procedure are discussed incidentally, that is, by reference to their systemic relationship to remedies imposed under Article 7, and by wondering whether some of the constraints governing remedies under each of the two different procedures (the term ‘remedies’ is used here in a non-technical sense since there is no finding of infringement in the Article 9 context) might provide inspiration—in terms of discipline in the case of Article 9, or in terms of transparency in the case of Article 7. For his recent and more direct commentary on Article 9 commitments as an enforcement tool, see Monti, ‘Alrosa and Commitment Decisions’, above n 32 (casting doubt on many of the criticisms that have been leveled against the commitment procedure). The subject of commitment decisions is also discussed in other contributions to this volume, specifically in the chapters of Ioannis Lianos and Damien Gerard (see above).

xlvi Introduction ensuring that the undertaking does not re-offend.43 This role is distinct from, and may to some extent be complementary to, a role of pure deterrence, general or specific. It is also distinct from a different vision of remedies which goes farther and gives the enforcer the latitude to address anticompetitive effects caused by the impugned conduct (other than the effects that would persist but for the cessation of the infringement), and to shape the dynamics of a market in pursuit of a welfare-optimizing outcome.44 Due in part to these distinctions, Monti observes that the Commission’s use of Article 7 remedies do not fit within either the ‘crime/tort’ model or the ‘administrative’ model of enforcement, using the terminology adopted by Crane in his work. Since there is no handy name available, Monti simply describes these remedies as being of a hybrid nature. With regard to the principles to which the Commission must adhere in designing a remedy under Article 7, they tend to follow from the above conceptualization. The first is that such a remedy must have a direct link to the infringement; Article 7 may not be used to pursue broader agendas. The second (which, as applied, may impose constraints similar to those implied by the first) is that the remedy must comply with the rights of defense. That is to say, the infringement decision must make clear how the remedy addresses the infringement; it may not address, for example, competition concerns that the decision leaves unidentified. The third principle is that of proportionality: the remedy must not exceed what is necessary to restore the opportunity for competition in the market. The fourth and final principle is equal treatment, which would be relevant, in particular, where access or supply remedies are to be designed. If the remedy consists of permission to cross a unique bridge, for example, that permission may have to be given on a non-discriminatory basis. This principle may in some cases require a partial derogation from the others but, as Monti explains, it mainly concerns competitive conditions downstream. Overall, the foregoing principles appear to constrain the Commission’s remedial powers—which may perhaps come as some relief when considered in the context of the concerns raised in other chapters of this book. On the other hand, Monti also points out that these constraints may

43 In section 2 of the chapter Monti breaks down this conception into three related functions: an effective remedy under Article 7 will achieve the termination of the offending practice, prevent its recurrence and restore the opportunity for competition in the market. The significance of the terms ‘opportunity for competition’ and, similarly, ‘possibility for competition’ (as opposed to restoring competition) is that illegal conduct may well have caused various effects that are unlikely to be cancelled merely by ensuring that it ceases and does not reappear. Monti gives the examples of the financial strength, market position and rate of innovation of parties to a cartel, or advantages that may have been gained from exclusionary conduct by a dominant firm. In the latter case, the remedy is aimed at restoring the excluded rival, so far as possible, to its ex ante position. 44 This particular observation regarding the way remedies under Article 7 are understood may be contrasted with the normative preference for a welfare-optimizing approach to remedies that is evident in the next chapter by Frank Maier-Rigaud (see below).

Introduction xlvii be significant factors in the preference for the looser discipline of Article 9 procedures where broader, market-shaping remedies are desired.45 Finally and briefly, Monti discusses several practical considerations and considers the benefits and costs of introducing improvements to the applicable procedures. These include, among other issues, the occasional need for a defendant to cooperate with the Commission even as it continues to fight its corner and deny any wrongdoing, or the use of certain techniques to facilitate monitoring and compliance with imposed remedies. In the context of his observations on practical considerations, he addresses a misunderstanding, on the basis of a certain narrow reading of the CFI’s case law, as concerns the Commission’s authority to impose affirmative obligations such as entering into contractual supply obligations under Article 101. Monti shows that a remedy of this kind is possible so long as the relevant principles, including in particular the principle of proportionality, are respected. While it could be objected that harmed parties may pursue such remedies through private law means and that the imposition of those remedies by the Commission is thus disproportionate, Monti suggests that significant advantages might potentially be gained if the affirmative remedies as well as any necessary compensation orders were rolled into the public law procedure. In other words, the public authority would protect relevant private interests in parallel with its defense of the common interest of the EU. Frank Maier-Rigaud, ‘Behavioural versus Structural Remedies in EU Competition Law’. If one were to consider competition law remedies from behind a veil of ignorance, perhaps no type of remedy would appear to have inherent superiority over others. Instead of assuming a hierarchy the innocent observer might conclude that the best approach for an economic infraction would be to impose whatever remedy or mix of remedies is meet for the case. However, it would seem that most lawyers tend to regard remedies through two inter-related and socially constructed lenses which create an aversion to structural remedies in the non-merger context. The first lens derives from the Lockean and classical liberal tradition that attaches high value to property rights, which are to be protected, as a general rule, from public intervention—irrespective of whether the intervention provides for compensation or outright confiscation, though the latter is certainly beyond the pale. The much longer tradition of coercive taxation by the state as well as other principles of sovereign power have always made private property rights relative rather than absolute, but nevertheless such rights are generally strong and dearly cherished. The second lens derives from being socialized as lawyers. A non-lawyer, at least if she is also innocent of the liberal tradition,

45 On this latter point, see page 196. A variety of factors favoring resort to the commitment procedure are also discussed in section 4 of the chapter by Lianos (see above), for example at pages 130–131.

xlviii Introduction might be more inclined to accept the social function of property rights;46 but for many lawyers, rights are, again, to be vigorously defended. The hierarchy that appears so natural through these lenses has been reinforced through the long and chequered past of structural remedies in the antitrust experience of the United States.47 In the EU context, it also appears to be reinforced by the wording of Article 7(1) and Recital 12 of Regulation 1/2003. Maier-Rigaud, an economist, challenges this point of view that assumes structural remedies to be remedies of last resort. Unsurprisingly, his analysis, which finds odd quirks in the EU approach (also taking account of the practice under Article 9 of the said Regulation), is framed by the assumption that EU competition policy should be determined primarily on the basis of economic effects. From that vantage point he endeavors to ‘rehabilitate’ structural remedies; but beyond establishing the desirability of using them in appropriate cases, he also argues that the legal path to the use of structural remedies is not as laden with obstacles as may be assumed. His first order of business is to arrive at a definition of a structural remedy, and he proposes that it should be understood as a measure that changes the structure of a firm by way of a transfer of tangible or intangible property rights, following which transfer the prior and present owners of those rights have no ongoing r elationship.48 Such a remedy removes the incentive or the means to revert to the anticompetitive conduct in question, and therefore requires no ex post monitoring. In contrast to the regulatory, market-constraining nature of behavioral remedies,49 the affirmative case for structural remedies stems from the fact that they are ‘within the logic of the market system and allow an efficient adaptation to changing market conditions. … [To an observer] they cannot be distinguished from the usual workings of a market system in which mergers and divestitures are a characteristic feature of normal market developments. In that sense they take full advantage of market allocation dynamics …’50 46 The social function of property, a concept originally propagated by the Bordeaux scholar Léon Duguit (1859–1928), is mainly associated, through expansive and politicized interpretation, with Latin American constitutionalism. See, eg Thomas Boccon-Gibod, ‘Duguit, et après? Droit, propriété et rapports sociaux’, 28 Revue Internationale de Droit Economique 285 (2014); MC Mirow, ‘Origins of the Social Function of Property in Chile’, 80 Fordham Law Review 1183 (2011). 47 The literature is voluminous. To cite only two authorities, see William Kovacic, ‘Designing Antitrust Remedies for Dominant Firm Misconduct’, 31 Connecticut Law Review 1285 (1999); Richard Epstein, ‘Monopolization Follies: The Dangers of Structural Remedies under Section 2 of the Sherman Act’, 76 Antitrust Law Journal 205 (2009) (the title being, as Epstein admits, ‘a tad unkind’). 48 See pages 209–210. 49 As Maier-Rigaud states, ‘it is surprising to see how widespread behavioural remedies are in a competition law context as they are fundamentally at odds with the idea that a decentralised competitive process … alone allows the efficient allocation of resources and the highest welfare’. Page 212, footnote 16. 50 Page 211. For observations regarding the advantages of behavioral remedies (in particular given the limitations of a system such as that of the EU in which fines are a central pillar), while recognizing their disadvantages, see the chapter by Giorgio Monti, for example at pages 186–187.

Introduction xlix Moreover and ironically, a structural remedy may be ‘advantageous’ for a firm deprived of its assets in the sense that it can get on with its business unencumbered by ongoing regulatory commitments. Section 3 of the chapter is devoted to a textual analysis of Article 7(1) of Regulation 1/2003, the aim of which is to derive an ‘economically sound interpretation’ of that provision which is also consistent with the original intent behind it. The starting point is the notion that an infringement can only be brought effectively to an end if no significant incentive to re-offend remains—and in this regard it is not assumed that the threat of future fines in case of infringement obviates any concern about incentives.51 Maier-Rigaud examines the particular elements of Article 7(1), including proportionality, necessity and ‘equal effectiveness’, and then arranges them into a graphically depicted filtering process. His discussion of the successive filters leads him to the conclusion that Regulation 1/2003 does not establish any preference for behavioral over structural remedies. ‘On the contrary’, he says, ‘the structural or behavioural nature of a remedy is immaterial as long as such remedies are not equally effective’.52 He concludes that the meaning of the key proviso would be clearer if the wording were adapted to the effect that behavioral remedies may be imposed only if there is no more effective structural remedy or where any equally effective structural remedy is equally or more burdensome than the behavioral remedy for the undertaking concerned.

C. Agencies as amicus curiae Stephen Calkins, ‘The Antitrust Conversation (Continued)’. The ‘conversation’ in this context is one between the judiciary and amici curiae, a category which typically includes civil society but which in some contexts might also include actors such as sovereign states or supranational institutions. One immediate observation that may be made here is that there is no guarantee that amici curiae represent the public interest, any more than it is guaranteed that the interests of the litigants themselves will coincide with the public interest. Nevertheless, and on the optimistic side, where a court permits a range of amici to participate, this may open up the process of deliberation to a broader spectrum of legal and policy views which may enhance the quality of the marketplace of ideas within the boundaries of the litigation. To a certain extent, a conscientious court can also efficiently screen amici to reduce the risks of being diverted by rent-seekers and time-wasters. Inevitably, a cost-benefit analysis is made as to whether an amicus brings marginal value to the dispute.

See pages 216–217, footnote 29. Page 220.

51 52

l Introduction The bulk of this chapter concerns US practice, and above all the practice of the US Supreme Court. Calkins provides a rather thorough overview of amici interventions in the most prominent US antitrust disputes, but also of other types of cases (chiefly those raising constitutional issues) decided in the last dozen years. Do these interventions sway the Justices? While one cannot speak with certainty in terms of causation,53 Calkins shows that amicus briefs may be of distinct value to a court. First, he points out that amicus briefs are routinely used by the Court and its clerks to sift through the tiny percentage of cases in respect of which petition for certiorari will be granted. Furthermore, once a case is selected for litigation, amicus briefs on the merits may influence the Court if, for example, it uncovers a latent issue of significance; or if it demonstrates the wider implications of a judgment beyond the interests of the parties, possibly by highlighting a risk of unintended consequences and a corresponding need to restrict (for example) the scope of a judgment’s ratio decidendi. Calkins also explains the role amicus briefs have played as litigation played out in specific Supreme Court cases; and he emphasizes the privileged status enjoyed by briefs received from the US Solicitor General (both at the certiorari stage and on the merits), which reflect the position of the incumbent executive branch of the federal government.54 Having discussed a variety of aspects of the US practice, Calkins proceeds in section 4 of the chapter to add a summary of practice elsewhere. In general, the role of amici curiae outside the US has been substantially more limited. In certain European settings, for example, including in litigation before the EU Courts, the vehicle for presenting arguments to judges is formal intervention as an interested third party. In the EU, leaving aside the privileged positions of the Member States and the EU Institutions, the possibility of intervening formally is restrictive.55 (Of course, if an organization or individual wishes to make its own public statements and present them to the public as observations relevant for the EU Courts, nothing prevents it or him from doing so, but this is merely informal practice.56) One is therefore left to wonder whether, given the relatively

53 For example, as a general matter, the fact that an amicus brief is cited in a judgment is hardly a sound basis, at least absent additional corroborative indicia, for hard and fast conclusions as to whether the brief has been decisive. 54 The Solicitor General is by no means a member of the Supreme Court (and may thus be distinguished from an Advocate General in the EU context) but is the third-highest ranking official of the US Department of Justice. As a frequent repeat player, representing the US government in numerous cases each year, he is essentially in a continual dialogue with the Court on issues affecting the government. For further information, see the SG’s web site, http://www.justice.gov/osg/about-office-1. 55 As Calkins points out, intervention before the Court of Justice is governed fundamentally by Article 40 of the Statute of the Court of Justice, available at http://curia.europa.eu/ jcms/upload/docs/application/pdf/2012-10/staut_cons_en.pdf. 56 For an example from Amnesty International in the context of human rights litigation (minimum standards for classification and status of third-country nationals as refugees under Council Directive 2004/83/EC), see Observations by Amnesty International and

Introduction li c umbersome nature of intervention, the Court of Justice and other courts would benefit from a reform giving them the (non-mandatory) flexibility to open the door to amicus submissions. It may be true that the Advocate General already provides the Court with a well-considered and unbiased point of view, and that is certainly a valuable service; but he can scarcely be regarded as a substitute, as a general matter, for amici curiae. At the level of the courts of the Member States, while US-style amicus submissions by private parties are not yet rapidly gaining traction, Calkins recalls that the European Commission is, and certain NCAs are, developing an interesting and fairly active role as ‘amici’ in private litigation by virtue of Article 15 of Regulation 1/2003.57 As far as the Commission and NCAs are concerned he rightly expects this trend to continue as private litigation in Europe continues to grow. But he also predicts that global trends toward larger-scale, institutionalized litigation will eventually lead to greater amicus involvement by private parties. On the basis of the US record, he would welcome such a development: ‘Just as one hopes that Europe can learn from the US’s experience and achieve the best of private enforcement, one hopes it can learn from the US’s experience with amici.’58

D. Dealing with public measures that restrict competition José Luis Buendía Sierra, ‘Enforcement of Article 106(1) TFEU by the European Commission and the EU Courts’. In this chapter, Buendía Sierra reviews a number of issues in connection with the enforcement of Article 106(1), which, as EU lawyers know, is typically applied in tandem with Article 102, the prohibition of abuse of dominance. One significant part of the chapter59 is Buendía’s endorsement of the judgment of the Court of Justice in Greek Lignite,60 one of a small number of Article 106(1) cases that

the International Commission of Jurists on the case X, Y and Z v Minister voor Immigratie, Integratie en Asiel (C‑199/12, C‑200/12 and C‑201/12) following the Opinion of Advocate General Sharpston of 11 July 2013, https://www.amnesty.org/en/documents/ POL33/003/2013/en/. 57 For useful information concerning the Commission’s ‘amicus’ practice, see http:// ec.europa.eu/competition/court/antitrust_amicus_curiae.html. 58 Page 259. 59 The chapter addresses several issues not discussed here, including for example the Commission’s case practice, or the ECJ’s application of the threshold matter of whether the entity holding exclusive or special rights is an undertaking, or again the ECJ’s application (or non-application) of Article 106(1) in conjunction with Article 49 TFEU and with Article 56 TFEU. 60 Case C-553/12 P Commission v Dimosia Epicheirisi Ilektrismou AE (DEI), EU:C:2014:2083 (setting aside the earlier judgment of the General Court and remanding the case to that court).

lii Introduction the Court has had the occasion to decide in the last decade.61 The paucity of cases may be related in part, though not entirely, to what Buendía suggests is an untoward passivity on the part of the European Commission, which could presumably seek out more cases if it had the appetite for it. As it transpires, however, the Commission—acting with extraordinary and anomalous discretion in this context—seldom invites Article 106(1) to the ‘family table’.62 As he has done elsewhere,63 Buendía on the one hand questions the propriety of this judge-approved discretion and on the other criticizes the Commission for failing to use it to bring more cases.64 With regard to Greek Lignite, a case that did arise from a Commission investigation, Buendía regards the ECJ’s judgment as consistent with the understanding, correct in his view, that if the Commission can establish that a state measure leads to effects equivalent to an abuse—for example because it effectively extends a dominant position from one market to another—the Commission (and by implication a plaintiff) is not required to show any actual or potential abuse to which the privileged undertaking has been led or could be led by the state measure.65 The contested measure in such a case creates ‘inequality of opportunity’: the privileged undertaking is favored, while other undertakings are placed at a disadvantage. In essence, this egalitarian position divorces the responsibility of the Member State from the scope of 61 Other than Greek Lignite, the most significant Article 106 case during that recent time frame is probably Case C-49/07 Motosykletistiki Omospondia Ellados NPID (MOTOE) v Elliniko Dimosio [2008] ECR I-4863. For cases where the joint application of Article 106(1) and Article 102 TFEU was of some (at least potential) relevance but either did not constitute the core issue or was left undetermined for lack of admissibility, see also Case C-437/09 AG2R Prévoyance v Beadout Père et Fils SARL [2011] ECR I-973, paras 68–72; Case C-250/06 United Pan-Europe Communications Belgium SA and Others v Belgium [2007] ECR I-11135, paras 18–23; Case C-451/03 Servizi Ausiliari Dottori Commercialisti Srl v Giuseppe Calafiori [2006] ECR I-2941, paras 21–26; Case C-295/05 Asociación Nacional de Empresas Forestales (Asemfo) v Transformación Agraria SA (Tragsa) and Administración del Estado [2007] ECR I-299, paras 39–45. 62 Page 280. In this regard the objection is that, in the Article 106(3) context, it is practically impossible for a party complaining about a state measure to challenge the Commission’s decision not to act on the complaint. 63 See José Luis Buendía Sierra, ‘Exclusive or Special Rights under Article 106 TFEU: An Overview of EU and National Case Law’, eCompetitions, article N° 44436, 20 March 2012. 64 On the other hand, if one harks back to around 1991, when Article 106(1) TFEU (then Article 90 EEC) began to emerge as an important competition law provision, the formative cases and the later cases in which the Court developed the application of that provision materialized as part of the preliminary ruling procedure (or in Buendía’s terms, indirect enforcement), and hence as part of national litigation. Preliminary references in this context have become relatively more scarce, possibly for want of relevant disputes (a surprising lull, given that Member States have certainly not abstained from adopting or maintaining measures with implications for competition) and perhaps in part because cases that should be referred are not. Further, as Buendía points out, some cases dealing with Article 106(3) directives are at bottom also Article 106(1) cases given that such directives are meant to vindicate the policy expressed in the latter provision. 65 Similarly, see the Opinion of Advocate General Wathelet in Case C-553/12 Commission v DEI, EU:C:2013:807, paras 55–65.

Introduction liii the prohibition contained in the relevant competition rule, Article 102.66 And, as Buendía explains, the judgment of the ECJ is not merely a vindication of its old case law; it features an innovative and rather expansive move. The Court followed the effects doctrine to its logical consequence. Indeed, the judgment states that any state measure producing anticompetitive consequences would infringe Articles 106 and 102 TFEU. Contrary to previous judgments, this statement is not confined to the ‘extension of a dominant position’ from one market to another caused by an exclusive or special right. It also applies to the original grant of a stand-alone exclusive or special right to a company.67

In Buendía’s view, the consummation of the effects doctrine makes sense because it results in a harmonization of the application of Article 106(1) and the application of the Treaty’s free movement rules—where the scope of the prohibitions tends to be broad and where the burden thus often rests with the Member State to justify its actions.68 For my own part I have been more skeptical of the ECJ’s judgment in this case,69 but such criticism is now academic. The Court has taken a firm stand, and as Buendía notes, Article 106 is pregnant with ‘enormous possibilities’ and ‘far-reaching content’.70 What fruit and how much of it the provision will bear are to be seen. Daniel Crane, ‘Hard Look Review of Anticompetitive State Action’. Crane’s chapter extends the subject of public restraints of competition by introducing a semi-abstract and normative evaluation of different possible models of judicial antidotes to abusive regulation. The first two models—the ‘representation reinforcement’ model (ie a particular form of political accountability model, drawn from democratic theory and mapped onto the Parker-Midcal experience in the US) and the ‘substantive review’ model (ie the EU model)— are found to be flawed, and accordingly they are rejected.71 Crane instead advocates a third model, the hard look review model, which is based on the

66 There is thus an asymmetry here compared to the ECJ’s jurisprudence relating to rticle 4(3) TEU and Article 101 TFEU. See in particular Case C-2/91 Wolf Meng [1993] A ECR I-5751 and Case C-245/91 Ohra Schadeverzekeringen NV [1993] ECR I-5851. 67 Page 288. 68 Buendía has long argued that the old Corbeau case—although it was ostensibly an Article 106(2) case, and though the Court did not enter into an analysis under Article 106(1)—essentially signaled a convergence between the competition rules in this context and the free movement rules. 69 See Mel Marquis, ‘The State of State Action in EU Competition Law and a National Competition Strategy for China’, in Niels Philipsen, Stefan Weishaar and Guangdong Xu, eds., Market Integration: The EU Experience and Implications for Regulatory Reform in China, Springer Verlag, 2015, chapter 2. 70 Pages 288–289. 71 The two basic models are discussed in further detail in Daniel Crane, ‘Judicial Review of Anticompetitive State Action: Two Models in Comparative Perspective’, 1 Journal of Antitrust Enforcement 418 (2013).

liv Introduction ractice of US administrative courts imposing a certain procedural discipline p on regulatory agencies under their control. The principal features of hard look review are described in section 2 of the chapter. They include first of all the requirement that an agency build a public record in its decision-making process, on the basis of which it must prepare an adequately reasoned, internally consistent decision. In explaining its decision the agency must explain why obvious alternative solutions were passed over and must show how ‘significant’ public comments were taken into account. However, the nature of the scrutiny remains procedural and not substantive—the court does not itself balance interests, and it does not substitute judgment (for example, by insisting on the least restrictive alternative). The core objective of this approach is to ensure that the decision-making process is publicly minded, and that it is not driven by private interests to the detriment of the common good. Underlying Crane’s analysis are his assumptions that the representation reinforcement model and the substantive review model are deficient. One could perhaps raise objections with regard to the assumed weaknesses of the substantive review model in certain institutional contexts. In particular, the analogy between the era of ‘Lochnerism’ and substantive due process in the early 20th Century in the United States, on the one hand, and the relatively rigorous scrutiny by the ECJ of anticompetitive legislation in the EU context on the other hand, may be deceiving. The legitimacy deficit, as it were, that tainted the judicial activism of the Lochner era72 was closely linked to the fact that substantive due process was developed according to a certain ideological interpretation of the US Constitution by the US courts.73 By inferential reasoning, it was held in a number of cases that regulations imposing, inter alia, health and safety standards in various sectors were contrary to the constitutional clauses prohibiting the government from depriving

72 Lochner v New York, 198 U.S. 45 (1905). The case is reviewed in, among others, Daniel Crane, ‘Lochnerian Antitrust’, 1 New York University Journal of Law and Liberty 496, 498–501 (2005). 73 While the word ‘ideological’ can appear to be pejorative, it may be useful to recall that most courts of significant jurisdiction, duty-bound as they are to decide consequential disputes, are seldom capable of escaping entirely from their conscious and unconscious ideological inclinations. To a certain extent, something of a ‘third man’ argument may apply here: if a judge (assuming she is not a perfect Hercules) seeks, for the sake of scruple, to distance herself from her own conscious ideology-driven views, a certain ideology—albeit a different one—may creep back into the process of deciding how to achieve ‘objectivity’ and overcome the biases of which she is aware. Despite the reference to US courts in the age of Lochner espousing a certain ideology, one may find ideology permeating the choices of the courts that later repudiated Lochner, not to mention, undoubtedly, those of innumerable other courts. It is fine for Justice Holmes to say that ‘a constitution is not intended to embody a particular economic theory, whether of paternalism and the organic relation of the citizen to the State or of laissez faire’, and that it is ‘made for people of fundamentally differing views’, but an ideological perspective may be unearthed here too without much difficulty. The validity of the statement itself may also perhaps be questioned, depending on how narrowly or broadly it is construed, but that discussion may be omitted here.

Introduction lv persons of their liberty and property without due process of law. The hermeneutic approach of the Supreme Court in that context relied on something akin (speaking anachronistically) to penumbras and emanations—there is certainly no explicit constitutional rule forbidding the federal or state governments from adopting anticompetitive measures, and even the long history of the ‘dormant’ Commerce Clause was based on an extrapolative reading of the Constitution.74 One may therefore plausibly argue that the Lochner saga bears little resemblance to the judicial control of anticompetitive state measures in Europe, in particular because Article 106 TFEU is quite explicit that Member States must avoid adopting or maintaining (unjustified) anticompetitive measures where a public or privileged undertaking is concerned, and because Article 107 TFEU explicitly prohibits (unjustified) state aid.75 In the contexts of these Articles, it is submitted, there is no countermajoritarian difficulty with judicial intervention or, as the case may be, with intervention in the first instance by the European Commission, as the relevant specific competences have been built into primary law.76 Admittedly and perhaps ironically, the ECJ’s Van Eycke77 line of case law rests on inferential reasoning,78 but the subsequent limitations resulting from cases such as Ohra and Meng79 may be interpreted as a move of judicial conscience. Ultimately, the judicially 74 Specifically, the relevant clause is Article I, Section 8, which in pertinent part provides that: ‘The Congress shall have the Power … To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes’. It is of course recognized that local protectionism was an important catalyst behind the Philadelphia Convention in 1787. See, eg Julian Eule, ‘Laying the Dormant Commerce Clause to Rest’, 91 Yale Law Journal 425, 429–435 (1982). 75 The twice-appearing word ‘unjustified’ in this sentence punctuates the general point being made about the competence and hence the legitimate authority conferred by the Treaty upon the Court of Justice to review public restraints of competition—and in so doing to arbitrate if necessary between potentially conflicting policy interests, and potentially (certainly not automatically) to displace legislative or regulatory choices. This feature of supranational governance implies a judicial role which causes discomfort for many both within and outside Europe. See, for example, Crane’s discussion at pages 317–319 (which, inter alia: draws a distinction between competition as a value of somewhat lesser significance and other interests of ‘moral principle’ such as gender classifications and limitations on free speech; and maintains that judges are ill-suited ‘to engage in a sort of open-ended cost-benefit analysis that would sometimes result in the judges substituting their view of what interests are important for those in the executive or legislative branches’). 76 While the prohibition contained in Article 106 is clearly enshrined in the Treaty, the direct effect of Article 106 (with the possible exception of the second sentence of Article 106(2), since the direct effect of that sentence has not yet been established with certainty) is a separate issue. The ability of claimants in national proceedings to invoke Article 106 has been confirmed by the hermeneutical practice of the ECJ, and indeed the very foundations for the direct effect of sufficiently clear and precise Treaty provisions were a product of the judicially driven constitutionalization process of the 1960s. To that extent, the debate about the ECJ’s judicial activism, documented in many classic commentaries especially since the 1980s (and originally often linked to what was in those days the diminishing control of the Council and the rise of supranational governance), has never really subsided. 77 Case 267/86 Pascal Van Eycke v ASPA NV [1988] ECR 4769. 78 The ironic aspect is that while the Treaty is explicitly concerned with public measures in scenarios involving public and privileged undertakings, there is no such explicit apprehension with regard to cartels. 79 Both cases are cited above n 66.

lvi Introduction determined expansive nature of the duty of sincere cooperation (Article 4(3) TEU), which serves inter alia as a gap-filler, may still invite charges of judicial activism, but these days the main battlegrounds in relation to public restraints (as exemplified by the above discussion of the chapter by Buendía Sierra) are Article 106 and the state aid regime. Having said all of that, it must be recalled that Crane’s discussion is semi-abstract; he recognizes that the hard look approach may not fit all institutional environments.80 Likewise, the above objection relating to Europe’s ‘constitutional’ decision to regulate public restraints as a matter of explicit primary law is jurisdiction-specific and would be irrelevant, for better or worse, in many actual and future contexts.

PART 2: Legitimate Enforcement of Competition Law Renato Nazzini, ‘Parallel Proceedings in EU Competition Law: Rethinking Ne Bis In Idem as a Limiting Principle’. The problems of concurrent and consecutive competition enforcement actions have been latent in Europe since the 1960s,81 but they have intensified since the adoption of Regulation 1/2003 and the related maturation of Europe’s multi-level enforcement network.82 The fact that Article 50 of the EU Charter of Fundamental Rights (ne bis in idem) is binding primary EU law merely punctuates the matter.83 Accordingly, the relationship between effective and legitimate enforcement is here once again front and center, and it is not surprising to find that Nazzini believes that the two objectives are inadequately balanced. Discretionary prosecutorial restraint, he says, does not sufficiently protect against the risk of multiple proceedings and decisions against the same undertakings for the same conduct. If the ne bis in idem principle were (de lege ferenda) construed properly, however, it would effectively limit (ex post) the ‘vexatious and inefficient exercise of concurrent jurisdiction in competition matters within the Union’.84 See page 325. See Case 14-68 Walt Wilhelm and others v Bundeskartellamt [1969] ECR 1. 82 See, eg Giorgio Monti, ‘Managing Decentralized Antitrust Enforcement: Toshiba’, 51 Common Market Law Review 261 (2014). 83 Besides the protection that follows from the general principles of EU law and indirectly from the ECHR (Protocol 7, Article 4), as Nazzini points out, the ne bis in idem principle is expressed in various other legal instruments such as Chapter 3 of the Convention implementing the Schengen Agreement and Article 3(2) of the Council Framework Decision of 13 June 2002 on the European Arrest Warrant. 84 Page 358. In some measure the risk of multiple proceedings is compounded by the ECJ’s holding in Tele2 Polska that NCAs are precluded under Regulation 1/2003 from finding positively that an undertaking has not committed an infraction under the EU competition rules. The argument that the holding in that case justifies a more flexible interpretation of ne bis in idem was rejected by the General Court in Case T-402/13 Orange v Commission, EU:T:2014:991. The latter judgment was not appealed. 80 81

Introduction lvii The Court of Justice should thus substantially modify the approach it has taken to ne bis in idem in connection with competition law proceedings in the EU’s system of parallel competences, and should tighten up the applicable limiting principles in that regard.85 To suggest how this could be done, Nazzini lays out a six-part survey of the role of ne bis in idem in a variety of contexts, mainly as it pertains to preclusion or non-preclusion of multiple proceedings within the EU.86 A number of points emerge from this survey. For example, Nazzini shows that the ECJ’s restrictive reading of ne bis in idem in the context of parallel or multiple competition law proceedings has in fact resulted in a fragmentation of the Court’s own case law, when compared to the jurisprudence in the European Arrest Warrant and the Schengen contexts.87 In the latter contexts, the Court does not impose the high hurdle of demonstrating that a second prosecution is driven by the same ‘legal interest’; identity of the relevant conduct is the core issue. More fundamentally than the fragmentation issue, it may well be that the bar has been placed so high that the ne bis in idem principle no longer effectively serves its function of securing repose and protecting fundamental rights. Nazzini suggests that ne bis under Article 50 of the EU Charter and as a general principle of EU law should be interpreted in such a way that two infringements constitute the same ‘offense’ when they arise from the same facts or facts inextricably linked in terms of space, time and subject matter. Drawing inspiration from Advocate General Sharpston and from the ECJ’s case law in the Schengen Agreement context, Nazzini also offers a practical criterion by which the ne bis in idem principle might be applied. According to this criterion, a distinction should be made between decisions to close a case that are based on a preliminary and summary investigation, which should not bar further proceedings [in the ECN context], and decisions to close a case that follow a significant consideration of the merits of the case and are adopted in a procedure where the defendant has had a full opportunity to exercise his rights of defence, which should bar further proceedings whatever the formal classification of the final decision.88

85 The arguments are also presented in Renato Nazzini, ‘Fundamental rights beyond legal positivism: rethinking the ne bis in idem principle in EU competition law’, 2 Journal of Antitrust Enforcement 270 (2014). 86 Nazzini also addresses the scenario where a non-EU authority has already condemned (or ‘acquitted’) an undertaking, and where a competition authority within the EU investigates the same undertaking in relation to the same facts. However, in this global context— taking account of public international law—there is no precise equivalent to the ne bis in idem principle, and EU law does not recognize ne bis protection in such scenarios. Nazzini accepts and endorses the state of EU law on this point. 87 For further discussion of the ne bis principle in these contexts, see John Vervaele, ‘‘Schengen and Charter-related ne bis in idem protection in the Area of Freedom, Security and Justice: M and Zoran Spasic’, 52 Common Market Law Review 1339 (2015). 88 Page 360 (citing the Opinion of Advocate General Sharpston in Case C-467/04 Giuseppe Francesco Gasparini [2006] ECR I-9199, para 96 (suggesting preclusion where

lviii Introduction In Nazzini’s view, this two-part test (assessment of the merits; full exercise of the rights of defense) should also be applied for the purpose of determining whether a commitment decision under Article 9 of Regulation 1/2003 precludes later proceedings on ne bis in idem grounds. Under this approach, and in cases where the test is met, fundamental rights would effectively override the scheme of the Regulation and its recitals, which assume that Article 9 has no such preclusive effects. The test would also have implications for scenarios where the EU Courts invalidate an infringement decision of the Commission on purely procedural grounds, which opens the possibility for the Commission to reopen its proceedings, correct the defects and readopt a decision. Here Nazzini suggests an intermediate position whereby a second round of proceedings could ensue if necessary to secure effective enforcement, and if the procedural errors were either not attributable to the competition authority or excusable, which is to say they must not have been caused by the authority’s gross negligence or bad faith. Applying a nuanced version of ne bis in this way would seem likely to encourage an authority to be more meticulous the first time around. That might also conceivably (and all else being equal) lengthen the average duration of proceedings but, if so, the tradeoff may be worthwhile. Nazzini’s conclusions on these points and others are summarized conveniently in section 4 of his chapter. Wolfgang Kirchhoff, ‘Reflections on Parallel Enforcement, Fundamental Rights and the Rule of Law in the Competition Law Context’. As noted earlier,89 Germany is something of a poster child as regards the need for harmonized rules on sanctions. Perhaps the most prominent issue in that context is the partially divergent position on parental liability. In this chapter, Judge Kirchhoff does not discuss parental liability as such but he discusses the related issue of the extent to which the liability of an undertaking to pay fines survives or is extinguished when the undertaking is transformed or restructured in the sense of German company law. Other issues relevant to the relationship between effective enforcement and fundamental rights protection are also discussed, such as the principle of nullum crimen, nulla poena sine praevia lege poenali and the variant of that principle contained in Article 7(1) ECHR. With regard to successor liability following a transformation of an undertaking, Kirchhoff refers to the restrictive jurisprudence of the German F ederal Court of Justice (Bundesgerichtshof), and in particular its interpretation of Section 30 of the German Act on Regulatory Offences.90 According to that

the first proceedings involved ‘significant consideration’ of the merits); and citing Case C-469/03 Filomeno Mario Maraglia [2005] ECR I-2009, paras 30 and 34 and Case C-150/05 Jeon Leon Van Straaten v Netherlands [2006] ECR I-9327, paras 56–60). See above the summary of the chapter by Konrad Ost. Section 30 governs regulatory fines imposed on legal persons and associations. For an English-language version of the Act, see http://www.gesetze-im-internet.de/englisch_owig/ englisch_owig.html#p0143. 89 90

Introduction lix jurisprudence, where a company that has been fined by the Bundeskartellamt merges with another company, or where the company’s assets are sold, the ability of the Bundeskartellamt to pursue the successor in interest becomes very limited. Successor liability was accepted only where the old and the new assets were identical or nearly so from a commercial perspective.91 A broader approach was considered contrary, in the Federal Court’s view, to the nulla poena principle as expressed in Article 103(2) of the German Basic Law. It was believed that this rather wide gap in the German law on successor liability is for the legislator, not the Federal Court, to close. The legislator did later address the issue, but as Kirchhoff points out, the solution was merely partial and may not suffice to forestall determined efforts to circumvent the collection of significant fines. In national litigation in Germany the argument has been raised that Article 5 of Regulation 1/2003 may imply a directly applicable rule of successor liability that would be independent of the Act on Regulatory Offenses. However, the Appellate Court of Düsseldorf rejected this proposition on a variety of grounds including, unsurprisingly here again, the principle of nulla poena. In my view, a plain-language reading of Article 5 seems to support the conclusion that the provision does not have the purpose or effect of extending the Commission’s sanctioning powers to the NCAs. Nevertheless, since national laws may not deprive the EU competition rules of their effectiveness, a preliminary reference to the ECJ would have been welcome even assuming under Article 267 TFEU it was not obligatory since the Court of Appeal is a lower court. On appeal, it appears that the Federal Court of Justice would in principle be required to make such a reference, provided the acte clair doctrine does not apply.92 Judge Kirchhoff doubts that Article 5 and its proper interpretation should be classified as ‘acte clair’, though he circumspectly refrains from taking a position on the merits of the case. The discordance between EU law and national law and the corresponding tension between fundamental principles lead Kirchhoff to an incidental but

91 This is quite a contrast compared to the Commission’s powers under Article 23 of Regulation 1/2003. As the Grand Chamber of the ECJ has held (in a case where Italian law self-consciously aligned itself on the parallel provisions of Regulation 1/2003), ‘the legal forms of the entity that committed the infringement and the entity that succeeded it are irrelevant. Imposing a penalty for the infringement on the successor can therefore not be excluded simply because, as in the main proceedings, the successor has a different legal status and is operated differently from the entity that it succeeded.’ Case C-280/06 Autorità Garante della Concorrenza e del Mercato v Ente tabacchi italiani—ETI SpA and Others [2007] ECR I-10893, para 43. 92 Ost affirms flatly in his chapter (page 48) that ‘the ECJ will have to deal with that question’. For the classic jurisprudence on the acte clair doctrine (ie, that a national court need not refer where there are objective grounds of obviousness), see Case 283/81 CILFIT and Lanificio di Gavardo SpA v Ministry of Health [1982] ECR 3415, paras 16–20. A key criterion for the application of acte clair is that, ‘[b]efore it comes to the conclusion that [a referral is unnecessary], the national court or tribunal must be convinced that the matter is equally obvious to the courts of the other Member States and to the Court of Justice’.

lx Introduction significant observation regarding the harmonization of enforcement powers and procedures in Europe. As he says: In the past, compelling political reasons may well have prevented the European legislator from stipulating uniform powers of investigation and penalties for NCAs equal to those of the Commission. But in an internal market which requires a level playing field for undertakings, serious differences in investigation powers and sanctions between the Commission and NCAs as well as among NCAs are unacceptable in the long run and contradictory to the principles of a system of parallel enforcement of EU competition law.93

Kirchhoff adds that the need for harmonization is further accentuated by the need for the ECN to function properly, given that an authority hobbled by national law limitations cannot be regarded as ‘well placed’ from a Unionwide point of view to handle cases. This perspective evokes, once again, the neofunctionalist nature of the modernization enterprise. Two other cases highlighted by Kirchhoff may be mentioned here briefly. First, there is Outokumpu’s complaint before the German Federal Constitutional Court essentially challenging the lawfulness of the EU fining system and of its application, notwithstanding an earlier judgment by the ECJ to the contrary. In regard to this case Kirchhoff recalls the classic jurisprudence of the Constitutional Court, which normally (in theory) abstains from interfering on condition that the EU institutions ensure the protection of fundamental rights to a standard equivalent to that guaranteed by the German Basic Law. Conceivably, an indirect challenge might be brought before the ECtHR, although theissue of whether the Member States may be held collectively and vicariously responsible for the acts of the Court of Justice remains rather unclear—one would think that attributability poses problems in this regard.94 The other case to which Kirchhoff refers is relevant by analogy to the basic

Page 388. The residual responsibility of the Member States for the acts of the Union (again, if attributability can be established) seems to be accepted in principle by the ECtHR. See Case 24833/94, Matthews v United Kingdom, 18 February 1999, para 32 (‘The Court observes that acts of the [European Community] as such cannot be challenged before the Court because the [Community] is not a Contracting Party. The Convention does not exclude the transfer of competences to international organisations provided that Convention rights continue to be “secured”. Member States’ responsibility therefore continues even after such a transfer.’ (emphasis added)). See also the aborted Case 56672/00, DSR Senator Lines GmbH, 10 March 2004 (where an application against all of the then-15 Member States of the Community—on the ground that the applicant’s obligation to pay a fine of 273 million euros imposed by the Commission before the appellate process played out infringed Article 6 ECHR—was found to be moot and inadmissible by the ECtHR given the annulment of the fine on other grounds by the Court of First Instance); Case 51717/99, Guérin Automobiles EURL v The Member States of the European Community, 4 July 2000 (where a judgment of the ECJ was indirectly challenged; application inadmissible not because it indirectly contested an act of the ECJ but because the claim lodged concerning a right of information with regard to judicial remedies fell outside the scope of Articles 6 and 13 ECHR). 93 94

Introduction lxi principle of self-assessment that is inherent to the EU’s post-modernization universe. Are the requirements of competition law so indefinite and approximate as to be unconstitutionally vague? More precisely, does the system of self-assessment respect the requirements of accessibility and foreseeability under Article 7 of the ECHR?95 As Kirchhoff points out, the Swiss Federal Court considers that Swiss competition law contains indefinite legal concepts such as the ‘abuse of a market-dominating position’ prohibited by Article 7 of the Kartellgesetz. It emerges from an a contrario reading of the case law that the Swiss court would regard such a concept as impermissible were it not for the possibility to notify the Swiss Competition Authority in advance before implementing a practice that might raise competition concerns,96 a procedure that provides a measure of ex ante certainty and thus ‘compensates’ for the indefinite nature of Article 7. Kirchhoff (correctly) considers, however, that it would be difficult to attack the very foundations of the post-modernization edifice in the EU context, and that the more conceivable scenario that could arise would be a challenge to the particular application of sanctioning powers in circumstances where there is insufficient experience and positive law and guidance—that is to say, the sanctioning of ‘grey area’ practices where the boundaries of legitimate conduct are unclear and cannot be discerned despite reasonable efforts to comply. With regard to past practice, as far as certain individual cases are concerned, opinions have differed. William Kovacic, ‘Creating a Respected Brand: How Competition A gencies Signal Quality’. This chapter begins with the simple observation that ‘[a]n agency with a strong brand stands a greater chance of being effective than one with a weak brand’,97 the term ‘brand’ being a metaphor for reputation and perceived organizational identity. Brands, Kovacic says, can perform two positive functions for an enforcement agency: they can provide information about what the agency does; and they can signal institutional quality. The foundations for a good brand in this context include: strong substantive programs and judicious selection of which programs to operate; sound procedures; solid proficiency and capacities; and a ‘healthy’ organizational culture, the latter implying qualities such as integrity, courage and serious c ommitment

95 In EU law, one cannot say that the system of self-assessment is inherently contrary to the principle of legal certainty (such a position would seem quite radical), but that principle does constrain, for example, the methods employed to determine whether an undertaking’s conduct is anticompetitive. See Case C-280/08 P Deutsche Telekom v Commission [2010] ECR I-9555, para 202 (‘[assessing the legality of the defendant undertaking’s pricing solely on the basis of its own costs and prices is consistent with legal certainty insofar as it] allows that undertaking, in the light of its special responsibility under Article 82 EC, to assess the lawfulness of its own conduct’). 96 See Article 49a of the Kartellgesetz. If the notification is made a minimum of five months in advance and if the competition authority does not open an investigation, immunity from fines for the practice in question can be obtained. 97 Page 393.

lxii Introduction to continuous, long-term improvement. If the agency is successful in signaling quality on the basis of those foundations, its brand becomes a significant capital asset that can help the agency achieve its goals. By virtue of its strong brand the agency enjoys to some extent a ‘halo’ effect with respect to a variety of interlocutors and stakeholders such as judges, legislators and any relevant supervisory committees or paymasters, other public regulators, and civil society—not to mention the broader domestic public and international audiences. The foregoing considerations suggest a virtuous circle: by establishing effective enforcement and effective organizational activities, the agency earns a strong brand which allows it to further strengthen its effectiveness. Moreover, the process of branding and the definition and evolution of a brand must certainly be key to the agency’s self-understanding, self-expectations and identity, all of which are of great significance. Section 3 of Kovacic’s chapter provides a detailed set of factors that contribute to the definition of a brand and to the level of brand quality. Many of these could be described as superior agency practices and (long-term) good governance techniques. These will not be enumerated in full here; suffice it to note a few brief points that emerge. One is that Kovacic understandably cautions against entrusting an enforcer with a mission that is too variegated. Where the agency is put in that position, the process of priority setting may be confused; and messaging, both externally and internally, may be too diluted. In those circumstances, brand quality and hence effectiveness may be jeopardized. Of course, the risks of mission fragmentation and paralysis tend to increase as the agency’s assigned tasks grow increasingly incompatible (leading, in the worst case, to ‘schizophrenia’), and where the diverse demands placed on the agency stretch the limits of its capacity. Another point raised, and a consistent message in Kovacic’s voluminous body of work, concerns the sometimes deceptive link between an agency’s quantitative output––more infringement decisions and prohibitions (provided they generally withstand appeals), more investigations, ever-higher fines–– and its quality, effectiveness and true impact on the economy. The ‘more is better’ assumption exerts a strong influence on brand image, and one therefore would think this implies a tradeoff. On the one hand, an agency’s efforts to be visibly active can represent an opportunity cost: the agency might refrain from more meaningful investments in projects such as advocacy programs, market studies, self-evaluations and ‘policy R&D’, and as Kovacic has often said, there is often too much focus on activity levels as a performance indicator. On the other hand, as already noted, the enhancements of brand strength provide the agency with advantage. Taking a pragmatic perspective, Kovacic points out that there may be circumstances––eg where there is new leadership at the agency (which might be linked to a change in the incumbent political party) or where the agency itself is new––where the authority is enabled, by pursing a visibly active agenda with flashy output, to accumulate ‘capital’ to be spent later, for example in the form of a (pro-competitive but perhaps c ontra-populist)

Introduction lxiii decision not to prosecute. Notwithstanding this acknowledgement, however, Kovacic comes back to the fallacy of easy measurables: ‘To say that an agency is bringing lots of cases, or collecting substantial fines, does not establish that its program is improving economic performance––the genuine test of effectiveness’.98 He goes on to discuss how the tendency to overvalue cases and fines while neglecting the deeper question of effectiveness is reinforced by the confluent professional interests of various stakeholders who benefit from high levels of agency intervention. The final selected point to be mentioned here concerns quality control mechanisms, both at the level of the agency and its investigatory and decision-making processes, and at the level of courts reviewing the agency’s decisions—assuming that judicial review is a reality.99 The challenge of quality control (including the challenge of an agency’s confirmation bias), in terms of the rigorous testing of inculpatory evidence and the appearance of procedurally fair decision-making, is particularly acute where a number of institutional duties—deciding when to prosecute, carrying out the prosecution, determining liability and deciding the sanction—are combined within a single body. In those circumstances, the adequacy of checks and balances is of vital importance. Judicial review is one obvious form of ensuring quality control, and one may expect optimistically that if the agency is held to a rigorous standard on appeal, then it will internalize that standard in its future activities. As an example of this positive dynamic, Kovacic recalls the prominent 2002 annulments of Commission merger decisions by the Court of First Instance. On the other hand, if a court, for statutory or other reasons, fails to ensure that the relevant evidence is robust or that due process is respected, quality control may be missing at both levels. All of this is crucial for institutional design when regimes are being introduced or reformed. It can also have important implications for the perceived quality of the brand of the agency, not to mention that of the relevant judicial system.

PART 3: Effectiveness and Legitimacy in International Enforcement Cooperation Alberto Heimler, ‘Effectiveness of Enforcement Cooperation in Developing Countries: What Role Can Existing Institutions Play?’ In sections 2 and 3 of his chapter, Heimler reviews the star-crossed romance between trade and

Page 404. This is not the case in all jurisdictions, as illustrated notably by the Chinese enforcement system. 98 99

lxiv Introduction competition within the framework of the WTO, and the not coincidental rise of the ICN as a relatively successful locus of international cooperation in competition matters.100 Section 3 begins with some of the ICN’s history but Heimler shows some of the difficulties the ICN has faced in its evolution. His main criticism, among others, is that the ICN fails to function as a motor of convergence which could support and provide useful guideposts for the agencies of developing countries. For all the apparent but ambiguous success of some of its Recommended Practices (particularly in relation to merger notification and review procedures), Heimler notes a ‘progressive abandonment’ of the recommendation approach, and a turn toward a mere ‘encyclopedic’ reporting of the variety of practices prevailing worldwide as regards given fields of enforcement and practice. At the end of section 3, Heimler suggests a set of initiatives which in his view would get the ICN back on track with its proper role as he sees it. But the core of Heimler’s chapter, presented especially in sections 4 and 5, concerns the tribulations developing countries have experienced in their attempts to establish and maintain effective competition enforcement regimes. The starting point in this regard is that, while competition laws as such now encircle the globe, the factors necessary to breathe life into them––money, adequate human capital, enforcement capacity and so on––are all too often lacking. There were many reasons to be optimistic about the potential capacity of regional cooperation, including the conclusion of competition chapters in regional trade agreements and in some cases the establishment of supranational authorities, to fill some of the enforcement gaps. But as Heimler underlines, most of the attempts to achieve a functioning system of regional competition enforcement have met with little success or none at all. To substantiate this, Heimler provides a useful summary survey of the main experiences with regional cooperation efforts,101 and he points out a number of flaws in their design, governance and implementation. Depending on the region, these flaws include, to name only a few: the absence of adequate cross-border merger control provisions; jurisdictional uncertainty, eg due to overlapping memberships; insufficient independence from national interests; or a lack of flexible case allocation mechanisms (which Heimler refers to, in a non-technical sense, as a principle of ‘subsidiarity’). More generally and crucially, the political will necessary to establish and maintain (and fund) an effective system of law and of enforcement is highly variable across numerous jurisdictions

100 For recent discussion of the links between these stories, see Mel Marquis, ‘Idea erchants and Paradigm Peddlers in Global Antitrust’, 28 Pacific McGeorge Global BusiM ness and Development Law Journal 155 (2015). 101 Specifically, Heimler discusses Mercosur, the Southern African Customs Union, the Andean Community, COMESA, CARICOM, and WAEMU. Special attention is given in section 5 of the chapter to the Southern African Development Community.

Introduction lxv worldwide. In section 6, Heimler holds out the relatively deep and innovative ‘ANZCERTA’ arrangements between Australia and New Zealand in relation to competition cases as an example of how developing countries could cooperate effectively without the need for elaborate, costly and ultimately ineffective supranational authorities and frameworks. In light of this chapter and other similar findings one might say that, despite all of the strides made over the last 20 years, the global competition project— insofar as enforcement in most developing countries is concerned—has faltered. And it is up to the competition community to imagine more creative ways to address the substantial asymmetries among agencies in their credibility as enforcers. Experience suggests that regional cooperation agreements cannot by themselves stimulate the necessary mix of capacity, incentives and political will to advance and achieve effective competition enforcement in developing countries. For Heimler, the more promising strategy is a combination of deeper bilateral agreements for case practice issues and, at the level of established international organizations, renewed efforts to achieve closer procedural and substantive convergence. Antonio Capobianco, John Davies and Sean Ennis, ‘The Need for International Cooperation in Merger Enforcement’. The need for cooperation arises from the Cambrian proliferation of merger regimes around the world, from extraterritorial claims of jurisdiction and from the rarity of one-stop shop mechanisms. In those circumstances, the risk of divergent outcomes is substantial.102 Of course, one may maintain that a criss-crossing web of regimes is better than none, but the question is how to secure the gains of the worldwide quilt of merger laws while minimizing costs and risks. In this chapter the authors begin by breaking down the reasons why two or more jurisdictions might reach different regulatory results when reviewing essentially the same merger, bearing in mind that differences among merger decisions may be completely justified by different circumstances. Notably, these reasons include: differences in legal tests, or in attitudes toward efficiency or in underlying goals; varying conditions of competition; differences in evidence; and the happenstance of different authorities making different judgment calls. This range of challenges implies that convergence on substantive standards provides little assurance of convergent outcomes. 102 This theme is discussed in expanded form, not only relation to mergers but to cartels as well, in OECD Background Paper, Challenges of International Co-operation in Competition Law Enforcement (2014), http://www.oecd.org/daf/competition/ChallengesCompetition-Internat-Coop-2014.pdf. The Background Paper is also available from the SSRN site: see Antonio Capobianco, John Davies and Sean Ennis, ‘Implication of Globalisation for Competition Policy: The Need for International Co-operation in Merger and Cartel Enforcement’ (20 June 2014), http://papers.ssrn.com/sol3/papers.cfm?abstract_ id=2450137. For further discussion, with more specific focus on experiences in non-OECD countries, see UNCTAD Secretariat, International Cooperation in Merger Cases as a Tool for Effective Enforcement of Competition Law (27 April 2015), http://unctad.org/meetings/ en/SessionalDocuments/tdrbpconf8d4_en.pdf.

lxvi Introduction The authors also discuss some of the costs of disagreement among authorities, which include negative externalities imposed on other jurisdictions in scenarios where either the jurisdiction with the strictest approach de facto blocks a deal with global effect despite the desirability of the merger in other jurisdictions, or where for example structural remedies affecting undertakings’ upstream operations have similar spillover effects. There is good cause for concern since the multiplication of veto players has led to ever greater scope for externalities and irrationality in the global regulatory (non-)framework. At least in theory, the odds that a global merger will be prohibited increase, and the most interventionist veto player may become, so to speak, a hostage taker. Beyond the direct costs occasioned by this fragmentation, one can also speculate that market operators may be deterred from undertaking desirable global transactions, or that they may structure a transaction in suboptimal ways to mitigate risk. There was a time when perhaps an optimistic perspective prevailed, in particular because GE/Honeywell led to redoubled efforts between the EU and the US to avoid conflicts. But particularly given the emergence of China’s MOFCOM as a potent merger regulator and given its tendency to tread its own path—sometimes prohibiting deals on puzzling grounds—the global situation as regards large international mergers appears to have regressed. At the same time, there do not currently seem to be either de jure or de facto mechanisms in place that can adequately address the problems described. As the authors point out, there is a glaring and unfortunate gap in governance. Following the completion of this chapter by Capobianco, Davies and Ennis, the OECD Council adopted its Recommendation on International Co-operation on Competition Investigations and Proceedings,103 but—notwithstanding its generally salutary approach—good cooperation practices among OECD countries cannot fundamentally address that gap.

PART 4: Issues for Courts and Perspectives on the Judicial Role Gerald Barling, ‘The UK Competition Regime: Developments and Further Proposals for Change’. As the title suggests, Barling’s chapter was prepared midstream prior to the implementation of a number of profound reforms to the UK competition law system. The essay discusses private and public enforcement in the UK, and the position of the Competition Appeal Tribunal (CAT) in the midst of these fundamental changes. Putting the reforms in context, he underlines first of all the flawed and illogical arrangements http://www.oecd.org/daf/competition/2014-rec-internat-coop-competition.pdf.

103

Introduction lxvii e stablished when the Competition Act 1998 was amended by the Enterprise Act 2002, specifically in relation to the CAT’s inability in a private damages suit to decide whether a practice constituted an antitrust infringement. This limitation in turn stunted the growth of private enforcement in the UK. Barling in his essay welcomed the Consumer Rights Bill (now the Consumer Rights Act—see below) for introducing many new features including stand-alone claims for damages before the CAT, powers of injunctive relief (essential, for example, in stand-alone cases of alleged abuse of dominance) and for the provisions on both opt-in and opt-out collective actions (whereas, previously, only opt-in actions were possible—with anemic results). With specific regard to the collective action provisions, Barling found them in general to be a positive step forward. He was surely justified in saying that ‘[t]here is simply no point in giving citizens rights if there are no effective remedies and procedures enabling those rights to be enforced’.104 (As an aside, I would transpose this view beyond the UK: if a Member State simply adopts an optin collective action procedure without adding some controlled possibilities for an opt-out procedure, it is akin to taking no action whatsoever.105) Having welcomed the new regime in principle, Barling reacted to the envisaged provisions, pointing out for example that reasonable judges may fiercely disagree about whether, for certification purposes, multiple claims are the same, similar or related. With regard to the BIS consultation on streamlining appeals in regulatory and competition law cases,106 Barling notes his opposition to any weakening of the CAT’s standard of review (ie, by substituting a legality standard for the current merits review standard); he further observes fallacies with respect to the possibility floated by the Government of limiting the use of new evidence in appeals against the CMA’s decisions.107 In a coda to his

Page 530. To be more explicit, this is a criticism I respectfully lodge with the European Commission and the opt-in constituencies that dissuaded the Commission from treading the bolder path. However, with regard to the Commission’s position, Barling’s assessment is more charitable. ‘Understandably’, he says, the Commission ‘does not ask all [the Member] States, with very differing levels of sophistication in their justice systems, to attempt to introduce opt-out procedures’. Page 536. This may be a fair observation, but it does not follow that the best course is to recommend that all the Member States should presumptively, absent a justification, adopt an opt-in procedure. To address the concern regarding variable levels of capacity, the Commission could at the very least have left that choice to each Member State rather than establishing a hierarchy favoring opt-in schemes. 106 BIS, Streamlining Regulatory and Competition Appeals: Consultation on Options for Reform https://www.judiciary.gov.uk/publications/qbd-response-bis-consultationstreamlining-regulatory-competition-appeals/ (19 June 2013), https://www.gov.uk/ government/uploads/system/uploads/attachment_data/file/229758/bis-13-876-regulatory-andcompetition-appeals-revised.pdf. 107 See now the Government’s Response to the Consultation on Revising the CAT Rules of Procedure (September 2015), https://www.gov.uk/government/uploads/system/uploads/ attachment_data/file/460442/BIS-15-357-competition-appeal-tribunal-rules-of-proceduregovernment-response.pdf, pp 15–18. CAT Rule 9(4)(h) now requires the appellant’s notice of appeal to identify any new substantive evidence that was not before the CMA or the rel104 105

lxviii Introduction chapter, Barling issues a robust warning against attempts by the government, without proper justification and possibly with a view to indulging corporate interests, to clip the wings of the courts—specifically, his. As he remarks pointedly: ‘It is crucially important that courts, particularly small specialist ones, whose judicial personnel are few in number and well-known to their users, should not have to expect that giving a judgment to this or that effect might well lead to intense lobbying for jurisdictional and procedural changes, with the aim of lessening the scrutiny to which certain decisions would be subject in the future.’108 Following the completion of Barling’s chapter, the UK did in fact adopt the Consumer Rights Act 2015 (‘CRA’),109 thereby amending the Competition Act 1998 (as modified by the Enterprise Act 2002). The relevant provisions, contained in Schedule 8,110 as further supplemented by Part 5 of the CAT Rules 2015,111 are generally in line with the features of the Bill discussed by Barling. A number of details could be added, but suffice to note here that non-UK claimants are not automatically included in an opt-out action and must opt in to such an action if they wish to participate. After some early controversy, law firms can at least potentially be approved as a representative for the purpose of obtaining a collective proceedings order, provided of course that there is no conflict of interest between the firm and the class of claimants; and provided, more generally, that the CAT deems such representation to be just and reasonable. As Barling noted, the CRA also provides for collective settlement orders as a means of early resolution. For completeness one may also call attention to the voluntary redress system introduced by the CRA.112 The relevant rules provide that the CMA may approve a redress scheme, possibly on a conditional basis, during an investigation or upon its completion. The CRA required the CMA to publish guidance to be approved by the Secretary of State, and to that effect the CMA consulted

evant regulator. A similar counterpart rule applies to the CMA or regulator. Rule 15(3)(c) requires the CMA or regulator to explain in detail any objections to the admission of the appellant’s new evidence. Page 540. http://www.legislation.gov.uk/ukpga/2015/15/pdfs/ukpga_20150015_en.pdf. 110 http://www.legislation.gov.uk/ukpga/2015/15/schedule/8/enacted/data.pdf. 111 Like the CRA 2015, the new CAT Rules, which amend the 2003 version, became effective on 1 October 2015. The CAT Rules are available at http://www.catribunal.org. uk/240/Rules-and-Guidance.html. See also the CAT’s revised Guide to Proceedings (2015), www.catribunal.org.uk/files/Guide_to_proceedings_2015.pdf. For discussion of the private enforcement aspects of the CRA and the CAT Rules, see, eg Barry Rodger, ‘The Consumer Rights Act 2015 and Collective Redress for Competition Law Infringements in the UK: A Class Act?’, 3 Journal of Antitrust Enforcement 258 (2015); Roger Gamble, ‘Not a class act (yet): Europe moves softly towards collective redress’, 37 European Competition Law Review 14, 21–22 (2016). 112 See pages 10–13 of Schedule 8 (link provided above n 110). Following the CRA amendments, the relevant provisions are Sections 49C to 49E of the Competition Act 1998. 108 109

Introduction lxix on a draft text113 and in the summer of 2015 adopted the final document.114 Under this approval system, the CMA will assess the effectiveness of the scheme by considering the value of the (monetary or non-monetary) compensation and the governance of its disbursement to victims of the anticompetitive behavior in question. A company whose redress scheme is certified by the CMA can earn forgiveness of up to 20 per cent of the fine the CMA otherwise would have imposed.115 Once approved, the CMA may enforce its terms, including by way of court actions.116 It emerges from the final guidance that the CMA may even approve a redress scheme following an infringement decision of the European Commission. An obvious risk in relation to redress schemes is that a company might seek to lowball victims with paltry offers, but in theory the CMA will be vigilant in its screening responsibilities. Another potential point of concern might be the use of the system to preempt collective damages actions, in particular opt-out actions. The possibility that some victims will go uncompensated is always present but—to the extent that such a scheme has a genuine incentive effect, and to the extent it stimulates serious offers and at least partially restores victims to their ex ante position— the interplay of the two systems might prove salutary. Coming back finally to the overhauled system of collective proceedings in the UK under the CRA 2015, much of the detailed functioning of this system will depend not on what the provisions of the CRA or the CAT Rules say, but on how particular issues are managed as the cases and appellate judgments accumulate over time. James Venit, ‘What Is To Be Done?’. The title of this chapter can be either crystal clear or cryptic, depending on the eye of the beholder; readers familiar with the long-running criticisms of the EU enforcement architecture will immediately understand. Venit has often underlined the deficiencies of the EU system, and he recapitulates the core complaint here. As he says, ‘the credibility of the EU competition enforcement regime is itself on trial. … [T]he combination of an inquisitional (as opposed to adversarial) administrative system which confers substantial enforcement powers on the European Commission with a system of limited judicial review is too one-sided and calls into question the legitimacy of the EU regime of antitrust enforcement.’117

113 See CMA, Draft Guidance on the CMA’s Approval of Voluntary Redress Schemes (2 March 2015), https://www.gov.uk/government/uploads/system/uploads/attachment_ data/file/408326/Consultation_-_draft_guidance_-_voluntary_redress_schemes.pdf. 114 CMA, Guidance on the Approval of Voluntary Redress Schemes for Infringements of Competition Law (14 August 2015), https://www.gov.uk/government/uploads/system/ uploads/attachment_data/file/453925/Voluntary_redress_schemes_guidance.pdf. 115 See the final guidance document, above n 114, para 3.30. 116 See revised Section 49E of the Competition Act 1998. 117 Page 543.

lxx Introduction According to this critical perspective, the flaws tainting the Commission’s administrative investigations and the seeming half-measures of the EU Courts (notwithstanding some improvements) to address a weak system of judicial review—which stop short of a comprehensive commitment to close scrutiny of Commission decisions—are troubling not just on fundamental rights grounds but also because they may skew substantive outcomes. Most of the chapter discusses the EU’s system of judicial review, and expounds the view that Article 263 TFEU, which is the textual basis for ‘control of legality’,118 does not present any obstacle to robust and extensive review.119 But Venit draws attention to the awkwardness of the fine distinctions that have developed in the concept of judicial review (outside the ‘unlimited jurisdiction’ context where fines are scrutinized) as the EU Courts understand it. As he argues: In theory, the distinction between the Court’s rigorous assessment of the correctness, completeness and reliability of the facts and the appropriateness of the conclusions drawn from them, on the one hand, and the requirement that it not substitute its assessment for that of the Commission, on the other hand, is coherent in its articulation and can be neatly encapsulated in the notion that the Court can only annul where the Commission has committed a manifest error of assessment by drawing implausible or unwarranted conclusions from the facts. However, we are on a very slippery slope, and it is far from self-evident how, in practice, the Court can easily draw the line between thoroughly reviewing whether the facts are sufficient to support the conclusions the Commission has drawn from them while at the same time respecting the obligation not to substitute its judgment for that of the Commission. Respecting this distinction is likely to present serious problems in practice.120

The chapter discusses relevant jurisprudence, including from the merger context, and develops Venit’s case for more rigorous judicial review—which can be achieved, he says, without resort to Treaty amendment. He also adds,

118 While one may acknowledge the commonly accepted and historically grounded notion that the jurisdiction of the Court under Article 263 TFEU is a derivation of French administrative law principles (see eg Jürgen Schwarze, ‘Judicial Review of European Administrative Procedure’, 68 Law and Contemporary Problems 85, 86 (2004)), and while Article 263 illuminates the types of acts that are reviewable, it is worth recalling that the provision makes no explicit reference to any particular standard of scrutiny such as manifest error of assessment, nor to any injunction against a substitution of the Court’s appraisal for that of the administrative authority. 119 Indeed, it is clear that the EU concept of legality control must be construed in a manner consistent with the principle of full jurisdiction as elaborated by the ECJ in its Chalkor and KME judgments of December 2011 and subsequent case law. This jurisprudence seems to require a mixed (and in my view unsatisfactory) approach: a general standard of correctness applies to the Commission’s fact-finding and appraisals of the facts as well as the legal conclusions drawn; but the Commission still enjoys a margin of discretion with respect to questions of technical or economic complexity. This mixed approach is given a name by Ian Forrester, who calls is ‘legality plus’ or ‘merits minus’. See page 576. 120 Pages 549–550.

Introduction lxxi without going into detail, a number of other more incidental suggestions for the EU system that would help to address issues of legitimacy, including, among others, a substantial strengthening of the Hearing Officer (to the point where the current tendency to seek help from the EU’s Ombudsman is rendered unnecessary) and the establishment of a system of ‘complete file access’ based on protective orders that would ‘eliminate the scandalously wasteful process of redaction, ensure fair file access and remove one of the procedural bases on which Commission decisions can be delayed and ultimately annulled’.121 Ian Forrester, ‘Quis custodiet ipsos custodes? Assessing the Judicial Role in a Lawful System of Competition Enforcement’. Who are the Guardians in this context? The idea could perhaps apply at two levels. A first guardian is the European Commission, indeed it is common to refer to the Commission as the ‘Guardian’ of the Treaties.122 More specifically to our purposes, it is also the primary guardian of the EU’s competitive market order. At the next level, another guardian is the EU judicature. Who shall guard this guardian? One would have to think that this answer is not a ‘who’ but the Rule of Law itself, a concept which necessarily incorporates the core fundamental protections recognized in the Treaties, in the Charter and the ECHR, and in the general principles of EU law. Perhaps Forrester intended that his title be associated mainly with the question of who shall guard the Commission, but it seems more likely that he meant to raise the question with regard to each of these guardians. The concerns expressed in his essay apply to both. It is a chapter of significant breadth; this summary will only scratch the surface. One of the premises of the essay, a theme touched on several times in this book and which Forrester has discussed at length in his other works, is that the Commission is a distinguished, righteous and proficient institution but it is marked by the fatal and structural flaw of improperly circumscribed powers and procedures.123 Is the flaw cured by proper guardianship at the level of the EU Courts? Much of the essay is devoted to laying out the reasons why it is not. A pertinent irony that is highlighted is that, whereas the power of public authority in the context of competition law enforcement by the Commission is insufficiently or at least inconsistently checked, the Court of Justice in other contexts—above all where sensitive questions of the relationship

Page 555. One may also recall the textual basis for the Commission’s great responsibility, Article 17(1) TEU, of which the first three sentences provide that ‘[t]he Commission shall promote the general interest of the Union and take appropriate initiatives to that end. It shall ensure the application of the Treaties, and of measures adopted by the institutions pursuant to them. It shall oversee the application of Union law under the control of the Court of Justice of the European Union.’ 123 For a summary of the criticism against the Commission’s administrative procedures, see Forrester’s oral remarks at pages 498–499. See also pages 577–578. 121 122

lxxii Introduction between supranational and national law are concerned—has heroically established itself as a Marbury-style constitutional and progressive court. One is also struck by the palpably different roles assumed by the Court according to whether the case before it is an action for annulment of a Commission decision or a request for a preliminary ruling. There are unmistakable differences in these procedures, but whether the Court should feel so constrained when performing its appellate function may be doubted. In short, the judicial Guardian has not shown itself capable of constraining the enforcer to an appropriate extent, and with sufficient predictability. Forrester thus logically appeals to the Rule of Law. That is to say, he attempts to show that judicial scrutiny should be strengthened so that the enforcer’s decisions are reviewed consistently with proper rigor—including as regards issues of fact, which clearly can be and often are determinative in competition cases. Some progress has been made in that regard, he concedes: the Court of Justice has made efforts to tighten up judicial review.124 This is a step in the right direction, he allows, but it is insufficient.125 One can agree with Forrester in particular with regard to the perplexing persistence of the ‘complex economic/technical assessments’ doctrine. Its justification remains fuzzy. One also hopes that the principles governing judicial review in this context will develop to the point when the articulation of standards is more closely matched with the intensity of scrutiny that is actually applied. Ultimately these issues lead back, as Forrester observes, to the question of legitimacy. In his words, ‘[t]he availability of rigorous, consistent and effective judicial

124 The position of the Court of Justice with regard judicial review by the General Court is summarized in, for example, Case C-382/12 P MasterCard and Others v Commission, ECLI:EU:C:2014:2201, paras 155–156:

155. As regards the extent of judicial review, it is apparent from EU case-law that where the General Court is seised, in accordance with Article 263 TFEU, of an action for annulment of a decision applying Article 81(1) EC, the General Court must as a general rule undertake, on the basis of the evidence adduced by the applicant in support of the pleas in law put forward, a full review of the question whether or not the conditions for the application of that provision are met (see, to that effect, judgments in Remia and Others v Commission, EU:C:1985:327, paragraph 34; Chalkor v Commission, C‑386/10 P, EU:C:2011:815, paragraphs 54 and 62; and Otis and Others, C‑199/11, EU:C:2012:684, paragraph 59). The General Court must also establish of its own motion that the Commission has stated reasons for its decision (see, to that effect, judgments in Chalkor v Commission, EU:C:2011:815, paragraph 61 and the case-law cited, and Otis and Others, EU:C:2012:684, paragraph 60). 156. In carrying out such a review, the General Court cannot use the Commission’s margin of discretion, by virtue of the role assigned to it in competition policy by the EU and FEU Treaties, as a basis for dispensing with the conduct of an indepth review of the law and of the facts (see, to that effect, judgments in Chalkor v Commission, EU:C:2011:815, paragraph 62, and Otis and Others, EU:C:2012:684, paragraph 61). Among other passages, see pages 582–583.

125

Introduction lxxiii review is not something “desirable” and “worthy”, but an indispensable element in the acceptability of the whole system’.126 Mario Siragusa, ‘Interaction between Public and Private Enforcement of Competition Law’. Siragusa here provides his reflections on certain issues regarding the subject in the title. Not limited to a discussion of courts or perspectives on the role of judges, Siragusa refers specifically to: the indispensability of effective judicial review in light of Article 9 of the EU Damages Directive (the so-called ‘binding effect’ of decisions); the disclosure of evidence; interim measures at EU and national level; the remedial powers (including structural remedies) of NCAs; limitation periods and joint and several liability; and quantification of harm. The chapter is brief and can be summarized selectively in a few lines here. One observation to highlight is Siragusa’s concern that the Directive’s rules on disclosure, although generally to be welcomed to the extent that it opens up broader possibilities in some Member States, may be unduly restrictive in its formulation that evidence sought should be described as precisely and as narrowly as possible in the reasoned justification presented to the judge. Also notable is the discussion of the possibility of NCAs imposing not only behavioral remedies but also structural remedies, where appropriate. Siragusa contends that such power, while not granted explicitly by Article 5 of Regulation 1/2003, is nevertheless implicit and that its contours are shaped, or logically should be shaped, by those of the Commission’s analogous power under Article 7. With regard to private enforcement, the Damages Directive certainly has its weaknesses.127 If there is cause for optimism it is because it is a first generation instrument, and as such it is a milestone, however modest and ambivalent it may be.

Page 586. Among several other critical commentaries, see Mel Marquis and Giorgio Monti, eds, Shaping Private Antitrust Enforcement in Europe, forthcoming, Hart Publishing. 126 127

lxxiv

PART I Effective Enforcement of Competition Law Philip Lowe: Good morning, and a very warm welcome to everyone. On behalf of Giorgio and Mel, many thanks to those who are returning to the Workshop, and a special welcome to those joining us here for the first time. There are some territorial imperatives at play, but in general new blood comes in to every edition of this event, and the new blood provides us with fresh and stimulating input—which is not to overlook the important contributions of the old blood. [Laughter] We have a title for the Workshop this year, which is very broad in the sense that effective and legitimate enforcement of competition law has many components, many aspects. However, it is certainly crucial to the credibility of every authority and competition law system. So we are going to have a series of sessions today and tomorrow where we will go into depth about what constitutes effective and legitimate enforcement of competition law. In this regard we will consider how competition authorities establish or should establish priorities for enforcement, and we’ll also discuss how authorities can establish conditions that promote compliance with the law. So let us begin. I will now hand the floor over to Giorgio, who is chairing the first session. DD

1 EFFECTIVE SANCTIONS AND COMPLIANCE Chair: Giorgio Monti Speakers: Simon Bishop Frédéric Louis Konrad Ost Christine Parker Giorgio Monti: Let me add my words of welcome to you as well. We begin with a marathon session. That is to say, we have 10 s peakers before the coffee break. The speakers have an injunction to speak for 10 minutes each. DD

2 Part I: Effective Enforcement of Competition Law The way I will try to enforce this injunction is that when you will have about a minute left you will see a yellow card and when you are done there is a red card. There is a further mechanism for effective enforcement that I have as well but that I will not disclose. Now you will have legitimate expectations and my enforcement will be legitimate and hopefully effective. Speaking first is Christine Parker. Christine Parker: Thank you very much and yes, I am a rookie. Thank you for the opportunity and invitation. What I want to do in my presentation is to draw together the themes of my research, which has been mainly on empirical research on enforcement and compliance in competition law. It is great to be able to do that in the presence of the bright minds that are together here. I will finish my presentation with a couple of comments on the potential translation of my empirical research in what I see as some of the substantive issues that I have read about in the papers. Obviously, I come from Australia, and I am actually not a competition lawyer. I am a socio-legal empirical researcher who has had the opportunity, over the last 15–20 years, to study in depth the enforcement practices of the Australian Competition and Consumer Commission (ACCC) and how businesses respond to them. I think the same issues face every competition law enforcement agency—and, indeed, any business regulation enforcement agency—and I see that in the papers here. One other thing I should point out is that the ACCC is basically a prosecution agency. They don’t generally make decisions except about mergers and certain authorisations, but for most of the offences they are a prosecution-only agency. My main interest is the crucial question of compliance. As I said, my main research is empirical and the main themes of my research have been that it is too easy to conceptualise business response as something that will happen automatically and to the right degree if we get optimal deterrence right. I think it is provocative—our organisers have asked me to be—to say that it would be better if we got rid of the words ‘deterrence’ and ‘compliance’ and talk about what they really mean, because businesses and individuals respond to and interact with the law in complex and plural ways. The ways they respond include economic calculations about their self-interest, but also judgements about the substantive legitimacy of the law. That is the procedural legitimacy of the enforcement agency and an operator’s own capacity to notice and understand the law in the first place, and then a sort of scanning of the environment to see what other businesses and stakeholders are doing about the law. In my paper I have described what this plural model of compliance and deterrence means. In practice, what this means is that a competition law agency like the ACCC has to overcome a series of escalating or embedded challenges or n egotiations DD

Part I: Effective Enforcement of Competition Law 3 with business and society to make its enforcement both effective and legitimate in achieving the goals it is supposed to pursue. The paper that I’m proposing tells a story of the ACCC’s attempts to overcome each of what I describe as three ‘traps’ of effective enforcement and compliance and business responses to them, and I use my own research to tell that story. The first one, the deterrence trap, occurs where penalties for non-compliance cannot be big enough to deter rational misconduct without being so large that they exceed the capacity of firms to pay.1 What happened was that the ACCC, under the chairmanship of Professor Allan Fels, overcame that trap by m aking the process of investigation and sanctioning very painful in other ways than penalties by moralising in the media about cartel misconduct and other types of competition law misconduct while targeting individuals as well as firms. They address the deterrence issue, but the problem with that is that the c rucial issue of what we might call optimal deterrence had not been addressed, so the ACCC achieved an apparent enforcement success but without actually addressing the substantive moral issues about what the limits of competition law might be and therefore they appeared to be acting against procedural justice and potentially achieving over-compliance, but really they were probably creating the seeds of their own political illegitimacy. The ACCC has achieved apparent enforcement success, but without gaining the commitment of all businesses to the substantive moral basis for its enforcement activity. The ACCC had not gained acceptance and commitment to its own moral and economic evaluation of what ‘optimal’ deterrence required in terms of the process of enforcement and the substantive goals of competition policy. This is what I call the compliance trap: businesses criticise and resent the enforcement mechanisms even though they are settling most of their cases. So it appears compliance is improving but perhaps, covertly, the whole system is being undermined. What I argue is that the compliance trap is a symptom of a social polity that is still very ambiguous about the basis for its laws for businesses and whether business misconduct should be treated as a crime, and what should be allowed within which limits. That is where optimal deterrence lies. In that kind of ambiguity a regulatory agency is basically given an impossible task. They appear to be either over-enforcing or going soft. The ACCC tried to overcome this issue by building up substantive political support for its competition law enforcement by arguing in favour of the criminalisation of cartels in law. That happened and we now in Australia have a criminal cartel offence. Now, therefore, there appears to be a legitimate

1 See also John C Coffee Jr, ‘“No Soul to Damn: No Body to Kick”: An Unscandalized Inquiry into the Problem of Corporate Punishment’, 79 Michigan Law Review 386 (1981).

4 Part I: Effective Enforcement of Competition Law basis for this very strong moralising approach of anti-cartel enforcement. However, arguably, as our research shows, even cartel criminalisation, with cartel conduct being essentially a per se offence, is just too stark. It does not match business people’s moral or economic sense of what makes sense in the marketplace. I think the law and its enforcement are still in grave danger of falling into what I call the legitimacy trap. This is a situation where there is ambiguity and controversy about whether the law is substantively justified or not, and on what basis. It means that we do not really know whether any criminal prosecutions can ever succeed, or what effect they will have. Basically, what I am pointing to with my research and the paper is what we might call the elephant in the room. Whenever we talk about the techniques and processes of competition law enforcement we have this unspoken issue of ambiguity about both the substantive rationale for competition law and the procedural nature of the regulatory enforcement task in criminal competition law. We have this continuing ambiguity regarding to what extent competition should be balanced or tempered with other social and political goals, and we also have an ongoing ambiguity whether competition law fulfils simply an administrative regulatory function or whether it is something that should be thought of as amounting to a crime. These debates and ambiguities can be used and abused by businesses and their lawyers as part of their own strategy, to pursue their own economic self-interest, and also as rationalisations and excuses for wrongdoing. To conclude, I will make two broad comments. One is that I notice a lot of talk in the papers about optimal deterrence, and what I want to suggest is that the discussion about optimal deterrence is really a cipher for ambiguity or indecision about the substantive legitimacy of competition law enforcement. It’s really about not having addressed what the fundamentals are of what we think competition is and how it interacts with social and political goals, and whether it helps make our markets and societies the way we want them to be. It would be interesting to see if we can get rid of the term ‘optimal deterrence’ and talk about something else. The other comment is on procedural legitimacy, which I think is really a cipher for confusion about the nature of the regulatory enforcement task and whether it is criminal or administrative. I’ll end here. Konrad Ost: As I see that the 10-minute rule is strictly enforced, I will hurry up. Thank you very much for inviting me today. The focus of my paper is about the enforcement of antitrust rules by the national competition authorities. In the dawn of the modernisation process, the Bundeskartellamt (BKA) was rather reluctant to follow the mainstream move towards more harmonisation. Today we find ourselves more on the other side of the table, asking for even more. In my paper I argue that in order to reach an effective enforcement system, national systems need more alignment with the EU system. I have to admit that if the German system worked smoothly there DD

Part I: Effective Enforcement of Competition Law 5 would be less urgency to think about convergence, but effective sanctioning is at stake in Germany on two issues. One regards the addressee of a fine under German law and the other is the German procedural background. From an enforcer’s point of view, these are shortcomings that have to be changed. The European substantive provisions are of course applied by national competition authorities. The BKA has to enforce Article 101 TFEU against infringing ‘undertakings’ as defined under EU law. The German sanctioning law, however, provides for the imposition of sanctions on legal entities whose representatives commit the infringement. The legal entity is liable for any offence committed by a representative of that specific legal entity. In this logic, the action of a representative of another legal entity (even if it is a member of the same economic unit in European terms) may not be attributed to another legal person (eg the parent company). The result is a certain divergence between the enforcement of the substantive rules on the one side and the sanctioning law on the other. For example, there is no sufficient legal basis in German law to impose fines on parent companies for infringements committed by subsidiaries even though the substantive prohibition, as is clear from the case law, is addressed to the parent companies as part of the undertaking.2 We therefore have an important divergence on this issue of parental liability. The other issue is the succession in fines.3 It is possible, through internal restructuring within a group of undertakings, to evade sanctions. So this is more or less a cost–benefit analysis, which puts effective sanctioning at risk. Hence, effective enforcement of Article 101 in Germany is not entirely safeguarded. From the perspective of the national competition authority, there is a breach of EU law if it is not possible to fine the infringer of the EU competition rules effectively. From an undertaking’s point of view it is interesting as well, because the extent of the sanction depends on whether it is the Commission or the BKA that will impose a fine. At least there is a potential here to argue that there is a violation of rule of law principles.

2 On parental liability see, eg Joined Cases C‑628/10 P and C‑14/11 P Alliance One International Inc and Standard Commercial Tobacco Co Inc v Commission, EU:C:2012:479, para 42 (citing Case C‑90/09 P General Química and Others v Commission [2011] ECR I-1, paras 34–36; Case C‑521/09 P Elf Aquitaine v Commission [2011] ECR I-8947, para 53). See also Case C-97/08 P Akzo Nobel NV and Others v Commission [2009] ECR I-8237, para 56. 3 See Cases KRB 2/10 Fusion Transportbetonhersteller and 55/10 Versicherungsfusion, both of 10 August 2011. According to the Federal Court of Justice, it was only possible to hold a successor entity liable where the following conditions were cumulatively met: universal legal succession of the infringing entity by the successor entity, ie all assets and liabilities of the infringing entity must have been transferred to the succeeding entity in a single legal act; the infringing entity must have ceased to exist (an example would be the merger of one company into another); and economic identity between the infringing entity and the successor entity, which is only the case where the assets of the infringing entity are used in the same way by the successor entity (ie where there is a continuation of the same economic activity) and where they constitute the overwhelming part of the assets of the successor entity.

6 Part I: Effective Enforcement of Competition Law Now a brief look at the procedural side. In Germany, the rights and guarantees in antitrust proceedings are largely the same as in criminal cases. Compared to the EU system, judicial review in Germany is extreme. A ntitrust proceedings are treated as normal criminal cases, with 20, 40 or sometimes even a 100 days in court and procedures lasting more than a year. This is due to the focus on witnesses and oral procedures, which is explained by the fact that the individual can be fined in addition to the undertaking. The problem is to find the right balance. The procedures have become lengthy. The court has to repeat more or less everything in the administrative procedures. In the end, it is too burdensome. As I read in at least one paper that argues a little against my own, many of you that defend undertakings might prefer this German system at first glance, but ask German practitioners whether the German system is really preferable. I doubt it. My conclusion is that we need more convergence in both procedural and sanctioning law in order to create a level playing field that guarantees effective enforcement and sufficient foreseeability as to procedures and sanctions. What are the solutions at hand? One could have a look at the law as it stands and argue for more convergence on the basis of Regulation 1/2003. The question here is how much procedural alignment is already contained in the Regulation itself. My interpretation is that, in contrast with its original meaning, Article 5 of Regulation 1/2003, in the interpretation of the EU Courts, determines and marks the limits of national enforcement law. I argue that recent case law hints about the existence of wider effects on national procedural law than was thought before. This includes in particular the empowerment of national procedural law to impose fines on undertakings. Article 5 is in that regard incomplete. Recent case law of the ECJ in Schenker4 and Slovenskà sportitel’na5 on cases handled by NCAs shows that, from a German perspective, the ECJ ruled on issues of sanctions usually governed by national law. I suppose that the whole notion of an undertaking, including the issues of parental liability and succession of fines, is determined by EU law. Here I have to admit that we are on shaky ground, and there are neighbouring fields of law involved that are not determined by Article 5. The conclusion, therefore, is that one cannot stop at Regulation No 1, and therefore I call for a ‘Regulation No 2’ that could define the degree of harmonisation that is necessary for the effective enforcement of Article 101 TFEU on the procedural side. On the procedural side there are, of course, advantages of general features of the EU sanctions system from the enforcer’s point of view. However, it is clear that this cannot be a blueprint. Effective sanctioning is possible even with higher

4 Case C-681/11 Bundeswettbewerbsbehörde and Bundeskartellanwalt v Schenker & Co AG and Others, EU:C:2013:404. 5 Case C-68/12 Protimonopolný úrad Slovenskej republiky v Slovenská sporiteľňa as, EU:C:2013:71.

Part I: Effective Enforcement of Competition Law 7 standards of protection of fundamental rights, and a Regulation 2 could form the start for further alignment from both sides and from both extremes. Maybe there are other alternatives: we could just leave it as it is and come to effective sanctioning by focusing more on individual deterrence. However, as I have argued, the criminalisation of antitrust that we have with regard to bid rigging in Germany is not so successful. I do see that there is a certain need for introducing new sanctions, but I argue in my paper that the best-placed entity to do so is not the enforcer but the undertaking itself. Individual deterrence could be achieved through an effective compliance programme. A driver for effective compliance, as was seen in the Thyssen-Krupp case, where a company sued its ex-manager for 100 million euros, could be high corporate fines.6 The conclusion is that effective sanctioning of EU law requires enforcement by the NCAs, and for that to be effective and legitimate more convergence on both substantive and procedural grounds is needed. After 10 years of Regulation No 1, it is time to reflect on a Regulation No 2. Simon Bishop: I need to start by making two apologies. The first one is that as an economist I am not really sure what the difference is between effective and legitimate sanctions. To me, if it is legitimate it is also going to be effective and vice versa. The second apology is that I will have a narrow focus on monetary sanctions, fines and their appropriate levels. Although in practical terms all economics literature is focused on cartel behaviour, I will also comment on the appropriate level of fines in Article 102 TFEU cases. To give you the punchline to the latter in advance: we should not have fines for infringements of Article 102. In relation to cartel behaviour and fines, there is a lot of literature that speaks about ‘optimal deterrence’.7 Whenever we hear this, we should be rather wary. There are a lot of simple economic models out there and a lot of models provide a very good framework for thinking about how one might want to devise policy, but there are also a lot of economic models that get implemented and taken at face value that raise a lot of problems. Why do I say that? Optimal deterrence is based on two factors: overcharge benefit; and the probability of detection. Obviously, if you can raise the likelihood of detection, that is a good thing. From that perspective, the rationale for the leniency programme makes a lot DD

6 See AR Fabisch, ‘Managerhaftung für Kartellrechtsverstöße’, [2013] Zeitschrift für Wettbewerbsrecht—ZWeR 91–119. 7 See, eg William Landes, ‘Optimal Sanctions for Antitrust Violations’, 50 University of Chicago Law Review 652 (1983); Wouter Wils, ‘Optimal Antitrust Fines: Theory and Practice’, 29 World Competition 183 (2006); John Connor and Robert Lande, ‘How High do Cartels Raise Prices: Implications for Optimal Cartel Fines’, 80 Tulane Law Review 513 (2005).

8 Part I: Effective Enforcement of Competition Law of sense. But one thing that we will never know is the actual level of detection. No one will ever know this and any attempt to do so is doomed to fail. Therefore, if one of your crucial inputs into the model for optimal deterrence is something you will never know, how good is that for justifying any given number? In some sense, I am saying that whether it is 10 per cent of turnover or 30 per cent of turnover, these numbers are just plucked out of thin air. If we turn to the other input for the model, which is overcharge benefit, again I think we need to be really careful. There is a study going round by Connor which has sort of stated that the average overcharge is 25–30 per cent.8 Really? Where do these numbers come from? What is the underlying data? Numbers such as these very soon get overused before they have been sufficiently critically scrutinised. Are these numbers really robust? There is also a further problem with Connor’s estimates: even if, on average, they are correct, we still need to know the distribution, because for some cartels there could be an overcharge from 5–10 per cent and for others it could be 100 per cent. This would give you the average number of 25–30 per cent. I think this is a plausible outcome since, as we know, economic conditions differ drastically from market to market and one can therefore question whether it is really appropriate to apply an average figure for fines to different firms in completely different industries. Therefore, although I do not have any solutions as to the appropriate number, I think we need to be sceptical about how far our knowledge actually takes us.9 Now let me turn to Article 102 TFEU, the abuse of a dominant position, and specifically the appropriate monetary sanction for infringements in this field. I think there is a key difference between collusion and conduct held to infringe Article 102. Collusive conduct is always bad. Collusion might have a negative to zero impact on final prices but we know that it is never actually pro-competitive, whereas practically all conduct which has been held to infringe Article 102 also has a potential pro-competitive rationale. Therefore, this raises a big issue regarding the risk of over-intervention. That is because intervention against conduct that is pro-competitive will be harmful to consumer welfare. This element of potential harm through over-intervention has not featured enough in the public policy debate. We need to be more conscious of the value of doing nothing. I think the difficulties of enforcing Article 102 is particularly important because, when it comes to compliance, how do firms know whether their conduct is going to be anticompetitive or not? Often people say, well firms will know whether they are dominant or not, but that is not true in a lot of cases. They may have a high market share

8 For a breakdown of Connor’s findings, see recently John Connor, ‘Price-Fixing Overcharges’ (revised 3rd edn 2014), http://papers.ssrn.com/sol3/papers.cfm?abstract_ id=2400780. 9 See also Christian Ehmer and Francesco Rosati, ‘Science, Myth and Fines: Do Cartels Typically Raise Prices by 25%?’, Concurrences No 4-2009, Art No 28832, October 2009.

Part I: Effective Enforcement of Competition Law 9 but they are not dominant, or at least dominance is uncertain. One client asking compliance advice had a 50 per cent market share and wanted to see if it could implement a loyalty-based rebate scheme: the answer is no. Their response is that this is ridiculous. Two years ago they had an 80 per cent market share and now all their competitors are using an important competitive feature—loyalty rebates—that they are not allowed to use. You can say, as the EU Commission said in the old British Airways case, ‘Don’t worry—as long as you are no longer dominant you can start using them again’. But this seems to miss the point. There are real compliance dangers with this kind of interventionist application of Article 102. And that brings me back to the purpose that a fine serves for firms that are held to infringe that provision. A fine does not restore competition; that is not its purpose. Next, detection is not a factor because you cannot hide large dominant firms, and complainants will bring questionable behaviour to the attention of the authorities. Therefore, if a fine does not serve to restore competition, is it then about deterrence? Yes and no. The problem here is that if you start to impose very large fines for Article 102 infringements, this can have deterrent effects on legitimate p ro-competitive strategies in different industries. You can say in specific cases that it is a one-off, but over time such cases have the power of precedent, and spillover effects in other industries will arise. Finally, does a fine also serve to make media headlines? It can be good because it raises education and makes business p eople aware of competition policy in the same way it has been done in cracking down on cartel behaviour. But at the same time it should be recognised that it has a negative side. Politics with a small ‘p’ comes into this. Therefore, the reasons for the application of fines in Article 102 cases are from an administrative perspective close to zero. The people who suffered can also go through private enforcement and recover losses that way. Fred Louis: In the context of this discussion, I will speak only about cartels. I want to start with the issue of optimal deterrence, or whatever you want to call it. I think Simon has shown that this concept should play no part but that it is necessary instead in sanctioning to look more closely at the concrete impact of conduct on a market than is the case today. When you want to explain to an economist what is the difference between effectiveness and legitimacy, one would say ‘Well, imposing a 500 million fine on a cartel which was never implemented and had zero effect on the market may be effective in the sense that it scares people so that it may help deterrence, but is it legitimate’? Are concepts that were devised at the time when fines consisted of a thousand EU monetary units really legitimate for the current level of the fines? One cannot impose fines in the hundreds of millions and feel that you can skip the entire debate on whether or not the conduct you are fining has had a concrete impact on the market. This does not imply a full effects-based application or a quantification of the harm; but the current situation, where enforcers think that they can get away with imposing the current levels of DD

10 Part I: Effective Enforcement of Competition Law fines without demonstrating any effect, is problematic. I submit that one of the reasons that the EU is so reluctant to discuss criminalisation is a demonstration of the legitimacy gap because they have not got the burden of proof as to what exactly is the level of harm to society at large for cartels. I think we can all agree with Simon that there are no pro-competitive features to be found in cartels, although in crisis cartels there may be some discussion, but we can all agree with this as a basic starting point. However, does it justify the current level of fines? I think you really need to do better than this. The second point is that if you look at the fines today, you see from a practitioners perspective that the fines are high enough already and probably too high. If you look at the EU fining guidelines, which are increasingly seen as the model standard for enforcers in Europe, we are told that we can fine cartel conduct up to 30 per cent. In theory, you have a range between 0 per cent and 30 per cent. In practice, very little of that range is used. There has been, except for Telefónica/Telecom Portugal,10 no fine below 15 per cent and there has been no fine above 25 per cent. In most cases the fines are around 17–18 per cent. When you look at the cases you will see that the different cases between 15 and 18 per cent are sometimes indistinguishable from each other. Sometimes the conduct of a 15 per cent case seems to be worse that the conduct of an 18 per cent case. There is very little explanation as to what determines a choice of a certain percentage. The difference between a choice of 15 per cent or 18 per cent can be massive, and it translates into really high numbers when you apply the duration multiplier, which sends most cases nowadays into the 10 per cent fining cap category. One can ask whether that is the reason why you can see so little differentiation in the basic amounts of fines because you are already reaching astronomical numbers with this. F urther differentiation would only show more clearly what I would qualify as the disrespect for the law that is in the current system. Whether you consider the 10 per cent as a cap or a ceiling, as in Germany, the fact of the matter is that the legislator has set this limit. The enforcer then says ‘Well, this guy deserves a fine of 600 million euros and it is only because I respect the law that the fine is reduced to 120’. We are in an area of compliance where the regulator says that my system of calculating the fines has been devised irrespective of the limits put by the legislator. It is only at the last moment that I correct the amount and the fine is reduced. That does not show respect for the fact that the legislator has said that fines should not be over 10 per cent. This system deliberately flouts the 10 per cent rule and as an undertaking you have to find a way to evade the 10 per cent limit as much as you can. Contrary to prior practice, the Commission nowadays always involves the corporate group in a fine, and the justification is: ‘I can do this because the judges have authorised me to do it’. The fine

10 Commission Decision of 23 January 2013 in Case COMP/39839—Telefónica/Portugal Telecom.

Part I: Effective Enforcement of Competition Law 11 will be assessed against the group irrespective of whether the parent company has been involved in the practice or had any knowledge, or irrespective of whether the parent company has taken any steps to make sure that any subsidiary and business division complies with the law. The reasoning is to look at the ultimate parent because of a need to negate the effect of the 10 per cent limit if the enforcer is to have any chance of applying the first two steps of the fining guidelines. It is a situation that is blatantly unfair and creates huge problems of legitimacy. Because of a legal fiction we can hit the entire group, and we do not need to look at whether the group had involvement in this. This is something that no one outside the enforcers’ circles understands and it makes it hard for people to accept the system. Last point: convergence is in theory desirable, but please do not choose companies as a pretext to say that we therefore need to all have the EU system because, although there may be problems with the German system, if you ask the seven partners in my antitrust group which system they would choose, they would say: ‘Give me the German system any day!’ On the other hand, if you could analyse the dreams of policemen everywhere in the world, you would see that the dream system for them is the administrative decision-making system of the EU Commission and the light touch manifest error judicial review of the EU Courts in Luxembourg. Thank you.

12

Christine Parker* Effective and Legitimate Enforcement of Competition Law: A Riddle Wrapped In a Mystery Inside an Enigma?

1. Introduction Winston Churchill famously commented: ‘I cannot forecast to you the action of Russia. It is a riddle, wrapped in a mystery, inside an enigma …’1 So with regulatory enforcement, every time an enforcement agency overcomes one challenge, a deeper one rears its head. As this chapter demonstrates, the ‘deterrence trap’ is solved, but only by enforcement strategies that raise a ‘compliance trap’, which in turn raise a ‘legitimacy trap’. I briefly outline each of these on the basis of 15 years of empirical research on the enforcement strategies of the Australian Competition and Consumer Commission (ACCC) and the response of businesses.2 ‘But perhaps there is a key,’ Churchill went on to say. For Churchill, that key was Russian national interest. In the case of effective and legitimate enforcement of competition law, the ‘key’ is to recognize the political nature of competition regulation and enforcement to shape markets. That is: what is at stake is not competition in some pure or ‘blindly’ economic sense, but rather a political debate over the very shape of capitalism at the broad level

* Centre for Regulatory Studies and Faculty of Law, Monash University, Melbourne, Australia. This chapter summarises and reflects on some the main findings about effective and legitimate anti-cartel enforcement from two major empirical socio-legal research projects over the last 15 years: the Australian Competition and Consumer Commission Enforcement and Compliance Project (2005–2011) and the Cartel Project (2010–2012). I am grateful to the Australian Research Council for funding both projects and to my various collaborators on the two projects—Professor Vibeke Lehmann Nielsen, who was my co-investigator on the first project; and Professors Caron Beaton-Wells, Fiona Haines and David Round and research assistant Ms Janette Nankivell on the second project. I am also grateful for the support of Professors John Braithwaite and Imelda Maher and the C entre for Competition and Consumer Policy, Regulatory Institutions Network, A ustralian National University for initiating and supporting the ACCC Enforcement & Compliance Project. Further details of these projects can be found at http://www.law.unimelb.edu.au/cartel/ related-projects/the-australian-competition-and-consumer-commission-enforcementand-compliance-project and http://www.law.unimelb.edu.au/cartel/cartel-project. Footnote citations and references are omitted from the text below. 1 Made in a radio broadcast in October 1939. 2 The Appendix provides a list of the publications emanating from these two research projects.

14 Christine Parker and therefore at the microlevel about how competition law and regulation interacts with business people’s everyday lives. Various players (and wouldbe players) use competition law to contest and defend markets for particular products and services in ways that reflect their own interests and positions. This process of contestation and defence is one of the ways in which markets are transformed. Competition law is also used to constitute, contest, rationalise and transform capitalism at a broader level, and to set the boundaries of interaction between the social and justice policies of the broader socio-polity and the market.3 The key, then, to overcoming the cascading challenges of regulatory enforcement must lie in democratic engagement in relation to the central social, economic and justice questions raised by competition law, namely: —— The substantive values and interests served by competition law: how should markets and capitalism to operate? In the language of economics, this is the question of what ‘consumer welfare’ means. A perennial issue is to what extent competition law should be used to encourage and protect small business, or to what extent a competitive market can be allowed to produce dominant market players.4 —— The processes of investigation, adjudication, sanctioning and enforcement, and how they are experienced by individual business people, firms and other stakeholders. In the language of economics, this is the question of ‘optimal deterrence’. Perennial conundrums include the wisdom of going after easy scalps or high-publicity cases, larger versus smaller players, how to use immunity and leniency policies to reward whistleblowing or genuine attempts at compliance, and when to settle and when to keep going for greater sanctions. These questions are often framed in economists’ language as questions of ‘consumer welfare’ and ‘deterrence’. Criminologists and socio-legal scholars have noted that to these questions, we need to add the question of ‘compliance’.5 That is, to what extent do businesses actually respond to the law in the way anticipated? This tradition of research points out that businesses and individuals respond to and interact with the law in complex and plural ways which

3 See Brayden King and Nicholas Pearce, ‘The Contentiousness of Markets: Politics, Social Movements, and Institutional Change in Markets’, 36 Annual Review of Sociology 249 (2010). 4 See Tony Freyer, Regulating Big Business: Antitrust in Great Britain and America 1880–1990, Cambridge University Press, 1992; Tony Freyer, Antitrust and Global Capitalism, 1930–2004, Cambridge University Press, 2006. 5 See Christine Parker and Vibeke Lehmann Nielsen, Explaining Compliance: Business Responses to Regulation, Edward Elgar, 2011; Christine Parker, ‘Criminalisation and Compliance: The Gap Between Rhetoric and Reality’ in Caron Beaton-Wells and Ariel Ezrachi, eds, Criminalising Cartels: Critical Studies of an International Regulatory Movement, Hart Publishing, 2011, chapter 11.

Effective and Legitimate Enforcement of Competition Law 15 include economic calculations about their self-interest, judgements about the substantive legitimacy of the law, the procedural legitimacy of the enforcement agency and the businesses’ own capacity to notice and understand the law in the first place, and their scanning of the environment to see how other businesses and stakeholders treat the law.

2. A riddle … the deterrence trap The ‘deterrence trap’ occurs where penalties for non-compliance cannot be big enough to deter rational misconduct without being so large that they exceed the capacity of firms to pay.6 This means that there may be no ‘optimal’ financial penalty to deter cartel conduct. Economists generally consider that the amount of the financial penalty should be based on an amount that is greater than the gains of the misconduct and is then increased to take into account the fact that not all cartels are swiftly detected and prosecuted. Since the risk of discovery and enforcement for cartels is quite low, most commentators and policy-makers believe that fines for cartel behaviour should be many times the amount of the gain from the cartel. However, fines that are large enough to be an effective deterrent may be too large for some firms to bear. This means that enforcement agencies and courts might baulk at imposing financial penalties so heavy that a firm’s innocent employees and investors lose their jobs and savings. Moreover, fines that are so large as to be effective might also deter economically or socially desirable market behaviour, leading some commentators to suggest that there is a ‘sweet spot’ where fines are optimally deterrent but do not over-deter.7 It has been suggested that regulators should nonetheless project an image of invincibility in order to elicit compliance.8 Under the period in which Professor Allan Fels was its Chairman, the ACCC did indeed manage to a large degree to project an appearance of tough, swift and sure enforcement action.9 My research for the ACCC Enforcement and Compliance Project10 6 John C Coffee, ‘“No Soul to Damn: No Body to Kick”: An Unscandalized Inquiry into the Problem of Corporate Punishment’, 79 Michigan Law Review 386 (1981). 7 See Parker, ‘Criminalisation and Compliance’, above n 5, 241–242; Wouter Wils, ‘Optimal Antitrust Fines: Theory and Practice’, 29 World Competition 183 (2006); Peter Whelan, ‘A Principled Argument for Personal Criminal Sanctions as Punishment Under EC Cartel Law’, 4 The Competition Law Review 7 (2007). 8 Ian Ayres and John Braithwaite, Responsive Regulation: Transcending the Deregulation Debate, Oxford University Press, 1992, 44. 9 See Christine Parker and Vibeke Lehmann Nielsen, ‘The Fels Effect: Responsive Regulation and the Impact of Business Opinions of the ACCC’, 20 Griffith Law Review 91 (2011); see also Fred Brenchley, Allan Fels: A Portrait of Power, John Wiley & Sons, 2003. 10 The ACCC Enforcement & Compliance Project was conducted by Professor Christine Parker (then at University of Melbourne) in collaboration with Professor Vibeke Lehmann

16 Christine Parker showed that under the leadership of Fels the ACCC’s main cartel enforcement successes occurred via two strategies for ‘leveraging’ deterrence—and thus overcoming the deterrence trap:11 First, the ACCC leveraged up the deterrence value of the modest financial penalties available under Australian competition law with the administrative and personal cost and inconvenience of the investigation process and the reputational damage caused by publicity. Businesses and their lawyers came to see the process of ACCC investigations, and the publicity associated with ACCC enforcements, as more effective motivators of compliance than penalties. Second, the ACCC targeted a range of individuals and organisations (such as industry associations, compliance professionals and potential whistleb lowers) with the capacity to improve business compliance to put in place a web of controls that reduce the opportunities for, or the advantages of, offences and embed norms and practices for avoiding non-compliance in the social structure of industry. The ACCC developed a policy of holding as many parties—individual and corporate—legally liable as actually contributed to the conduct, rather than just focusing on the main corporate participants in the cartel. Even if penalties against firms are too small relative to the firm’s size and profits to be of deterrent value, this strategy spreads the deterrent threat to individuals who are likely to be more sensitive to smaller penalties, or even just to the shame of having a finding of liability and an injunction against reoffending against them. ACCC enforcement action also almost always included a requirement that the firm implement or upgrade a trade practices compliance programme—institutionalisation of a form of corporate conscience. Finally, the ACCC often forced or encouraged other parties who had some capacity to regulate the market practices of the relevant industry or individual firms in the case to do so. For example, in a number of cases, as a result of enforcement action, relevant industry associations became committed to educating and empowering business members to take competition law compliance seriously. Simple deterrence will often fail to produce compliance commitment because it does not directly address business perceptions of the morality of regulated behaviour—it merely puts a price on non-compliance and the ability of that price to deter misconduct will depend on the operation of the deterrence trap. Under Fels, the ACCC became expert at o vercoming

Nielsen. This research empirically tested major theories of how businesses respond to regulatory enforcement and why they do or do not comply with the law using survey data from nearly 1,000 larger businesses in Australia, as well as qualitative interviews with ACCC staff, trade practices lawyers and business people. A full list of papers is provided in the Appendix. 11 Christine Parker, ‘The “Compliance” Trap: The Moral Message in Regulatory Enforcement’, 40 Law & Society Review 591, 596–602 (2006).

Effective and Legitimate Enforcement of Competition Law 17 the deterrence trap by communicating a potent moral message about the seriousness of cartel conduct. The ACCC ‘leveraged’ the deterrence impact of their relatively small financial penalties by using the process and publicity to underline their own campaign about the social unacceptability of cartel conduct and enrolling other parties to enforcing compliance. However, this leveraged deterrence strategy also led to conflict between business and the ACCC that showed the ACCC was in a ‘compliance trap’. That is, the ACCC has achieved apparent enforcement success but without gaining the commitment of all business to the substantive moral basis for its enforcement activity; it had not gained business agreement and commitment to its own moral and economic evaluation of what ‘optimal’ deterrence required in terms of the process of enforcement and the substantive goals of competition policy.

3. Wrapped in a mystery … the compliance trap Under Fels and beyond, business criticised and openly expressed its resentment for the ACCC’s enforcement methods, even while settling most cases with the ACCC and apparently improving cooperative compliance. Thus, for many years, the ACCC struggled with the problem that business would cave in to enforcement action because of the harsh, moralising aspect of the sanctions and investigation process as opposed to the fines. However, a business would not necessarily admit that they had broken the law or done anything wrong. This created the conditions in which some businesses could politically attack the ACCC and seek to undermine its success. For example, in the Freight Case,12 the ACCC’s first major cartel enforcement success which ran from 1992 to 1994, the ACCC believed that TNT settled because the weight of evidence collected by the regulator indubitably demonstrated its guilt. However, company insiders put a slightly different slant on it. Although TNT had admitted to the misconduct for the purposes of the settlement, the company had also stated publicly at the time that: I wish to emphasize that the withdrawal of our defense was taken purely for commercial reasons and under no circumstances does TNT accept guilt or liability, nor do we have any evidence that these alleged activities ever took place. In fact, if we had continued our defense we believe we could have won.13

12 TPC v TNT Australia Pty Ltd and Ors [1995] ATPR 41-375. For a fuller description of this case and the methodology used as a basis for this analysis, see Parker, ‘The “Compliance” Trap’, ibid, 599–602. 13 Quote attributed to Mr Fred Millar, General Manager TNT Australia, in ‘Record Fine for TNT, Ansett over Price-fixing’, The Age, 8 November 1994.

18 Christine Parker Another insider stated a number of years later: [W]hen the litigation was proceeding there was at least one story per week in the Australian Financial Review about [the] litigation. The company and its advisors had no doubt that the TPC kept feeding the media. This exposure generated a negative sentiment about the company within the financial sector and make no mistake this may have been a bigger incentive to settle than the costs of the litigation. There is equally no doubt that the costs of the litigation were a major issue for the TNT group. Despite what the TPC may say about its belief in the success of the claim there is no doubt that the defendants were anything but convinced … But again make no mistake that management becomes substantially diverted by such proceedings to the detriment of the performance of the business. It is of course difficult to place amounts upon such matters but it was accepted by the CEO that this detriment far exceeded the legal costs. On a straight financial analysis there could be little extra needed to justify settlement.14

As Chairman of the ACCC between 1991 and 2003, Fels was said to have created ‘Australia’s competition watershed … he electrified business into taking competition law seriously’.15 Yet, at the same time, business, including the chief executive officers of a number of Australia’s biggest companies, regularly and openly criticised the ACCC for adversarialism that they perceived as procedurally unfair and publicity that was stigmatising. Essentially, they claimed that the ACCC was over-reaching: business criticised the ACCC, and Professor Fels himself, for being ‘unfair, unjust and immoral’, and having no ‘line of accountability at all’. The ACCC’s behaviour was criticised for being ‘a corruption of administration of the Trade Practices Act’, ‘false and misleading behaviour on the part of the cop’, and for using publicity ‘in a way that damages companies before they are proven guilty’. One chief executive said that ‘Fels’ use of the media … smacks of the Gestapo’. Another called Fels a ‘smiling assassin’ who had inflicted ‘irreparable harm to the Australian economy’. Professor Fels was described as ‘a maverick autocrat whose overzealous application of merger law retards companies’ ability to grow big enough at home to compete in a globalised marketplace’; and big business argued that the ACCC needed to give Australian businesses much more freedom to merge with one another in order to achieve ‘scale’, so that they could export overseas and Australia could avoid the fate of becoming a ‘branch economy’.16

14 Anonymous informant interviewed by Christine Parker. See Parker, ‘The “Compliance” Trap’, above n 11, 600–601. 15 Brenchley, A Portrait of Power, above n 9, 278–279. 16 Ross Gittins, ‘Perhaps This Is Why Big Business Is Ganging Up on Allan Fels’, The Age, 10 July 2002, 13; Brenchley, A Portrait of Power, above n 9, 220; Cameron Stewart, ‘Making Markets Add Up’, The Weekend Australian, 8–9 June 2002, 21; Christian Catalano, ‘Gloves Off as Retailer Hits Out’, The Age, 30 June 2003, 2. See also Parker, ‘The “Compliance” Trap’, above n 11, 603; Christine Parker and Vibeke Lehmann Nielsen, ‘What do Australian Businesses Really Think of the ACCC and Does it Matter?’, 35 F ederal Law Review 187, 187–188 (2007).

Effective and Legitimate Enforcement of Competition Law 19 Professor Fels argued that big business would always criticise an effective regulator: ‘There is always deep resentment when we prosecute or block mergers or cut prices, no matter how strong the justification’.17 According to him, the ACCC was merely bringing competition and consumer law enforcement strategies ‘into line with North American standards’, and debate should be less about ‘the restrictions that should exist to protect business against an allegedly zealous regulator’ and more about ‘the greater danger that there are few safeguards for business or the public against a tame regulator’.18 Where fulsome political and moral support for the enforcement regime is lacking, the ‘compliance’ trap is set. Responsive regulators find themselves in a dilemma: overcome the deterrence trap by making morally tough demands that not only undermine business commitment to compliance in the longer term (because they lack political legitimacy) but also undermine their own political support (because business will respond by lobbying government to emasculate the regulatory enforcement agency), or avoid conflict with businesses by not making any difference at all. Since political support for a tough, moralising enforcement approach to business regulation is often lacking, active regulatory enforcement agencies who want to be effective often find themselves having to choose whether to jump out of the deterrence trap frying pan into the compliance trap fire.19 It is a ‘compliance’ trap because it occurs only when regulators are actively seeking to improve business compliance, and commitment to compliance, through their enforcement activity. A regulator that engages in formalistic enforcement activity for its own sake will not face this dilemma. It is a ‘trap’ because, in the absence of external political support, there is nothing the regulator can do to escape. The regulator must either choose weakness (no compliance impact) or have weakness thrust upon it (lack of legitimacy leading to emasculation).20 Regulators are thus often forced into a situation where they feel they have to avoid the conflict engendered by strong enforcement action and strong statements of moral responsibility. This may be one reason why regulatory

17 Professor Allan Fels in Malcolm Maiden, ‘The Bell Tolls for Fels at ACCC Kennel’, Business and Money, The Age, 21 June 2003, 1. Elsewhere, Professor Fels was reported as having commented about Gerry Harvey’s criticisms of him (quoted above): ‘Professor Fels said Mr Harvey had been ‘totally uncooperative’ during every step of the ACCC’s proceedings against his company, and had dragged the inquiry to exhaustive lengths’. Catalano, ‘Gloves Off’, ibid. 18 Allan Fels, ‘ACCC Needs Support From the Top’, The Australian Financial Review, 30 June 2003, 55. Professor Fels was also quoted as saying: ‘Some business people are throwing a trial-by-media slogan at practices that are quite normal in the field of law enforcement’. Damon Kitney and Katharine Murphy, ‘Big Business Steps Up Attack on ACCC’, The Australian Financial Review, 13 May 2002, 1. See also Parker and Nielsen, ‘What do Australian Businesses Really Think’, above n 16, 188–189. 19 See Parker, ‘The “Compliance” Trap’, above n 11, 593. 20 Ibid.

20 Christine Parker enforcement agencies often seem to seesaw between formal and punitive, or soft and facilitative, enforcement approaches. It is so difficult to escape the two traps that most regulators most of the time take comfort in a formalism that verges on industry capture—capitulating to business most of the time and taking only the most egregious cases to court in simple deterrence mode the rest of the time.21 The Fels ACCC tried to avoid this approach by using ‘responsive regulation’. Ayres and Braithwaite’s responsive regulation theory suggests that regulators should use multiple enforcement strategies in contextually sensitive ways.22 This theory sees the capacity for regulators to persuade regulated businesses to voluntarily comply in a social interaction as the baseline for a pyramid of enforcement strategies that can be escalated to deterrence where necessary. Deterrence or punishment are considered to be most effective where they are held in reserve, ‘threatening in the background but never threatened in the foreground’,23 and used only in the most egregious cases at the tip of the pyramid. Responsive regulation theory further suggests that a regulatory enforcement agency is only likely to be effective at promoting compliance where it is able to project quite a sophisticated set of messages about itself and its behaviour to those who it regulates: ‘[i]t must have an image of invincibility at the same time as it has an image of mercy and forgiveness’.24 The regulatory agency needs to be both procedurally and substantively just, while being simultaneously accommodating and flexible, and known to be capable of tough and effective enforcement action when a breach occurs. Therefore, we expect that regulators need to try to make sure that businesses (and the public) hold together a quite complex set of potentially contradictory o pinions and expectations about the way that the regulators do their job. It is the combination—the handling of tension between the different dimensions of opinions—rather than the separate dimensions in and of themselves that is likely to be of most practical importance for regulators.25 Nevertheless, the ACCC’s responsive regulation strategy led to conflict between business and the ACCC over the substance of the law, its application in business contexts and the moral seriousness of the social harm caused by its breach. This led to the government commissioning an independent review of competition law and to Professor Fels’s final term of appointment being

Ibid. Ayres and Braithwaite, Responsive Regulation, above n 8. See also Christine Parker, ‘Twenty Years of Responsive Regulation: An Appreciation and Appraisal’, 7 Regulation & Governance 2 (2013). 23 John Braithwaite, Restorative Justice and Responsive Regulation, Oxford University Press, 2002, 119. 24 Ibid. 25 See Parker and Nielsen, ‘The Fels Effect’, above n 9. 21 22

Effective and Legitimate Enforcement of Competition Law 21 shorter than might otherwise have been expected—despite his success and popularity with the general public.26 The compliance trap is a symptom of a socio-polity that has not reached agreement about whether and what business misconduct should be treated as a crime. Debate over what is the ‘optimal’ level of deterrence is really a cipher for this lack of clarity and agreement about the social, moral and political basis of anti-cartel law. ‘Optimal’ deterrence that would allow a certain degree of cartel conduct would make little sense if cartels really are morally reprehensible conduct akin to fraud. Debate about optimal deterrence indicates that it is not clear to what extent anti-cartel law is simply economically ‘regulating’ behaviour or to what extent it is intended to prohibit and stop criminal conduct. That is, it reflects a lack of agreement about the limits of proper business conduct and where the sweet spot of optimal deterrence lies. In the absence of a full arsenal of enforcement tools, and political and cultural support for the law that they are required to enforce, business regulators are being given an impossible task to promote compliance. The compliance trap can only be resolved politically, external to any particular regulatory enforcement encounter. That is, there must be political commitment to the seriousness of the law and its enforcement, or at least a clear acceptance of how much deterrence, and therefore compliance, is optimal. One would expect to see this reflected both in the substance of the law and in material and symbolic support for the regulatory enforcement agency. But this, in turn, may lead to the third and final trap, the legitimacy trap.

4. Inside an enigma … a legitimacy trap? The ACCC responded to the compliance trap by campaigning hard for the criminalisation of cartel conduct and extra resourcing for anti-cartel enforcement.27 (Previously, cartel conduct could be prosecuted as a civil offence only.) The Australian Government did indeed, eventually, provide moral support for the ACCC’s enforcement activities by criminalising cartel conduct and setting jail penalties for individuals involved.28

Parker, ‘The “Compliance” Trap’, above n 11, 612. Caron Beaton-Wells and Fiona Haines, ‘The Australian Conversion: How the Case for Cartel Criminalisation Was Made’, 1 New Journal of European Criminal Law 499 (2010); Caron Beaton-Wells and Fiona Haines, ‘Making Cartel Conduct Criminal’, 42 Australia and New Zealand Journal of Criminology 218 (2009). 28 See ibid, ‘The Australian Conversion’; Caron Beaton-Wells and Brent Fisse, Australian Cartel Regulation: Law, Policy and Practice in an International Context, Cambridge University Press, 2011. 26 27

22 Christine Parker However, the empirical research undertaken by my colleagues and I for the Cartel Project29 found that the legitimacy of criminalising cartel conduct was still questioned by both the general public and the business community. It has been suggested that the moral status of white collar crimes is often ambiguous and controversial. That is, whereas the criminalisation of street crimes often reflects widespread public censure of the conduct involved, when it comes to crimes in the suites, there are not necessarily widely shared norms about what conduct should count as a criminal offence, a civil, administrative or purely regulatory offence, or should be excused or even encouraged. In relation to cartel conduct, it is difficult to pinpoint any unambiguous substantive moral justification for criminalising cartel conduct in Australia apart from the goal of supercharging deterrence. There is still considerable debate in Australia as to whether the rationale for prohibiting cartel conduct is a fairly narrow Chicago School idea of efficiency (popular in Australia since the 1980s) or the older ‘workable competition’ ideas that seeks to balance social welfare against competition. The desire to protect small business has always been—and remains—a particularly strong strand in practical policy debates about Australian competition law. This mirrors some debates in Europe.30 Gerber points out that the goal of ‘economic efficiency’ has been ‘marginal’ in Europe because its ‘abstract economic language of wealth maximization does not comport easily with other [more substantive] goals or with administrative discretion’.31 Anti-cartel law and its enforcement in Australia have fallen into a ‘legitimacy trap’ because of this ambiguity and controversy about whether the law is substantively justified or not—and, if so, on what basis. Lack of a greement about

29 The Cartel Project was based at the University of Melbourne and led by Professor Caron Beaton-Wells, in collaboration with Professors Fiona Haines, Christine Parker and David Round. Full details are available at http://www.law.unimelb.edu.au/cartel/cartelproject. Many of the main empirical findings of the project on public opinion about cartel criminalisation in Australia and its likely impact on deterrence and compliance are summarised in Caron Beaton-Wells and Christine Parker, ‘Justifying Criminal Sanctions for Cartel Conduct: A Hard Case’, 1 Journal of Antitrust Enforcement 198 (2013). A full list of publications from the project can be found in the Appendix. 30 Gerber’s analysis of the origins and development of twentieth-century European competition law and its enforcement identifies four main sets of underlying objectives, none of which relates to efficiency in the Chicago School sense. These four sets of objectives have been: the protection of the freedom of economic actors (appealing to a classical liberal conception of freedom); the prevention of an excessive concentration of economic resources and restraining private economic power in order to achieve and preserve a democratic polity after the Second World War (especially in Germany); ensuring fairness and justice for small and medium-sized enterprises which might be unfairly disadvantaged in competition, and a fair go for the common man; and, as a matter of economic policy, to counter inflation and assist in price control, and later to promote economic development and increase international competitiveness. See David Gerber, Law and Competition in Twentieth Century Europe, Oxford University Press, 1998. 31 Gerber, ibid, 420.

Effective and Legitimate Enforcement of Competition Law 23 the substantive basis for the legitimacy of anti-cartel law means that business people who engage in cartel conduct are able to rationalise away the illegality (and immorality) of their conduct by reference to the ambiguity around the legitimacy of anti-cartel law itself. They do this in three different ways: (i) by avoiding or distancing themselves from knowledge of the anti-cartel law and the fact that it applies to them; (ii) by resisting and d enying the moral legitimacy of the law; and (iii) by knowingly playing games with the law so as to avoid its application to them.

4.1 Avoiding or distancing themselves from knowledge of the anti-cartel law and the fact that it applies to them In the Cartel Project survey of business people, less than half could identify that a very clear cut case of price fixing in a short scenario was in fact a criminal offence and less than a quarter could identify that jail was available as a penalty.32 Accurate knowledge of the law correlated with substantive agreement with the law—that is, business people who thought cartel conduct ought to be criminal were more likely to know or believe that it was in fact criminal.33

4.2 Resisting and denying the moral legitimacy of the law The Cartel Project team interviewed people who had been subject to cartel enforcement in the past. It found that small business people and managers lower down corporate hierarchies generally held a resistant view to the expansion of completion through anti-cartel law. They understood themselves to be ‘innocent’ and ‘naive’ about competition law. That is, they claimed that they did not know much about the law when they engaged in the conduct later found to be illegal, they did not consider that the law might apply to them and they felt that the law should not apply to them. They understood their own businesses as too small for the law to apply to and their own conduct as harmless. They understood themselves to be acting according to alternative values that they had to put into action in order to survive politically, socially and economically. In some cases, the judge had indeed acknowledged that these interviewees showed little moral blameworthiness. However, although this might be relevant to the quantification of penalties, it was not relevant 32 See Christine Parker, ‘The War on Cartels and the Social Meaning of Deterrence’, 7 Regulation & Governance 174 (2013); Beaton-Wells and Parker, ‘Justifying Criminal Sanctions’, above n 29. 33 Ibid, ‘The War on Cartels’.

24 Christine Parker to liability since anti-cartel offences are per se breaches.34 In the quotations below, each paragraph comes from a different interviewee.35 If I knew that it was a contravention of the Act at the time I wouldn’t have done it … Perfectly sensible undertaking. Perfectly reasonable. No immoral connotation to that at all … It just didn’t occur to me there’d be a problem … All this Trade Practices stuff, as far as I can tell, does criminalise conduct which is not criminal. It’s just normal—this is all normal commercial behaviour. And cartels are too, I’m sure … I was sort of going on my sense of morality. I shouldn’t say they’re not aware [of the anti-cartel law]. They’d probably be aware from the big corporations, alright, that’s as far as the extent goes. But to talk candidly to one of your competitors, what did you go in for, or what do you reckon it’s worth, and blah, blah, blah. And you could go and cop a big fine for that. No one’s aware of that … because the legislation is a pile of books like that [indicating a very high pile with his hand]. A lawyer doesn’t even know what actually specifies every sub-clause in every paragraph, how are we [as normal workers] supposed to know? If you look at something like the Pratt situation [referring to a very well known price fixing cases involving two large cardboard box manufacturers] then well that’s probably up there with the criminal issues because it really is a deliberate attempt to extract more money … on a fairly massive scale. But for the little blokes who are sort of plodding along essentially trying to find the margin, and we’re talking margins of two or three per cent [this should not be criminal]. You get four or five big concrete blokes sitting around a room like this and they say right we’re going to set the price—the concrete at such and such a price, and then you’re going to have that job and that job. That’s collusion at its worst … We didn’t make heaps of money out of it. That’s the criminalisation, if we were ripping off people and all driving around in the latest vehicles and going overseas. Mate! But we weren’t, we’re not doing that. Probably in a case like ours [all small operators], you could probably separate— create a separation. Well, yeah, we were just merged in this contravening act, the same as someone who’s a corporation that had contravened the act and ripped off bloody millions of people. Now, you know, lumped into the same category.

4.3 Knowingly playing games with the law so as to avoid its application to them On the other hand, executives higher up the hierarchy in larger businesses, and external and in-house lawyers, tend to embrace the official rationale for

34 Parker, ‘The War on Cartels’, above n 32; Christine Parker, ‘Economic Rationalities of Governance and Ambiguity in the Criminalization of Cartels’, 52 British Journal of Criminology 974 (2012). 35 All quotations are from the two papers in the previous footnote.

Effective and Legitimate Enforcement of Competition Law 25 anti-cartel law at least in their public statements. However, at the same time they are often able to take advantage of the fact that they operate in large organisations and there is ambiguity about individual versus organisational responsibility for cartel conduct in the law to avoid personal and organisational responsibility for cartel conduct. Instead, they are able to shift liability to individuals and units down the line.36 It was a one-off incident, by one person, with nothing anywhere that would show that it was part of a broader policy within the business, that this was the way things were done. I don’t think there’s anything else we could have done to prevent the conduct at the time. This was a rogue senior manager in charge of a rogue department. He was trained, he had a compliance program. He knew there was an issue and that’s the reason why he sought legal advice. He, on the record, had told his people of having inappropriate discussions with competitors. He knew the law. He made a conscious decision.37

4.3.1 The legitimacy trap, the deterrence trap and the compliance trap The ACCC fell into the legitimacy trap after escaping both the deterrence and the compliance traps. The legitimacy trap, however, feeds into and amplifies both the deterrence trap and the compliance trap. The legitimacy trap amplifies the deterrence trap because, as we have seen, where people do not substantively agree with the law, they are more likely to exhibit bias in hearing and understanding what the law is and the fact that it applies to them at all. Hence they will tend to underestimate the application of deterrence to their own conduct. This, in turn, requires larger and larger penalties and more stigmatising enforcement and publicity to bring it to their attention, and thus further amplifies the deterrence trap. The legitimacy trap amplifies the compliance trap because, where people do not agree with the substantive justification given for the law or do not feel that there is any clear substantive justification, they are also more likely to find ways in which they believe the procedural application of the law is at fault. Thus their outrage at the immorality of both the means and goals of the regulator is likely to be heightened. For example, the ACCC Enforcement and Compliance Project found that regulatees’ assessments of strategic sophistication—an opinion about how well the ACCC’s procedures and strategies contributed to good substantive policies—are significantly related to normative commitments to compliance. These findings suggest that we need

36 Ibid. See also Jeffrey Sonnenfeld, ‘Executive Apologies for Price Fixing: Role Based Perceptions of Causality’, 24 The Academy of Management Journal 192 (1981). 37 Quote from Parker, ‘The War on Cartels’, above n 32, 188.

26 Christine Parker to weave examination of perceptions of substance and procedure together in understanding how opinions of regulators affect compliance. For example, Australian businesses’ assessments of whether the ACCC behaves in a procedurally ‘unreasonable’, ‘aggressive’, ‘unfair’ or ‘uncooperative’ way appear to be influenced by how businesses perceive the substantive goals of the ACCC. The more they see competition and consumer policy as morally important, the more likely they are to see tough public enforcement action as reasonable and fair. The more they disagree with the priorities of the competition law and the ACCC’s interpretation of it, the more likely they are to label any attempts by the ACCC to enforce the law as unfair.38 This will lead the regulator further into the compliance trap as it either tries to argue ever more strongly that the law it enforces is morally justified and its own enforcement actions significant and important or it backs off.

5. Conclusion: regulation and the politics of markets Ambiguity about the legitimacy of white collar or business crime is endemic because conflict about the limits and responsibilities of markets, commodification and business is fundamental to the nature of modern democratic capitalist societies. Conflict about competition policy and law, what competition should and should not mean, to what extent it should be limited or balanced against social and political goals, or to what extent it should be a sole policy goal are necessarily at the centre of democratic debate in contemporary regulatory capitalism. Many arguments over the procedural legitimacy or illegitimacy of competition law enforcement stem from fundamental conflict about whether breaches of competition law represent conduct that should be considered criminal and immoral (and therefore deserve punishment) or whether they are merely conduct that is economically non-optimal in certain circumstances (and therefore need to be regulated). The former, more substantive, moral rationale for competition law would also imply that higher procedural fairness standards should be followed in its enforcement. Yet the political choices behind the substantive rationale for competition law and the procedures for its enforcement are often hidden. The point is that this substantive debate about the place of business, competition, markets, commodification, economisation in our societies and polities cannot be bracketed from a discussion of the procedural or legal-technical

See Parker and Nielsen, ‘The Fels Effect’, above n 9.

38

Effective and Legitimate Enforcement of Competition Law 27 effectiveness and legitimacy of competition law enforcement and sanctioning. People’s substantive understanding of and agreement or disagreement with the law will inevitably seep into their responses to attempts at enforcement and sanctioning. In other words, effective enforcement and sanctioning is not just a technical skill; it also requires the support of a robust democratic sociopolity which has the opportunity and takes the time to deliberate and contest the meaning and shape of the law to be enforced on an ongoing basis.

Appendix: references to research on which this chapter is based The Australian Competition and Consumer Commission Enforcement and Compliance Project http://www.law.unimelb.edu.au/cartel/related-projects/the-australian-competitionand-consumer-commission-enforcement-and-compliance-project

Online reports Ainsworth, P, Parker, C and Stepanenko, N (2004) ACCC Enforcement and Compliance Project: The Impact of ACCC Enforcement Activity in Cartel Cases (Centre for Competition and Consumer Policy, Australian National University). Nielsen, VL and Parker, C (2005) The ACCC Enforcement and Compliance Survey: Report of Preliminary Findings (Centre for Competition and Consumer Policy, Australian National University). Parker, C and Nielsen, VL (2008) ACCC Enforcement and Compliance Project: Explanation of Project and Methodology (Centre for Competition and Consumer Policy, Australian National University). Parker, C and Stepanenko, N (2003) ACCC Enforcement and Compliance Project: Preliminary Research Report (Centre for Competition and Consumer Policy, Australian National University). Parker, C, Braithwaite, J and Stepanenko, N (2004) ACCC Enforcement and Compliance Project: Report on ACCC Compliance Education and Liaison Strategies (Centre for Competition and Consumer Policy, Australian National University). Sharpe, M and Parker, C (2006) ACCC Enforcement and Compliance Project: Assessment of the Impact of ACCC Regulatory Enforcement Action in Unconscionable Conduct Cases (Centre for Competition and Consumer Policy, Australian National University).

Book Parker, C and Nielsen, VL (eds) (2011) Explaining Compliance: Business Responses to Regulation (Edward Elgar Publications).

28 Christine Parker

Book chapters Parker, C and Gilad, S (2011) ‘Compliance Management Systems: Structure, Agency and Culture‘, in C Parker & V Nielsen (eds), Explaining Compliance: Business Responses to Regulation (Edward Elgar Publications) 170–95.

Journal articles Parker, C (1999) ‘Compliance Professionalism and Regulatory Community: The Australian Trade Practices Regime’ Journal of Law & Society 26(2), 215. Parker, C (1999) ‘Evaluating Regulatory Compliance: Best Practice and Standards’ Trade Practices Law Journal 7(2), 62. Parker, C (2003) ‘Regulator-required Corporate Compliance Program Audits’ Law and Policy 25(3), 221–244. Parker, C and Nielsen, VL (2006) ‘Do Businesses Take Compliance Seriously? An Empirical Study of Implementation of Trade Practices Compliance Systems in Australia’ Melbourne University Law Review 30, 441. Parker, C (2006) ‘The Compliance Trap: The Moral Message in Responsive Regulatory Enforcement’ Law & Society Review 40(3), 591. Parker, C and Nielsen, VL (2007) ‘What do Australian Businesses Think of the ACCC and Does it Matter?’ Federal Law Review, 35, 187. Parker, C and Nielsen, VL (2008) ‘How Much Does it Hurt? How Australian Businesses Think About the Costs and Gains of Compliance with the Trade Practices Act’ Melbourne University Law Review 32(2), 554. Parker, C and Nielsen, VL (2007) ‘To What Extent do Third Parties Influence Business Compliance Management Behaviour?’ Journal of Law & Society 35(3), 309. Parker, C and Nielsen, VL (2009) ‘Corporate Compliance Systems: Could They Make Any Difference?’ Administration & Society 41(1), 3. Parker, C and Nielsen, VL (2009) ‘Is Anyone Out There Listening?’ Trade Practices Law Journal 17, 106. Parker, C, Rosen, RE and Nielsen, VL (2009) ‘The Two Faces of Lawyers: Professional Ethics and Business Compliance with Regulation’ Georgetown Journal of Legal Ethics 22, 201. Parker, C and Nielsen, VL (2011) ‘Deterrence and the Impact of Calculative Thinking on Business Compliance with Competition and Consumer Regulation’ The Antitrust Bulletin 56(2), 377. Parker, C and Nielsen, VL (2011) ‘The Fels Effect: Responsive Regulation and the Impact of Business Opinions of the ACCC’ Griffith Law Review 20(1), 91. Parker, C and Nielsen, VL (2012) ‘Mixed Motives: Economic, Social and Normative Motivations in Business Compliance’ Law & Policy 34, 428. Parker, C (2013) ‘Twenty Years of Responsive Regulation: An Appreciation and Appraisal’ Regulation & Governance 7(1), 2. Nielsen, VL and Parker, C (2009) ‘Testing Responsive Regulation in Regulatory Enforcement’ Regulation and Governance 3, 376. Rosen, R.E., Parker, C and Nielsen, VL (2012) ‘The Framing Effects of Professionalism: Is There a Lawyer Cast of Mind? Lessons from Compliance Programs’ Fordham Urban Law Journal XL, 297.

Effective and Legitimate Enforcement of Competition Law 29 Sharpe, M and Parker, C (2007) ‘A Bang or a Whimper? The Impact of ACCC Unconscionable Conduct Enforcement’ Trade Practices Law Journal 15(3), 139.

The Cartel Project http://www.law.unimelb.edu.au/cartel/cartel-project

Online reports Beaton-Wells, C, Haines, F, Parker, C and Platania-Phung, C (2010) Report on a Survey of the Australian Public Regarding Anti-Cartel Law and Enforcement (December). Parker, C and Platania-Phung, C (2012) The Deterrent Impact of Cartel Criminalisation: Supplementary Report on a Survey of Australian Public Opinion Regarding Business People’s Views on Anti-Cartel Laws and Enforcement (12 January). Parker, C, Haines, F, Kotey, J, Nankivell, J and Round, D (2011) Report on Interviews with Civil Respondents in Cartel Cases (December).

Books Beaton-Wells, C and Ezrachi, A (eds) (2011) Criminalising Cartels: Critical Studies of an International Regulatory Movement (Hart Publishing). Beaton-Wells, C and Fisse, B (2011) Australian Cartel Regulation: Law, Policy and Practice in an International Context (Cambridge University Press).

Book chapters Beaton-Wells, C (2011) ‘Australia’s Criminalisation of Cartels: Will It Be Contagious?’ in C Beaton-Wells and A Ezrachi (eds), Criminalising Cartels: Critical Studies of an International Regulatory Movement (Hart Publishing). Beaton-Wells, C (2011) ‘Cartel Criminalisation and the Australian Competition and Consumer Commission—Opportunities and Challenges’ in C Beaton-Wells and A Ezrachi (eds), Criminalising Cartels: Critical Studies of an International Regulatory Movement (Hart Publishing). Beaton-Wells, C (2012) ‘Criminal Sanctions for Cartels—The Jury is Still Out’ in A Ezrachi (ed), International Research Handbook in Competition Law (Edward Elgar Publications). Beaton-Wells, C (2012) ‘The Billionaire, Prime Minister and Chairman: ACCC v Visy Ltd’ in B Rodger (ed), Landmark Cases in Competition Law (Kluwer International (Law)). Parker, C (2011) ‘Criminalisation and Compliance: The Gap between Rhetoric and Reality’ in C Beaton-Wells and A Ezrachi (eds), Criminalising Cartels: Critical Studies of an International Regulatory Movement (Hart Publishing).

30 Christine Parker

Journal articles Beaton-Wells, C and Fisse, B (2010) ‘Broadening the Definition of Collusion: A Call for Caution’ 38 Federal Law Review, 71. Beaton-Wells, C and Fisse, B (2011) ‘The Competition and Consumer Amendment Bill (No 1) “(Exposure Draft)—A Problematic Attempt to Prohibit Price Signalling”’ Australian Business Law Review 39(1), 28. Beaton-Wells, C and Fisse, B (2011) ‘US Policy and Practice in Pursuing Individual Accountability for Cartel Conduct: A Preliminary Critique’ Antitrust Bulletin 56(2), 277. Beaton-Wells, C and Haines, F (2009) ‘Making Cartel Conduct Criminal’ Australia and New Zealand Journal of Criminology 42(2), 218. Beaton-Wells, C and Haines, F (2010) ‘The Australian Conversion: How the Case for Cartel Criminalisation Was Made’ New Journal of European Criminal Law 1(4), 500. Beaton-Wells, C and Haines, F (2012) ‘Ambiguities in Criminalising Cartels: A Political Economy’ British Journal of Criminology 52, 953. Beaton-Wells, C and Parker, C (2012) ‘Education before Enforcement? Key Insights from Cartel Research’ Australian Business Law Review 40(1), 1. Beaton-Wells, C and Parker, C (2013) ‘Justifying Criminal Sanctions for Cartel Conduct’ Journal of Antitrust Enforcement 1(1), 198. Beaton-Wells, C and Platania-Phung, C Anti-Cartel Advocacy: How Has the ACCC Fared?’ (2011) ‘Sydney Law Review, 367. Parker, C (2012) ‘Economic Rationalities of Governance and Ambiguity in the Criminalization of Cartels’ British Journal of Criminology 52, 974. Parker, C (2013) ‘The War on Cartels and the Social Meaning of Deterrence’ Regulation & Governance 7(2), 174. Round, D and Agarwal, M (2010) ‘The Criminalisation of Serious Cartel Conduct in Australia’ The CPI Antitrust Journal 1, May.

Konrad Ost* From Regulation 1 to Regulation 2: Enforcement of EU Law by National Sanctioning Regimes and the Need for Further Convergence

1. Introduction Regulation 1/2003 and the 2005 Amendment to the German Competition Act (Gesetz gegen Wettbewerbsbeschränkungen, GWB) have changed the legal and political framework conditions for antitrust enforcement in Germany immensely. A key aspect of this change is the decentralisation of enforcement due to the closer integration of the national competition authorities (NCAs) and courts in the application of European law. The new changes found their expression at the legislative level in a certain convergence of national enforcement regimes with the EU enforcement system and at the institutional level in the focus on prosecuting hardcore cartels. In this particular area, the main tool of public enforcement are large fines, which are intended to reduce the economic incentives of companies to engage in cartel behaviour. Antitrust enforcement in Germany is currently faced with huge challenges. In view of the comparably manageable number of cases and moderate fines up until 2000, the German enforcement framework did not pose significant problems to cartel prosecution. Today, however, it can hardly cope with the number and scope of the cases. Whereas, for example, during the period from 1994 to 1997 a total of seven cartel proceedings were initiated, five concluded and fines amounting to less than 200 million euros imposed, from 2006 to 2009, 20 cartel proceedings were initiated, 14 concluded and fines amounting to almost a billion euros imposed. In 2012 alone, 12 cartel proceedings were * Director of General Policy, Bundeskartellamt, Bonn. All opinions expressed herein are personal. This chapter is partly based on the paper ‘Kartellbußgeldverfahren zwischen deutschem Systemdenken und europäischer Konvergenz’, drafted by K Ost/St Häfele and presented by the Bundeskartellamt at the annual meeting with German academics on 4 October 2012. See also K Ost, ‘Antitrust Procedure and the European Convention of Human Rights—The Right to an Independent and Impartial Tribunal and the Right not to Incriminate Oneself—With Special Regard to the Situation in Germany’, in C Baudenbacher, ed, Current Developments in European and International Competition Law, 14th St Gallen International Competition Law Forum 2007, Helbig & Lichtenhahn, 2008, 201 et seq. I am grateful to Daniel Dittert, Steffen Häfele, Gero Meeßen, Jörg Nothdurft, Wouter Wils and the participants at the 18th Annual EU Competition Law and Policy Workshop for stimulating discussions and/or for comments on the draft on which this chapter is based.

32 Konrad Ost concluded, with fines amounting to 312 million euros. Along with the increase in the absolute number of cases, the administrative burden and duration of cartel proceedings have reached a critical level. Key problems here can be found in the areas of sanctions and procedures. It is therefore time to take a critical look at the enforcement of EU law by the German system and seek constructive solutions to keep cartel prosecution both effective and efficient. Almost 10 years after the entry into force of Regulation 1/2003, the perspective on the German anti-cartel enforcement system is necessarily a European one. In 2002, Céline Gauer asked: ‘Does the effectiveness of the EU network of competition authorities require a certain degree of harmonisation of national procedures and sanctions?’1 After more than nine years of experience with Regulation 1/2003, this chapter argues in the affirmative.

2. Effective and efficient cartel prosecution Cartel prosecution fluctuates in an area of conflict between fundamental economic and legal requirements. On the one hand, it has to be effective and efficient both from an economic as well as a legal perspective; on the other hand, it has to guarantee a human rights standard of protection for those suspected of cartel behaviour. As far as the ‘optimal sanctions’ are concerned—in brief and simplified terms—one can conclude that, from an economic perspective, the optimal fine should exceed the expected gain from the infringement multiplied by a factor of probability of detection and punishment.2 The costs of anti-cartel enforcement, which have to be borne by the state and the market players, also have to be taken into account. However, it has been argued repeatedly that optimal antitrust enforcement is not about a simple equation3 but that, once a certain level of sanctions is 1 C Gauer, ‘Does the Effectiveness of the EU Network of Competition Authorities Require a Certain Degree of Harmonisation of National Procedures and Sanctions?’, in C-D Ehlermann and I Atanasiu, eds, European Competition Law Annual 2002: Constructing the EU Network of Competition Authorities, Hart Publishing, 2005, 187 et seq. 2 For a more elaborate equation see N Calviňo, ‘Public Enforcement in the EU: Deterrent Effect and Proportionality of Fines’, in C-D Ehlermann and I Atanasiu, eds, European Competition Law Annual 2006: Enforcement of Prohibition of Cartels, Hart Publishing, 2007, 317 et seq, text accompanying footnote 2: pU (Y − c − F) > (1 − p)U(Y), where p = probability of detection and enforcement of sanctions; U = utility function of the offender; Y = net income from illegal activity; c = costs incurred in case of detection, excluding fines (lawyers, stigmatising effect, etc.); and F = level of fines. 3 W Wils, Efficiency and Justice in European Antitrust Enforcement, Hart Publishing, 2008, chapter 3, paras 199 et seq, text accompanying footnote 63.

From Regulation 1 to Regulation 2 33 to be expected, the dominant factor of deterrence is the expectation of being discovered and fined. Assuming that most national enforcement regimes provide for harsh sanctions from the perspective of a perpetrator who is actually caught, the key issue of deterrence is the probability of being detected and punished. The latter depends largely on the procedural framework, the resources available and prioritisation by the enforcing bodies. As resources are not unlimited and anti-cartel enforcement is not the sole priority of competition agencies, a major factor for effective enforcement is the procedural framework. Even if the economic perspective cannot be the sole guiding principle for shaping cartel prosecution, it is nevertheless a necessary basis for analysing and assessing its effectiveness and efficiency. This analysis has to be supplemented by a legal analysis, ie an assessment of the guarantees of due process and requirements of European law.

3. Sanctioning cartel infringements in Germany—challenges Cartel prosecution in Germany is burdened with a number of problems in respect of not only its efficiency, but also to a greater extent its effectiveness. They relate to the areas of sanctions and procedural law.

3.1 Sanctions 3.1.1 Addressee of Article 101 TFEU—the concept of an ‘undertaking’ The prohibition of cartels applies to ‘undertakings’. According to the interpretation of the European Court of Justice (ECJ), the prohibition of cartels applies to a company or a group of companies as a single economic unit. The concept of an undertaking covers any entity engaged in an economic activity, regardless of its legal status and the way in which it is financed. That concept must be understood as designating an economic unit even if in law that unit consists of several natural or legal persons. When such an economic entity infringes the competition rules, it is for that entity, according to the principle of personal responsibility, to answer for that infringement.4

4 Joined Cases C‑628/10 P and C‑14/11 P Alliance One International Inc and Standard Commercial Tobacco Co Inc v Commission, EU:C:2012:479, para 42 (citations omitted). See also Case C-97/08 P Akzo Nobel NV v Commission [2009] ECR I-8237, para 56.

34 Konrad Ost The undertaking commits the substantive violation of law. As the parent company and subsidiary together form the undertaking,5 this results in a joint objective violation of law by the parent company and subsidiary. In this sense, the parent company also violates the substantive prohibition of cartels if its subsidiary commits an infringement.6 As a consequence, if punished by the Commission, the parent company may be held liable and the fine may be imposed jointly on the parent company and its subsidiary. This wide notion of parental liability explains the fact that problems of legal succession are rarely an issue in Commission proceedings. Furthermore, due to the wide notion of undertaking as interpreted by the European courts, it is almost impossible for the undertakings to escape liability by any form of internal restructuring within the group.7 Furthermore, the general concept of legal succession encompasses most issues of whether liability survives the existence of the undertaking. Under EU law, both legal8 and economic succession are covered to a broad extent and liability is transferred to the successor.9

3.1.2 Parental liability General principles According to the current understanding of German administrative offences law, this leap from substantive law to sanctions law would be one too far. Under German administrative penal law, the addressee of a fine is a legal person. This legal entity is liable for any offence committed by a representative of that specific legal entity. According to this logic, the action of a representative

5 J Kokott and D Dittert, ‘Die Verantwortlichkeit von Muttergesellschaften für Kartellvergehen ihrer Tochtergesellschaften im Lichte der Rechtsprechung der Unionsgerichte’ [‘The Liability of Parent Companies for Cartel Law Violations Committed by their Subsidiaries in the Case Law of the Courts of the European Union‘], [2012] Wirtschaft und Wettbewerb—WuW 670, 672 et seq. 6 In terms of sanctions law, this means that, under European law, fault can be attributed to the parent company as part of the corporate group. See Kokott and Dittert, ibid, 675. At 672, they state: ‘Both bear the responsibility under cartel law for their own actions; the fault cannot be attributed to another party and cannot be understood merely as a liability for organisational faults or an omission of duty on the part of the parent company vis-à-vis its subsidiary’ (author’s translation). 7 Joined Cases C-204/00 P, C-205/00 P, C-211/00 P, C-213/00 P, C-217/00 P and C-219/00 P Aalborg Portland A/S and Others v Commission [2004] ECR I-123, paras 356–359; Case C-280/06 Autorità Garante della Concorrenza e del Mercato v Ente tabacchi italiani—ETI SpA and Others [2007] ECR I-10893, para 48. 8 Case C-42/92 P Commission v Anic Partecipazioni SpA [1999] ECR I-4125, para 145; Aalborg Portland, ibid, para 359; Case C-125/07 P Erste Group Bank AG v Commission [2009] ECR I-8681, para 78. 9 For a recent account of the case law, see A Brown and M Schonberg, ‘Widening the Net: The General Court Extends the Principle of Successor Liability in EU Competition Law’, 34 European Competition Law Review 1 (2013).

From Regulation 1 to Regulation 2 35 of another legal entity (even if it is a member of the same economic unit in European terms) may not be attributed to another legal person (eg the parent company). Concept of supervisory duty However, in interpreting German administrative penal law, the Bundeskartellamt may nevertheless hold the parent company indirectly liable for an infringement committed by its subsidiary. German administrative penal law bestows a duty on the representative of a company to supervise its workforce to make sure that it does not commit any offences in relation to the legal obligations of the company. Whether this concept of supervisory duty may be applied to the relationship between a parent company and its subsidiary is much debated. The answer is given in the European concept of undertaking: it is up to European law to define the scope of violation of substantive law ‘by the undertaking’. If a violation of European competition law is to be expected from an undertaking, the undertaking is obliged to cease such action or to prevent such infringements within its own economic unit. In other words, if, under substantive European law, a cartel law violation by a subsidiary is to be automatically regarded as an infringement by the parent company,10 the parent company can only fulfil its obligation under the provision by preventing a potential infringement by carrying out supervisory measures. These supervisory duties follow directly from European law. Comparison The fining of a parent company failing to fulfil supervisory obligations within a group of undertakings has a similar function to the European concept of parental liability. The Bundeskartellamt is currently imposing fines based on such an assumed duty to supervise. Nevertheless, the German law still falls short of the European enforcement system. A sanction imposed under section 130 of the German Administrative Offences Act holds the company in question liable for breach of a supervisory duty, not for participating in the infringement. It may be more difficult to prove a breach of a supervisory duty than to establish the existence of an economic unit. Sister companies may have no supervisory duty at all, even if they might be held liable under certain circumstances for the acts of other members of the economic unit. Compliance programmes which do not influence the level of fines under European law may exonerate the parental company under the concept of supervisory duty. In addition, the Bundeskartellamt’s interpretation of the law in this

Kokott and Dittert, above n 5, 672.

10

36 Konrad Ost context has repeatedly been challenged. The courts have not yet had the opportunity to state their views on the issue. A glance at the jurisdictions of other NCAs within the European Competition Network (ECN) shows that there is no uniform approach to parental liability. There are reports that, for example, Polish and Danish competition law provide for even less parental liability than German law.

3.1.3 Succession German case law In two cases, Germany’s Bundesgerichtshof (Federal Court of Justice, FCJ) decided in 2011 that, for legal succession reasons, no fines could be imposed.11 The court’s interpretation led to significant enforcement gaps: where an infringing entity was merged into another entity in a merger between equals, it was not possible to fine the successor entity. This could even apply where two participants in the same cartel merged after having been fined. Also, corporate groups could avoid liability for antitrust infringements by corporate restructuring: an infringing entity within a group could be merged into another group entity to avoid the fine. Alternatively, an infringing entity’s assets could be transferred to another group entity, leaving the infringing entity as a mere shell without means to pay the fine. The 2013 reform of the GWB The judiciary called quite openly for the legislator to close this loophole. The 2013 amendment of the GWB provides that, in all cases of universal succession of the infringing legal entity by another entity, a fine may be imposed on the successor entity. The fine imposed on the successor entity may in that case not exceed the value of the assets that the successor entity acquired by absorbing the infringing entity. This amendment will remedy some but not all of the problems described in the context of legal succession. In particular,

11 See Cases KRB 2/10 Fusion Transportbetonhersteller and 55/10 Versicherungsfusion of 10 August 2011. According to the FCJ, it was only possible to hold a successor entity liable for an infringement committed by the infringing entity where the following conditions are cumulatively met. First, universal legal succession of the infringing entity by the successor entity, ie all assets and liabilities of the infringing entity must have been transferred to the succeeding entity in a single legal act. Second, the infringing entity must have ceased to exist. An example would be the merger of one company into another company. And third, there must be economic identity between the infringing entity and the successor entity. This is only the case where the assets of the infringing entity are used by the successor entity in the same way they were used by the infringing entity (ie there must be a continuation of the same economic activity) and constitute the overwhelming part of the assets of the successor entity.

From Regulation 1 to Regulation 2 37 the amendment does not take account of those cases of purely economic succession where the infringing entity still exists but its assets are transferred to another (group) entity. In such a case, the Bundeskartellamt would still be limited to imposing a fine on an entity that is a mere shell without sufficient means to pay a fine. In addition, it would still not be possible to tackle cases where a fined entity divests part of its assets by spinning off a separate legal entity (Abspaltung and Ausgliederung, according to the German company transformation law).12 These loopholes have led to undertakings and their lawyers continuously debating options for avoiding a fine or having a fine reduced. Again, a glance at the ECN shows a variety of approaches. The majority of jurisdictions probably follow the EU model. However, major jurisdictions such as Poland are reported to have similar loopholes.

3.1.4 Maximum level of fines: the 10 per cent rule Legislative convergence The 2005 reform of the GWB aligned the German law with Article 23 of Regulation 1/2003. An undertaking may be fined up to 10 per cent of its annual turnover. However, as far as coherent enforcement under Regulation 1/2003 is concerned, the most recent development in case law in Germany is interesting. Interpretation by the German Federal Court of Justice With its decision of 26 February 2013, the FCJ confirmed that the central fining provision of German antitrust law is in line with the German constitution. The decision also confirmed the fines imposed on the members of a cement cartel. It was the largest total amount of fines ever imposed by G erman competition courts.13 The main argument raised by the parties was that the 10 per cent rule is against the principle of legality enshrined in the German Constitution. In the previous case law of the Bundesverfassungsgericht (Federal Constitutional Court, FCC) it was held that, under the principle of nulla poena sine lege, a fines provision needs to provide an absolute frame within which a fine must be set and give some guidance on how the fine to be imposed on the perpetrator should be assessed. The FCJ ruled that the current interpretation of the 10 per cent rule as a mere capping threshold violates the German constitution. Nevertheless, the court rejected the appeal against 12 K Ost, ‘Die Regelung der Rechtsnachfolge und weitere Neuerungen im Kartellordnungswidrigkeitenrecht durch die 8. GWB-Novelle’, in F Bien, ed, Das deutsche Kartellrecht nach der 8. GWB-Novelle, Nomos, 2013, 305 et seq, 310 et seq. 13 Together with the fines not appealed, the total amounted to approximately 400 million euros.

38 Konrad Ost the decision, reasoning that an alternative interpretation of the 10 per cent rule as an upper limit of a framework/range of fines would be in line with the principle of legality. The main difference to the current methodology is that the 10 per cent must be reserved for the ‘worst possible offence’. Any ‘bottom up’ calculation would be questionable. The fine has to be assessed with the lowest and highest possible fines in mind. An interpretation as a capping threshold would offer no orientation for setting the amount. This is required of any criminal offences in Germany (for example, 1–10 years’ imprisonment for kidnapping provides for the relevant ‘scale for penalty assessment’). The gravity of the offence has to be assessed within the scale provided for in the law and an adequate fine has to be set. The 2013 Fining Guidelines Even if this seems only a minor shift in its enforcement policy, the Bundeskartellamt has had to change its methodology for calculating fines. On 25 June 2013 it issued new guidelines14 aimed at combining the new approach of the judiciary with the concept of ‘affected turnover’ of the European fining guidelines. The new system will not dramatically change the landscape of fining. However, it is likely that ‘single-product’ offenders will benefit from the new system, while ‘multi-product’ offenders will potentially face higher fines. This may lead to some discussion about the Commission’s enforcement practice. Outlook The FCJ avoided creating a new loophole in the enforcement system. However, it is notable that the highest court on competition matters in Germany, while making only brief reference to the ECJ’s judgment in Degussa,15 ruled on the same issue in quite the opposite direction. On this aspect, there is a clear divergence between German and European case law even on identical texts. Within the ECN, most jurisdictions provide for a system based on some kind of a 10 per cent rule. However, a huge variety of methodologies are used by the jurisdictions to calculate the actual fine. The German Federal Constitutional Court may have the opportunity to rule directly on the European approach in the near future. The question of the legal certainty of Article 23 Regulation 1/2003 is pending at the FCC

14 2013 Guidelines for the Setting of Fines in Cartel Administrative Offence Proceedings, available at www.bundeskartellamt.de. 15 Case C-266/06 P Evonik Degussa GmbH v Commission [2008] ECR I-81*, paras 45 et seq; Opinion of Advocate General Kokott in Case C‑501/11 P Schindler Holding Ltd and Others v Commission, EU:C:2013:522, para 148 et seq; K Lenaerts, ‘Due Process in Competition Cases’, [2013] NZKart—Neue Zeitschaft für Kartellrecht 175, 180.

From Regulation 1 to Regulation 2 39 following a constitutional complaint against a fines decision in the alloy surcharge cartel that was upheld by the ECJ.16

3.2 Procedure 3.2.1 The procedural framework in Germany German fines procedure The German fines procedure in competition matters follows the general rules for regulatory offences. German penal law was reformed in the late 1960s as part of a movement to decriminalise minor offences such as traffic misdemeanours. The procedure is very similar to a criminal procedure, with one important difference: the preliminary proceedings take place before an administrative authority. The regulatory offence is punishable by an administrative decision imposing a fine. In the case of appeal, the authority then transfers the file to the public prosecutor, who will submit the case to the court and thereupon assume the function of the prosecuting authority. The court will then usually hold a hearing and deliver a first instance judgment, which may include a more severe sentence. The decision of the competition authority is not subject to review but is replaced in its entirety. Rights of defence and procedural formalities The persons subject to the procedure have a maximum standard of rights of defence. The procedure is mainly oral. Direct witness evidence often prevails over documentary evidence. Experience shows that this type of procedure, which is perfectly suitable for traditional criminal proceedings, is rather ill-suited to complex economic litigation. This can be seen, for example, from the fact that there are almost no time limits for the presentation of new facts. The addressee’s appeal does not even have to be reasoned. German procedural rules provide for a very extensive right not to incriminate oneself (right to remain silent). In general, companies and individuals under investigation are not obliged to cooperate. In a first small step, the legislator introduced a limited duty of cooperation for legal entities with regard to providing data on turnover (new section 81a 16 See S Berra, ‘German Court to Consider Review of EU Judicial Process’, Global Competition Review, 25 February 2013. See also the decision of the Federal Constitutional Court declining to grant interim measures, Case 2 BvR 2752/11—ThyssenKrupp Nirosta, Order of 30 October 2013, cited by BeckRS 2013, 57257. For the ECJ’s judgment, see Case C-352/09 P ThyssenKrupp Nirosta v Commission [2011] ECR I-2359.

40 Konrad Ost of the GWB). The wide notion of the right to remain silent makes fact finding comparably difficult. The strict formality of the procedure results in rather bizarre days in court where expert opinions or final pleadings (all distributed in written form) are read aloud for several days. Formalities and the reliance on witness evidence make court proceedings extremely complex.17 For a medium-sized cartel in the paper wholesale market, the proceedings lasted for weeks, with about 20 days in court. For the large cement cartel referred to above, they took 37 days in court. The liquid gas cartel fined with over 240 million euros took over 100 days in court and more than three years in total. These are only the first of many complex cartel cases currently under appeal. One further drawback is the limited status of a cartel authority within the court proceedings: it has mere expert status; therefore, the public prosecution has to work through the whole material again in order to defend the authority’s case.18 This process is to be measured in several months or even years. As explained above, only then does the court take a decision. It is questionable whether this weak position of the cartel authority is in line with the call by the ECJ to strengthen the position of the cartel authorities in court proceedings.19

3.2.2 The problem of lengthy proceedings There are several reasons why lengthy proceedings have a negative impact on cartel prosecution. One is that they entail the risk of loss of evidence (for example, because the witnesses no longer have a clear recollection of all the details). The increasing length of cartel proceedings also stands in conflict with the case law of the European Court of Human Rights, which demands that enforcement proceedings be concluded within a reasonable period of time.20 Most of all, the long interval between the offence and the sanction is likely to significantly diminish the deterrent effect of the fine; this is especially true if, after close to a decade, the persons responsible no longer work in their previous functions or have left the undertaking altogether. Some cases may even become impossible to prosecute because they have become timebarred. It also has to be taken into account that lengthy proceedings can be

17 The burdensome procedures have also already been criticised by the OECD, and demands for reform have been made. See OECD Economic Department Working Paper No 507, ECO/WKP(206)35 (2006), para 15. 18 For further discussion, see P Klocker and K Ost, ‘Nach der Novelle ist vor der Novelle—Themen einer 8. GWB-Novelle’, in I Brinker, ed, Recht und Wettbewerb, Festschrift für Rainer Bechtold zum 65. Geburtstag, Beck, 2006, 229 et seq, 244; Ost, above n 12, 323. 19 Case C-439/08 Vlaamse federatie van verenigingen van Brood- en Banketbakkers, Ijsbereiders en Chocoladebewerkers (VEBIC) VZW [2012] ECR I-12471. See below Section 4.5. 20 Case No 37591/97, Metzger v Germany, 31 May 2001, para 42.

From Regulation 1 to Regulation 2 41 a mitigating factor in the calculation of fines, which can further diminish the deterrent effect.

4. Framework for reform 4.1 Effet utile The enforcement of European antitrust law must be effective. The principle of effectiveness in European law (effet utile) requires that national law provides effective and adequately deterrent sanctions for cartel law infringements.21 This means that, in designing their own national cartel procedural law, the Member States have to ensure at least a degree of effectiveness necessary to prevent any gaps in the decentralised system of cartel law enforcement. The prohibition of cartels under European law applies to undertakings as economic units which may consist of several legal entities (see Section 2.1.1 above). According to the established case law of the courts of the European Union, the substantive definition of an ‘undertaking’ as laid down by EU law is reflected on the sanctioning side by the fact that the parent company is liable for the offences of its subsidiaries22 and that a legal or economic successor of a company directly involved is to a large extent liable as well. Under Regulation 1/2003, substantive European cartel law must also be (effectively) enforced by the cartel authorities of the Member States. Only recently, then-Director General Alexander Italianer rightly stated in an (open) letter to the President of the Bundeskartellamt: the principle of effective antitrust enforcement requires that the national law be equipped with effective and sufficiently deterrent sanctions for violations of the law. Since the concept of what constitutes an ‘undertaking’ is a uniform concept under the law of the Union, a national regime will only meet this requirement if it … allows for an effective fining of the undertaking that is liable under substantive law aspects and in accordance with the Articles 101 and 102 TFEU, which are directly applicable.23

It follows that if a cartel law violation occurs, the undertaking (as an economic unit consisting of several legal persons) has to be fined under the Case C-429/07 Inspecteur van de Belastingdienst v X BV [2009] ECR I-4833, para 37. For more detail see Kokott and Dittert, above n 5, 670. 23 See the letter of Director General Italianer to the President of the Bundeskartellamt of 18 June 2012, published as an attachment to the Bundeskartellamt’s comment on the government draft bill for the 8th amendment to the GWB of 22 June 2012, printed paper of the German Bundestag 17(9)865 (translation by the author). See also T Ackermann, ‘Kartellgeldbußen als Instrument der Wirtschaftsaufsicht’, [2012] Zeitschrift für Wettbewerbsrecht—ZWeR 3, 16. 21 22

42 Konrad Ost respective provisions. Since the group of undertakings is the addressee of the European cartel law provisions, the liability under cartel law must not be limited to the legal person that is directly and actively involved in the cartel law violation. As a consequence, the requirement of effectiveness under European law becomes ultimately a requirement of congruence, which means that the substantive addressee of the provision, as defined under the European law, must be punishable under the national regime as well. In its initial interpretation, Regulation 1/2003 does not conclusively regulate how the European prohibition of cartels should be enforced and, if breached, penalised. Recently, there have been intense debates on the question of the direct applicability of Article 5 of Regulation 1/2003 (see Section 4.2 below).

4.2 Regulation 1/2003 as a driver for convergence The actual antitrust enforcement regime in Europe as established by Regulation 1/2003 is a system of parallel competences of the European Commission and the national competition authorities. With the introduction of Regulation 1/2003, the European Competition Network (ECN) was founded. The Commission Notice on Cooperation within the ECN stipulates certain criteria for case allocation. Accordingly, a case should be allocated as early as possible in the proceedings, but may be reallocated up until the conclusion of the proceedings. The grounds for a reallocation can be the effects of a cartel law violation, possibilities for the presentation of evidence and chances to effectively end the violation. A referral may (also) simply occur for resource reasons. Ultimately, the decision on which a competition authority applies European competition law under its respective (national) rules of procedure can therefore depend on criteria that have little to do with the case in question. The procedural laws of the Member States and of the European Commission differ in the range of fines, types of proceedings and rights of defence. The urgency of the question of whether the system of parallel enforcement requires similar sanctions and procedures depends to a certain degree on whether the allocation of a case is subject to judicial review. The European courts have had to deal with these issues in two cases, but unfortunately have only been able to decide in one of them. In France Télécom/Wanadoo, the Court of First Instance showed no sympathy for the idea of granting standing to the undertaking concerned in respect of case allocation.24 24 The France Télécom/Wanadoo case (Case T-339/04 France Télécom SA v Commission [2007] ECR II-521; Case T-340/04 France Télécom SA v Commission [2007] ECR II-573) concerned a Commission request for information in a case which had previously been handled by the French Conseil de la Concurrence. The EAEPC case (Case T-153/06 European Association of Euro-Pharmaceutical Companies, EU:T:2008:54) concerned a Commission decision of 10 April 2006 in which the Commission had rejected three complaints against

From Regulation 1 to Regulation 2 43 Even in the absence of clear case law, it is obvious that the argument for granting standing to undertakings regarding case allocation is weak. The system of parallel enforcement is designed as a flexible system. Apart from the turnover thresholds of undertakings involved in a merger, it is hard to imagine ‘hard’ criteria to delineate the competences of the EU on the one hand and of the NCAs on the other. Experience with the current system shows that the reallocation of cases is rarely an issue among the authorities, nor is it often called into question by the undertakings concerned. One may conclude that this system leads to an efficient allocation of cases and furthers effective cartel prosecution throughout Europe. However, if it is true that there is no acceptable alternative to the current system of parallel competences where case allocation does not accord rights for the undertakings concerned, this system loses its legitimacy in the long run if there is no further alignment in terms of sanctions and procedure.25 For the undertaking concerned, it is difficult to accept that a decision on case allocation which is not subject to appeal can decide on fundamental questions such as parental liability or succession for purposes of the application of fines.

4.3 Human rights framework 4.3.1 The institutional setting The case law of the Strasbourg Court considers an administrative procedure as compatible with the due process clause (Article 6 European Convention on Human Rights), subject to one basic requirement: the possibility of appeal against the final administrative decision before a judicial body with full jurisdiction, including the power to quash the challenged decision in all factual and legal respects.

GlaxoSmithKline for an infringement of Article 82 EC. The claimant had subsequently demanded that the Commission should initiate an abuse proceeding and, by initiating the proceeding under Article 11(6) of Regulation 1/2003, withdraw the case from the Greek competition authority, which was handling the case. Unfortunately, the complaint was withdrawn before a hearing took place. The Federal Republic of Germany acted as an intervener in the case on behalf of the Commission and argued that the provisions of Article 11 of Regulation 1/2003 existed solely to serve the public interest and that undertakings were not entitled to demand that the Commission withdraw a case from a national authority. Only the Member States were entitled to bring a claim, eg if the Commission opened an investigation and in doing so violated the duty of sincere cooperation or the principle of subsidiarity. 25 D Waelbroeck, ‘Twelve Feet All Dangling Down and Six Necks Exceeding Long. The EU Network of Competition Authorities and the European Convention on Fundamental Rights’, in C-D Ehlermann and I Atanasiu, eds, European Competition Law Annual 2002: Constructing the EU Network of Competition Authorities, Hart Publishing, 2005, 465 et seq.

44 Konrad Ost Both the EU procedure and the German procedure meet these requirements. The Düsseldorf Court of Appeal hearing the Bundeskartellamt’s cases has full and independent jurisdiction over factual and legal issues, including the fine. It is obvious that the German fines procedure, with its extensive scrutiny by the courts, which ultimately makes it an adversarial rather than administrative type of procedure, is in line with the Strasbourg case law. From the Menarini judgment,26 it is clear that even the much criticised EU system is compatible with the European Convention on Human Rights (ECHR) and Article 47 of the Charter of Fundamental Rights of the EU.27 Recently the Commission has raised transparency and increased safeguards for procedural rights,28 and the courts of the European Union have intensified their review of the Commission’s decisions.29 It is important to note that not every right of defence which is guaranteed by ‘secondary’ legislation in Germany is unchangeable due to constitutional concerns, as these rights often surpass the basic human rights standard guaranteed by the German constitution and the ECHR. The same is true for European law, where one has to analyse in detail what is an interpretation of Regulation 1/2003 or what is derived from general principles, and what stems from the fundamental rights standard.30

4.3.2 Human rights for undertakings? In order to clarify the fundamental rights standard, it is important to differentiate between the imposition of a criminal sanction against a natural person and the punishment of undertakings. The prospect of a custodial sanction justifies a particularly high standard. Fining undertakings is a different matter. The punishment of undertakings follows a different concept. Its main impetus is the governance of economic behaviour.31 Therefore it has long been argued that fining undertakings belongs more to the sphere of economic administrative law than to criminal law. Unlike individuals, companies can

Case No 43509/08, Menarini Diagnostics v Italy, 27 September 2011. Case C‑272/09 P KME Germany AG and Others v Commission [2011] ECR I-12789, paras 91 et seq; Case C‑386/10 P Chalkor AE Epexergasias Metallon v Commission [2011] ECR I-13085. 28 Additional information in the statement of objections regarding the setting of the fine, state-of-play meetings extended to cartel cases, enhanced access to the file, revised terms of reference of the hearing officer. 29 See, eg KME Germany, above n 27, paras 94 et seq. 30 See V Skouris and D Kraus, ‘Die Bedeutung der Grundfreiheiten und Grundrechte für das europäische Wettbewerbsrecht’, in G Hirsch, F Montag and FJ Säcker, eds, Münchener Kommentar zum Europäischen und Deutschen Wettbewerbsrecht (Kartellrecht), Beck, 2007, vol 1, 89 et seq, Einleitung, paras 383, 394–397. 31 K Schmidt, ‘Zur Verantwortung von Gesellschaften und Verbänden in Kartellordnungswidrigkeiten’, [1990] wistra 131, 133; Klocker and Ost, above n 18, 242; T Ackermann, above n 23. 26 27

From Regulation 1 to Regulation 2 45 change their identity, be dissolved or be re-established. Since the protection of human dignity does not apply to legal entities, the FCC stipulates that the basic right that no one can be obliged to incriminate himself (nemo tenetur) does not apply to legal entities.32 The same question arises with regard to the applicability of other fundamental rights to companies. Within the realm of the ECHR, it is settled case law that undertakings can invoke certain human rights. But here we seem to have the same situation, ie the Strasbourg court is hesitant to provide the same degree of protection for legal entities as for individuals.33 Even if there is no doubt that, generally speaking, Article 6 of the Convention, stating the essential procedural rights of the persons concerned, is applicable, it is by no means certain that the ECJ will apply the full extent of Article 6 to undertakings.34

5. Solutions 5.1 Autonomous convergence of the enforcement regime As far as efficiency and effectiveness are concerned, the European model has a number of attractive features. As already mentioned, there is strong criticism in respect of fundamental rights. Even if it is obvious that there are no problems concerning a fundamental right standard,35 it might be desirable to keep higher standards in some respect. This is arguable for both the procedural rules and the rules on sanctions, which, due to their general phrasing, have to be refined to a large extent by the case law of the European courts. More precise European legislation would be desirable. However, the law as interpreted by the courts leads to comparably effective enforcement by the Commission. To achieve further convergence, the German legislator explicitly transformed some rules of Regulation 1/2003 into German law in 2005. Whether this has led to real convergence is, however, doubtful. As explained above, the 10 per cent rule as a ‘European’ transplant into the German enforcement

See Case 1 BvR 2172/96 of 26 February 1997. W Wils, Principles of European Antitrust Enforcement, Hart Publishing, 2005, chapter 5, paras 516 et seq; W Wils, ‘EU Antitrust Enforcement Powers and Procedural Rights and Guarantees: The Interplay between EU Law, National Law, the Charter of Fundamental Rights of the EU and the European Convention on Human Rights’, 34 World Competition 189 (2011). 34 This can be inferred, for example, from the Court’s reasoning on the protection of private homes. See, eg the Opinion of Advocate General Geelhoed in Case C-301/04 P Commission v SGL Carbon AG [2006] ECR I-5915, para 64. 35 See Lenaerts, above n 15, 175. 32 33

46 Konrad Ost regime did not lead to a European interpretation. As long as the major pillars of sanctions and procedure remain enshrined in the German system of administrative fines governed by general principles of German law, convergence is at risk.

5.2 How far is national enforcement determined by European law? Here I analyse whether European law itself offers a possible solution to the problems of national enforcement systems.

5.2.1 The Tele2 Polska judgment In the ECJ’s Tele2 Polska judgment of 3 May 2011, the Court confirmed the directly applicable nature of the competence conferred by Article 5 of Regulation 1/2003 upon national authorities to decide that there are no grounds for action even in the absence of any such attribution of competence under national law.36 The Opinion of Advocate General Mazák37 further illustrates the idea of direct applicability of Article 5. He cites other examples of actions taken by NCAs on that basis (such as interim measures). It has been argued that direct applicability is acceptable for administrative actions like commitment decisions or interim measures. According to this view, however, Article 5 could not be directly applied with regard to the imposition of fines and other penalties due to the principle of nulla poene sine lege

36 Case C-375/09 Prezes Urzędu Ochrony Konkurencji i Konsumentów v Tele2 Polska sp z oo, devenue Netia SA [2011] ECR I-3055. 37 Opinion of Advocate General Mazák in Tele2 Polska, ibid, paras 57 et seq. As stated by the Advocate General: ‘[I]t is logical that Article 5 of Regulation No 1/2003 should be directly applicable—it allows all relevant NCAs to have as of 1 May 2004 consistent decision-making power, without the need to wait for the implementation of Article 5 into national law. Finally, to give a few concrete examples, it may be noted that the NCAs in Germany, Italy and Belgium have already directly applied Regulation No 1/2003. First, the Bundeskartellamt relied on Article 5 of Regulation No 1/2003 already before the 7th Amendment of the German Law on competition came into force. Secondly, the Autorità Garante della Concorrenza e del Mercato directly applied Article 5 of the regulation and took a decision ordering interim measures which was at the time not provided for under Italian law. That decision was upheld by the TAR Lazio on 6 December 2005. Finally, the Conseil de la concurrence took the view that it should be able to exercise enforcement power even in the absence of national provisions conferring these powers upon it, and notwithstanding national provisions to the contrary. That was the position in relation to the competence to accept commitments, one of the types of decision listed in Article 5, but not provided for under Belgian law. The Conseil de la concurrence inferred an “Article 9-type” competence for itself from the direct effect of Regulation No 1/2003. It follows from all the foregoing considerations that Article 5 of Regulation No 1/2003 is directly applicable and that the NCA may close its proceedings with a procedural decision finding that there are no grounds for action on its part’ (footnotes omitted).

From Regulation 1 to Regulation 2 47 certa.38 It seems convincing that if no sanction is foreseen for the breach of European competition law in a national jurisdiction, Article 5 cannot be used to fill this lacuna. To adopt Article 23 would be too far-reaching.39 However, the argument is more difficult when the national system provides for sanctions for the breach of European competition law.

5.2.2 The concept of classification and the difficulty of differentiating between substance and procedure As has been shown above, there is always a complicated interplay between the European ‘substantive’ law (Article 101 TFEU) and the national enforcement system. Within this interplay, it is difficult to delineate the scopes of European law and national law. One approach would be to delineate between substantive and enforcement rules. This does not really help, however, as there is no generally accepted definition of ‘substantive’ law. The recent case law of the ECJ in Schenker40 and Slovenskà sportitel’ňa41 on cases handled by NCAs shows that, from a German perspective, the ECJ ruled on issues of sanctions usually governed by national law. This is obvious with regard to the concept of error, intent and negligence,42 and it is likely in respect of the issue of who is acting as the agent for an undertaking and the preconditions for a valid representation,43 and, lastly, in respect of the idea of succession,44 which should be interpreted as a concept of union law to be applied in a consistent manner in national procedures throughout the EU.45 But how should the spheres be delineated? A persuasive approach could borrow the concept of classification used in private international law. The rules have to be classified as being on the substantive side and governed by European law or on the enforcement side and governed by national law. Due to the primacy of European law, the 38 E Gippini-Fournier, ‘The Modernisation of European Competition Law: First Experiences with Regulation 1/2003—Community Report to the FIDE Congress 2008’, in HF Koeck and MM Karrollus, eds, The Modernisation of European Competition Law, Nomos, 2008, vol 2, 357 et seq at 459. 39 The option of extending Article 23 to all NCAs was discussed by the European legislator but that option was declined—a clear legislative decision. See the proposal of the European Parliament, A5-0229/2001 of 21 June 2001, http://www.europarl.europa.eu/sides/ getDoc.do?pubRef=-//EP//NONSGML+REPORT+A5-2001-0229+0+DOC+PDF+V0// EN, 14. 40 Case C-681/11 Bundeswettbewerbsbehörde and Bundeskartellanwalt v Schenker & Co AG and Others, EU:C:2013:404. 41 Case C-68/12 Protimonopolný úrad Slovenskej republiky v Slovenská sporiteľňa as, EU:C:2013:71. 42 Schenker, above n 40, paras 33 et seq. 43 Slovenská sporiteľňa, above n 41, paras 28 et seq. The Austrian Supreme Court based its reasoning concerning the civil liability including issues of representation directly on European law. See Oberster Gerichtshof, Order of 2 August 2012, Case 4 Ob 46/12m. 44 See AGCM v ETI, above n 7, paras 40 et seq. 45 European Commission’s written observations pursuant to Article 15(3) of Regulation No 1/2003 to the Supreme Court of Slovakia in case 1/Szhpu/2/2008 Cargo Slovakia, http:// ec.europa.eu/competition/court/amicus_2010_cargo_slovakia_sk.pdf.

48 Konrad Ost classification is to be determined not by the lex fori but by European law. In other words: if national law foresees the possibility of punishing a violation of European law, there may still be issues traditionally seen as part of the enforcement regime which are classified by the ECJ as ‘substantive’ and therefore as governed by primary or secondary EU law. In this respect, Article 5 of Regulation 1/2003 has direct applicability as a bridge between the substantive provision of European law and the national enforcement rule. By including infringements of European cartel law in the GWB in 2005, the legislator provided for the necessary complementary rules for the application of this regulation.

5.2.3 Primacy of EU Law As the two bodies of European and German law together form the basis of enforcement, there is no nulla poena issue at stake. What happens if, as argued here, both parts provide for a diverging solution to specific problems (eg legal succession)? The solution would be that national law can only fill the gaps if European law allows it a certain scope for manoeuvre.46 With respect to legal succession, European law prevails over national law in applying the concept of an undertaking in substantive law (Article 101 TFEU). In the area of legal succession, this goes far beyond German law.47 The same is true for a presumed error in law.48 The Düsseldorf Higher Regional Court has flatly rejected this approach brought forward by the Bundeskartellamt without a detailed analysis of the case law of the European Court of Justice. This ruling is under appeal. The decision now rests with the Federal Court of Justice. As there is no acte clair, the ECJ will have to deal with that question.

5.3 Criminalisation is no solution 5.3.1 Effectiveness of corporate fines An assessment of the German fining system casts some doubts on its effectiveness. It has been argued repeatedly that a system of optimal sanctions 46 It could be argued that this situation is similar to the ECJ’s Berlusconi judgment rejecting the primacy of an EU Directive over national sanctioning law. Case C-387/02 et al Silvio Berlusconi and Others [2005] ECR I-3565, para 77. The main difference here is that a part of the Regulation, ie Article 5, is directly applicable. 47 See C Heinichen, Unternehmensbegriff und Haftungsnachfolge im Europäischen Kartellrecht, Nomos, 2011. 48 On German law, see C Vollmer, in G Hirsch, F Montag and FJ Säcker, eds, Münchener Kommentar zum Europäischen und Deutschen Wettbewerbsrecht (Kartellrecht), Beck, 2008, vol 2 (GWB), § 81, para 61. On European law, see Schenker, above n 40, paras 33 et seq.

From Regulation 1 to Regulation 2 49 has to be complemented49 by (or must even focus exclusively on) individual custodial sanctions. An argument in favour of criminalisation in the form of custodial sentences has been that even the presumably well-functioning European system, with its substantial fines imposed on undertakings, is not seen as sufficient to deter individuals that are responsible for such offences. Another argument brought forward is the phenomenon of recidivism. Available data shows that there are quite a number of undertakings which have been subject several times to substantial EU fines. However, empirical data on recidivism falls short of giving clear answers as to whether the significant increase in fines witnessed in the last 10 years has had an effect or not.50 Only those cartels which began after the increase in fines would give evidence of the deterrent effect, and such data is rare. The trend towards increasingly strict compliance programmes, even in the absence of a mitigating effect in the European fining system, might even prove that the landscape is truly changing and that the fining system is effective. If the assumption that the effectiveness of the German fining system is at stake is right, is criminalisation the answer to the problems discussed above? Following the structured approach Wouter Wils presented in his famous EUI Workshop paper of the same name (‘Is Criminalisation the Answer?’),51 it is clearly not. Wils argues that a strong focus has to be on corporate fines which should be complemented by custodial sanctions provided there is a procedural framework for their effective enforcement and a willingness on the part of the stakeholders to use this framework.52 To the contrary, one would assume that a further criminalisation would in Germany lead to an even less effective enforcement regime.

5.3.2 Bid-rigging as a criminal offence in Germany Bid-rigging as a specific agreement which restricts competition already constitutes a specific criminal offence under section 298 of the German Criminal Code. The practical impact of that provision is negligible. There are very few cases reported where a custodial sanction has been imposed and there are official statistics showing more convictions where section 298 of the German

See Wils, Efficiency and Justice, above n 3, 155 et seq. See W Wils, ‘Recidivism in EU Antitrust Enforcement: A Legal and Economic Analysis’, 35 World Competition 5 (2012), text accompanying footnote 85; W Wils, ‘Antitrust Compliance Programmes and Optimal Antitrust Enforcement’, 1 Journal of Antitrust Enforcement 52, 71 et seq (2013). 51 W Wils, ‘Is Criminalization of EU Competition Law the Answer?’, in C-D E hlermann and I Atanasiu, eds, European Competition Law 2006: Enforcement of Prohibition of Cartels, Hart, 2007, 267. 52 Wils, Efficency and Justice, above n 3, 188, paras 586 et seq, text accompanying footnote 155. 49 50

50 Konrad Ost Criminal Code has been cited.53 However, at a recent meeting of public prosecutors from all over Germany with a special competence for prosecuting bid-rigging, not one of them could remember any conviction including the imposition of a custodial sanction. Most proceedings on bid-rigging are stayed, and sometimes settled if the perpetrator agrees to pay a fine. The main reason for this is seen in the burdensome procedure and the scarce resources of the judicial system. Due to the necessary procedural guarantees, criminal proceedings are even more burdensome than fines proceedings (in particular, with regard to evidence law). Further arguments against the assumption that criminalisation would lead to effective deterrence are that German law does not provide for short custodial sentences, and longer sentences are often suspended. Finally, with a criminalisation of cartel law, a leniency policy would have to be provided for by the law, which in turn would give rise to political debate and also systemic legal problems.

5.3.3 Criminalisation may lead to less deterrence Apart from general concerns about an extended criminalisation of economic offences, there are doubts as to whether it would make sense to introduce a genuine criminal cartel law in view of the above conflict with an effective and efficient enforcement of cartel law. Fast and effective enforcement is crucial for a truly deterrent effect. Criminalisation would have the opposite result. Bo Vesterdorf, when President of the European Court of First Instance, rightly argued that criminalisation leads to more procedural complexity and maybe less enforcement.54 In addition—at least in Germany—a social consensus about criminalising antitrust offences does not seem to have emerged. One reason may be that the main profit earned from antitrust infringements is usually kept by the undertaking and not the individual.

5.3.4 The future of fining individuals In contrast to European law—and apart from bid-rigging—in German law, natural persons may be subject to a personal fine for cartel offences. The involvement of natural persons even outside the criminal sphere justifies a high standard of rights of defence. It could be argued that the German law should perhaps abandon the punishment of individuals altogether in order

53 F Wagner-von Papp, ‘What if all Bid Riggers Went to Prison and Nobody Noticed? Criminal Antitrust Law Enforcement in Germany’, in C Beaton-Wells and A Ezrachi, eds, Criminalising Cartels: Critical Studies of an Interdisciplinary Regulatory Movement, Hart Publishing, 2010, 157 et seq. 54 B Vesterdorf, roundtable remarks in B Hawk, ed, International Antitrust Law and Policy: Fordham Corporate Law 2004, Juris Publishing, 2005, chapter 28, 756 and 762.

From Regulation 1 to Regulation 2 51 to streamline the antitrust procedure against undertakings.55 If it is true that undertakings are generally best placed to prevent antitrust infringements in the most cost-efficient way,56 and if fast and broad enforcement is a more effective form of deterrence than a few cases with exemplary fining, there is a clear case for concentrating on sanctions for undertakings. Measures to make corporate sanctions more effective, eg by switching to a more administrative type of proceeding, justify forgoing the punishment of individuals.

5.4 The role of compliance If criminalisation is not the answer, maybe compliance is. Scepticism on sanctions for individuals is mainly due to enforcement problems. However, it is convincing that individual responsibility is an important factor for the deterrent effect of an enforcement system. If, however, public enforcement is difficult and ineffective as far as individuals are concerned, private sanctions would seem both feasible and effective. Many companies claim to have an effective compliance policy. However, until quite recently there were few reported actions of undertakings against their managers. As it is now clear that under German law it is a breach of the supervisory duties of a board not to sue the former or current managers involved in a cartel, there has been public reporting on this kind of ‘private enforcement’.57 Compliance programmes may provide for harsh private sanctions and take over the function of public sanctions for individuals. The company is best placed to get the message of compliance across to its employees and managers, eg by making sure that the individual sanctions for infringing competition law or for tolerating an infringement by others exceed the incentives to commit offences. Private leniency programmes may be tailored to the specific needs within an undertaking. They are much more flexible than public leniency programmes in a criminal law context could ever be. Compliance programmes will not always prevent infringement; however, the right combination of private sanctions and incentives to cooperate may create the necessary individual incentives to complement the other basic mechanisms of the enforcement system. The driver for this development is a high level of credible corporate fines. 55 Klocker and Ost, above n 19, 244. See also the critique of J Biermann, ‘Neubestimmung des deutschen und europäischen Kartellsanktionenrechts: Reformüberlegungen, Determinanten und Perspektiven einer Kriminalisierung von Verstößen gegen das Kartellrecht’, [2007] Zeitschrift für Wettbewerbsrecht—ZWeR 1, 44. 56 Wils, ‘Antitrust Compliance Programs’, above n 50, 58. 57 AR Fabisch, ‘Managerhaftung für Kartellrechtsverstöße’, [2013] Zeitschrift für Wettbewerbsrecht—ZWeR 91. See also Süddeutsche Zeitung of 10 December 2012, ‘Thyssen-Krupp verklagt Ex-Manager auf 100 Millionen Euro’ [‘Thyssen-Krupp Sues Ex-manager for 100 MillionEuro’],http://www.sueddeutsche.de/wirtschaft/korruptionsaffaerebei-stahlkonzern-thyssen-verklagt-ex-manager-auf-millionen-euro-1.1546105.

52 Konrad Ost

5.5 Procedural convergence 5.5.1 The framework Regulation 1/2003 is an example of a rather reluctant approach to aligning the procedural systems of the Member States. The notion of the ‘procedural autonomy’ of the Member States is an important doctrine of European law. However, there are limits to such autononomy. The ECJ ruled in the VEBIC judgment on a purely procedural issue of national law. The ECJ considered that the Belgian competition authority was not vested with sufficient rights during the appeals procedure to protect the interests of an effective enforcement of European law. As the Bundeskartellamt has almost no rights during the court proceedings, the same issue could be discussed in the context of German law.58 As undertakings are the main addressees of the rules of conduct under cartel law, it seems reasonable to take a look at administrative law for a conceptual solution to the procedural shortcomings of German administrative penal law. Should the EU system serve as a model for national jurisdictions? There are a number of features of both the EU administrative setting and the Luxembourg judicial review that have been heavily criticised.59 It is clear that the EU system would not and should not serve as a blueprint for a convergence model in its entirety. However, it would be possible to take over many features of the EU model while still achieving effective enforcement and safeguarding in a reasonable and appropriate manner the rights of the undertakings.60

58 K Ost and T Brenner, ‘Das deutsche Kartellbußgeldverfahren nach der Entscheidung VEBIC: Vereinbar mit Unionsrecht?’, in Kartellrecht in Theorie und Praxis, Festschrift für Canenbley, Beck, 2012, 369 et seq. 59 See, eg F Montag, The Case for a Radical Reform of the Infringement Procedure under Regulation 17’, 17 European Competition Law Rreview 428 (1996); J Temple Lang, ‘Three Possibilities for Reform of the Procedure of the European Commission in Competition Cases under Regulation 1/2003’, CEPS Special Report (November 2011); J Schwarze, R Bechtold and W Bosch, ‘Deficiencies in European Community Competition Law: Critical Analysis of the Current Practice and Proposals for Change’, Gleiss Lutz Rechtsanwälte, September 2008. For a balanced approach, see W Wils, ‘The Increased Level of EU Antitrust Fines, Judical Review, and the European Convention on Human Rights’, 33 World Competition 5 (2010); M Jaeger, ‘The Standard of Review in Competition Cases Involving Complex Economic Assessments: Towards the Marginalisation of the Marginal Review?’, 2 Journal of European Competition Law & Practice 295 (2011); Lenaerts, above n 15, 175. 60 See R Wesseling and M van der Woude, ‘The Lawfulness and Acceptability of Enforcement of European Cartel Law’, 35 World Competition 573, 598 (2012), arguing that it is not the EU legal framework which has to change to accommodate concerns about due process but that ‘the different players in this system will have to review their conduct’.

From Regulation 1 to Regulation 2 53

5.5.2 Oral evidence An example of deficits on both sides may be the issue of hearing witnesses during court proceedings. In Luxembourg, there are almost no reports on the hearing of witnesses. The freedom of the judges to concentrate on written evidence, the reluctance of the lawyers to ask for witness interrogations and the wide scope of the rights of investigation with a limited right to remain silent during the Commission’s procedure may explain this fact. Due to the weight attached to oral evidence forseen by national criminal procedural law, the German experience is on the other side of the extreme—in one case, more than 6o witnesses were interrogated. The priority German criminal procedural law gives witness evidence over documentary evidence leads to extensive hearings even on facts where there is little doubt that the document is more reliable than the witness. The deficits are obvious if the evidence concerns data or a former behaviour which is not itself part of the offence. In general, however, the memory of witnesses years after the incident or relevant fact may be weak (and/or under undue influence of the parties concerned). The answers are often no more than repetitions of a reading of the document by the witness himself. As is often the case, the ideal solution may lie between these extremes. While accepting that most evidence may be adduced in written form, the main witnesses of the infringement (if there are any) should be heard in court.

5.5.3 From criminal to administrative procedures The paradigm shift from a criminal to an administrative procedure could also be based on the original function of cartel sanctions, in which the dimension of effective governance of the economy is clearly more important than the repressive dimension.61 Cartel law cases are intrinsically very complex due to the economic processes on which they are based and the large number of actors involved. In this respect, the legal framework provided for administrative proceedings is more adequate than that for proceedings in a criminal procedural setting: the focus on the written procedure is important; expert evidence can be provided in written form; and the parties involved can refer to briefs instead of having to make oral statements. Instead of being forced to (re-)establish the facts of the whole case in oral proceedings and issuing a stand-alone decision, the court may limit itself to assessing the decision made by the authority on the basis of the grounds of appeal.

See above n 31 and accompanying text.

61

54 Konrad Ost

6. Outlook: towards a ‘Regulation 2’ There are two drivers for reform in Germany. One consists of the shortcomings of the enforcement system in terms of both sanctions and procedure. The other is the system of parallel competences within the ECN and the European imperative of the effet utile doctrine. The possibility of resolving the issues by way of internal harmonisation is not excluded, following the path taken in the last 10 years which has clearly resulted in far more convergence than was expected 10 years ago. However, the problems of the German system can be taken as pars pro toto for many shortcomings and divergences in the national enforcement systems. The German example shows that even if the legislator transplants European rules into a national law setting, convergence is not guaranteed. There are additional issues to be discussed on a European rather than national level: there is an obvious need for further elaboration of the practical cooperation if two or more national authorities fine the same or a similar cartel. The experience of the recent mills cases, handled in parallel by the German, French, Dutch and Belgian authorities, sheds some light on the potential areas of conflict.62 After 10 years of experience of working together within the ECN, the EU should start with a new ambitious project, ie the further alignment of the enforcement systems within the EU. After 10 years of Regulation No 1, it is time to reflect on a Regulation No 2.

62 Issues such as ability to pay, multiple use of the 10% rule, the relevance of turnover realised in other Member States, common proposals to settle, etc.

2 EFFECTIVE REMEDIES Chair: Giorgio Monti Speakers: Rafael Allendesalazar Jochen Burrichter Stephen Calkins John Davies Ian Forrester Damien Gerard Alberto Heimler Alexander Italianer

Bill Kovacic Ioannis Lianos Philip Lowe Frank Maier-Rigaud Renato Nazzini Konrad Ost Savvas Papasavvas Joshua Wright

Joshua Wright: I will not provide any insights in the dreams of policemen in this presentation. [Laughter] Thank you for the invitation. I am told by my minders at the Federal Trade Commission (FTC) that I must begin every talk, even those overseas—perhaps especially those overseas—with the disclaimer that nothing that I say can be used against the FTC or any of the other Commissioners. There you have it. They can hold any of it against me, though. [More laughter] I want to talk about the FTC and its use of monetary remedies, namely disgorgement in competition cases. A bit of background is necessary. There has been some action in this area in the FTC as of late and, for those with a lower powered incentive to follow these day-to-day developments, I will give some necessary background. The FTC can ordinarily only pursue equitable remedies in competition cases, such as injunctions or divestitures, but not monetary or corporate remedies, including disgorgement or restitution.1 The focus of my remarks will be on whether the FTC should seek to impose disgorgement in competition cases and when. The FTC didn’t pursue disgorgement until 1999,2 though it has long sought disgorgement in its consumer protection cases. In 2003, after accepting comments from interested DD

See 5 USC § 53(b). FTC v Mylan Labs, Inc, 62 F Supp 2d 25 (DDC 1999).

1 2

56 Part I: Effective Enforcement of Competition Law parties, the FTC adopted a policy statement on the use of monetary remedies in competition cases that was designed to give some guidance after these cases in the late 1990s on when it would pursue disgorgement and when it would not.3 That statement outlined three factors the FTC would consider when deciding to pursue disgorgement in any given competition case: (i) whether the violation was clear; (ii) whether there was a reasonable basis to calculate a disgorgement penalty payment; and (iii) whether remedies through other litigation were likely to fail to accomplish fully the purpose of the antitrust laws. That policy statement, adopted after a notice and comment procedure in the US, was endorsed without dissent by the Antitrust Modernization Commission. In 2012, without public comment, the FTC decided to withdraw that statement on several grounds that are less than satisfying, for r easons that I will outline. To be clear, the withdrawal occurred before I joined the FTC and over the dissent of my colleague, Commissioner Ohlhausen. The FTC gave a few reasons for withdrawing its policy statement.4 One was the e lement of consideration of rarity or clarity of the violation. This was not an element considered by courts in disgorgement requests and the withdrawal of the statement contemplated that deciding whether or not an issue was a rare or clear violation could become an unnecessary side issue in follow-on litigation. The policy reasons the FTC gave are more interesting. One policy reason is that the Commission considered that the policy statement had chilled the pursuit of monetary remedies in appropriate cases, and second the Commission noted that Supreme Court Jurisprudence in the US had increased the burden on plaintiffs in private cases, which thus warranted a greater use of disgorgement by the FTC. I want to talk a bit about the statement and the policy reason the Commission pointed to in arguing that the policy statement itself had chilled the pursuit of monetary remedies in appropriate cases. That policy reason in itself is wholly unsupported by empirical data. The Commission sought disgorgement in two cases during the nine-year period before the policy statement was in effect,5 and also sought disgorgement in two cases during the nine-year period while the policy statement was in effect.6 There are many things one can do with four data points over eighteen years. However, something that 3 Policy Statement on Monetary Equitable Remedies in Competition Cases, 68 Fed Reg 45820 (4 August 2003). 4 Statement of the Commission, Effecting the Withdrawal of the Commission’s Policy Statement on Monetary Equitable Remedies in Competition Cases, 77 Fed Reg 47070 (31 July 2012) (hereinafter Withdrawal), http://www.ftc.gov/os/2012/07/120731commissio nstatement.pdf. 5 FTC v The Hearst Trust, No 1:01CV00734 (DDC 2001) (settlement resulting in defendant paying $19 million in disgorgement); Mylan Labs, above n 13 (holding that the FTC could sue for monetary damages as well as injunctive relief, and resulting in a $100 million settlement). 6 FTC v Lundbeck Inc, 650 F3d 1236 (8th Cir 2011) (affirming the District Court’s ruling denying any relief on antitrust grounds); FTC v Perrigo Co, No 1:04CV01397 (RMC) (DDC 2006) (resulting in a settlement that included a $6.25 million disgorgement).

Part I: Effective Enforcement of Competition Law 57 one definitely cannot do is point to this data and conclude that there was a decrease of disgorgement cases. However, this seems to be the argument that the FTC has made. The picture in terms of the data gets worse if one includes the SEP cases that the Commission had brought, which required a defendant to license its relevant patents on a royalty-free basis.7 One might conceptualise those remedies a bit like disgorgement in the sense that any profit the defendant would make, had it been able to reach a licensing agreement, it would now be deprived of. When we include these cases the picture gets a little bit worse in terms of relevant data points. One such case was before the statement and three came after the statement. Therefore, if anything, one can point to the total now of eight data points in eighteen years, and once can even see a slight increase that is huge in percentage terms of cases after the policy statement was adopted. If the data don’t get us there, I think the second policy reason is the most interesting to reflect upon and I will spend the rest of my time discussing this. The FTC’s rationale was that there was a reduction in private antitrust enforcement as a response to Supreme Court cases that either restricted the scope of Section 2 of the Sherman Act or increased the burdens for plaintiffs. This warranted an increase in the use of disgorgement by the FTC. Former Chairman Jon Leibowitz and former Commissioner Thomas Rosch, two of the four Commissioners that voted to withdraw the statement, have stated that ‘concern over class actions, triple damages awards and costly jury trials are what has caused our Supreme Court in the US to limit the reach of antitrust and that limit has given some would-be antitrust defendants a “free pass”’.8 To make up for any loss from the loss of deterrent value of these private suits, those Commissioners and the majority that withdrew the statement argued that the FTC ought to pursue disgorgement with more frequency. Again, I am going to the data a bit here to see if these statements are supported. For these statements to make sense, two testable hypotheses would need to be confirmed. First, private antitrust lawsuits would have had to become more difficult to win during the relevant time period. The second hypothesis is that anticompetitive conduct in the US is currently undeterred by the antitrust law. I will discuss both briefly. The most commonly cited cases in the US to support the proposition that life has become more difficult for plaintiffs is a line of cases that runs from Trinko9 to Twombly,10 linkLine11 7 Union Oil Co of Cal, 140 FTC 123 (2005); Dell Computer Corp, 121 FTC 616 (1996); Robert Bosch GmbH, No C-4377 (FTC, 21 November 2012); Opinion of the Commission on Remedy in Rambus, No 9302 (FTC, 5 February 2007), http://www.ftc.gov/os/adjpro/ d9302/070205opinion.pdf. 8 Statement of Chairman Leibowitz & Commissioner Rosch, Intel Corp, No 9341, 2010 WL 4542454 (FTC, 2 November 2010), http://www.ftc.gov/os/adjpro/d9341/ 091216intelchairstatement.pdf. 9 Verizon Communications Inc v Law Offices of Curtis V Trinko, LLP, 540 US 398 (2004). 10 Bell Atlantic Corp v Twombly, 550 US 544 (2007) 11 Pacific Bell Telephone Co v linkLine, 555 US 438 (2009).

58 Part I: Effective Enforcement of Competition Law and Credit Suisse,12 among others. Trinko is the first of those cases and was brought in 2004. It is a common rhetorical move to look at the 2004 case and say that defendants have been winning a lot of cases since then. It is more rare to point to any of them and say that any of the individual cases was decided incorrectly. But if one were to go back to a longer stretch of cases, going back to, say, 1967 rather than looking at just the last 10, one would find in the time period before the defendants’ win streak that plaintiffs had an impressive win streak in their own right. Indeed, they won more than 80 per cent of the cases from 1967 to 1976.13 Whereas defendants won all 13 of the a ntitrust cases decided by the Supreme Court from 1997 to 2006, defendants won only 16 of 44 cases decided by the Supreme Court from 1967 to 1976. Thus the dates show that, even if the Supreme Court is making life more difficult for plaintiffs in one way or another in the cases over the last eight years, the record over the last 50 years is clearly much more of a mixed picture. If one looks at all of the private law suits of the US in the relevant time period, that is probably a better approach to get a sense of what is going on, and this means it is useful to look at the district court level. One testable implication of the hypothesis that the recent decisions have made life more difficult for antitrust plaintiffs is the response in terms of case filings. Case filings are an imperfect proxy for plaintiff win rates for a variety of reasons, but they are worthy of examining as a first cut because a plaintiff’s decision to file a case will undoubtedly be affected by its expectations of outcomes as a result of Supreme Court decisions. Luckily, other folks have done the heavy lifting, in particular Paul Godek, in counting the data.14 Godek found that private filings have actually increased and not deceased since Trinko in 2004. Most recently, there was a dramatic surge from 2011 to 2012. I do not want to draw too strong a statement or conclusion from this, but it is difficult to construct from this data a picture of plaintiffs that are scared to file a case or having a low expectation of winning cases after these Supreme Court cases. The last of my remarks is on whether the current state of law is such that one can conclude in the US that the type of conduct folks are seeking to stop in monopoly cases, and where the Commission might seek disgorgement, is currently undeterred. Luckily, here I can piggyback on the comments made by Simon before. Simon provided a lot of the economic insights on over- or under-deterrence in the Article 102 context. In this context, and in S ection 2 cases in the US, the probability of detection of much of this conduct is already equal to 1. For example, patent hold-up is hold-up. One has to raise one’s hand and hold up the other party. Hence, the probability of detection is high.

Credit Suisse Securities (USA) LLC v Billing, 551 US 264 (2007). See Leah Brannon and Douglas Ginsburg, ‘Antitrust Decisions of the US Supreme Court, 1967 to 2007’, 3(2) CPI Journal 1, 3 (2007). 14 See Paul Godek, ‘Does the Tail Wag the Dog? Sixty Years of Government and Private Antitrust in the Federal Courts’, Antitrust Source, December 2009, 1. 12 13

Part I: Effective Enforcement of Competition Law 59 The case for disgorgement on top of the available treble damages is therefore fairly weak. Lastly, the economic literature surrounding vertical conduct in terms of the empirics should make one very wary that the problem we face in that area is much more likely to be over-deterrence than under-deterrence. Because of that, it is ultimately fairly unwise to seek disgorgement in such cases and unwise to walk away from policy guidance as to when a public agency is going to seek disgorgement in those types of cases. I will stop here ahead of Giorgio’s red card. Ioannis Lianos: I was asked to talk about effective remedies. The first question I asked myself is what we mean by effectiveness. There is a clear trend in competition law legislation and jurisprudence that remedies should be sufficient to ensure effective legal protection in the fields covered by EU law. We are all familiar with Article 7(1) of Regulation 1/2003, where the word ‘effective’ appears in the sense that the remedies should bring the infringement effectively to an end. Today we should also look at Article 19(1) TEU on effective remedies and Article 47 of the Charter on Fundamental Rights, which provides a right to an effective remedy. We are also familiar with the jurisprudence of the EU Courts, which requires Member States to establish a system of legal remedies and procedures which ensure the right to effective protection of individual rights under EU law, and therefore requires them to put in place effective remedies for violations of EU law. The meaning of effectiveness in the EU case law is specific in the sense that it is focused on national remedies and the rule that national procedural rules should not make the enforcement of EU rights impossible or excessively difficult. However, in a quite interesting Opinion of AG Jääskinen in Donau Chemie,15 he examined the scope of Article 19(1) TFEU and concluded that the standard of effective judicial protection for EU-based rights seems to be more demanding than the classical formula of effectiveness and refers to practical impossibility.16 In his opinion, this means that national remedies must be accessible, prompt and reasonably cost-effective. We see here that a new meaning is given to the concept of effectiveness or effective remedies in the sense of cost-effectiveness. However, although this is an interesting point of view and important, it is quite clear that the concept of effective remedies is not really clear and what we can actually only really get from this is that the concept of effective remedies does not entail the power to impose any remedy. This is interrelated to the question of remedial discretion of competition authorities and the judiciary in competition cases. Therefore, when we look at economic analysis we know that there is a lot of analysis as regards damages and fines, and we DD

15 Opinion of Advocate General Jääskinen in Case C-536/11 Bundeswettbewerbsbehörde v Donau Chemie AG and Others, EU:C:2013:67. 16 Ibid, para 47.

60 Part I: Effective Enforcement of Competition Law are familiar with optimal enforcement theory, which is focused on deterrence. At the same time, looking from a legal perspective, lawyers tend to focus more on the limits to remedial power, whereby private lawyers will focus on corrective justice and public lawyers on the principle of proportionality. That does not necessary imply the complete absence of any deterrence considerations because deterrence might also be an objective of corrective justice. Therefore, it is not only in the context of optimal enforcement theory that one thinks of deterrence; –it can be important for other lawyers as well. It is therefore necessary to investigate the inherent limits to remedial discretion coming from an understanding of the concept of remedy in public and private law. I take this perspective because I think that competition law should try to connect with a more general debate over remedies in public and private law, taking into account that such a systematic analysis of the topic is quite recent while in common law jurisdictions the topic of remedies started to be examined systematically in the 1970s and many civil law jurisdictions actually recognise a proper law of remedies. It is part of the substantive law. I will examine two further issues in my presentation: first, the taxonomy of remedies; and second, the issue remedial discretion. Remedies in EU law and competition law are intrinsically related to the concept of bringing an infringement to an end. They are clearly distinguished in Regulation 1/2003 from penalties, sanctions and private enforcement, although remedies in the form of damages or injunctions may also be imposed by the courts. The distinction that is made between remedies and fines is therefore artificial. Remedies are related to a concept of bringing the infringement to an end. This was interpreted broadly in the case law to mean not only the termination of an infringement, but also the means that would prevent the occurrence of the infringement in the future if they were at the root of the litigation. I refer here to the Commercial Solvents case law.17 The concept of remedies has also been used to describe the various civil law consequences in national courts, such as nullity and damages. Therefore, I say that we should take a broader perspective on remedies. There has been a lot of work in private law, in particular on the taxonomy of remedies. What I would like to do here is to take a functional approach to the concept of a remedy, in view of the fact that there are very different perceptions of this concept in common and civil law traditions. There are three main functions of remedies: remedies are available (i) to cure the violation; (ii) to restore the plaintiff’s rightful position as if the plaintiff had never violated the law; and (iii) to restore the defendant’s position that he occupied prior to the violation. The third is the most problematic in that it seeks to ensure that there remain no practices that infringe competition law in the future. However, this can also

17 Case 7/73 Istituto Chemioterapico Italiano SpA and Commercial Solvents Corporation v Commission [1973] ECR 357, paras 45–46.

Part I: Effective Enforcement of Competition Law 61 be a side-effect of the first two restorative or punitive remedies. Preventive remedies aim directly at specific or general deterrence. Specific deterrence can be defined as the impact on the incentive of the infringer to adopt illegal behaviour in the future. General deterrence focuses on the public at large. Second, remedies may be of a purely prophylactic function. What I call ‘prophylactic’ remedies can be distinguished from deterrence in the sense that they focus on the ability, and not the incentive, to commit infringements in the future. That is, they focus on specific facilitators of potential infringements. These are not illegal practices in themselves, but in the specific circumstance of a case they may facilitate illegal conduct. Eliminating these practices does not exactly deter—rather, it reduces the ability to carry out illegal conduct. I make this point because it is interesting to develop a broader perspective and not just focus on injunctions or behavioural and structural remedies in public enforcement. Assuming that this taxonomy on remedies is accepted, the limits of discretion become important. This may depend on the capacity of each institution, but it is quite important to think about it more in general terms. My view would then be that competition authorities and courts should have discretion to define the appropriate remedy in individual cases rather than being limited to specific predefined remedies. The optimal or appropriate approach may be influenced by the views of economists, and somehow it might lead them to develop remedies that will improve the market equilibrium compared to that existing prior to the infringement. From a private law and public law perspective, it may seem to be contrary to corrective justice and proportionality. We have seen some case law of the EU Courts trying to limit the discretion of competition authorities by linking the remedy to the theory of harm that has been advanced. This is an important point to keep for the time being. I will end here. Damien Gerard: On 22 February 2006, the European Commission issued a remarkable decision. It was a decision that made binding on De Beers, the diamond conglomerate, a unilateral commitment not to purchase any rough diamonds from the Russian company Alrosa,18 as of the beginning of 2009 and forever after. These were and still are the two largest producers of rough diamonds in the world. Since 1995, De Beers and Alrosa agreed on a purchase agreement that allowed De Beers to purchase a significant share of output from Alrosa. According to the Commission, that agreement contributed to the entrenchment of De Beers’ dominant position in the market for rough diamonds. It reduced access to a viable source of supply of diamonds for downstream customers and prevented Alrosa from competing fully with De Beers. After adopting the decision, the Commission declared that, by obtaining the purchase commitments, for the first time in the history of the DD

Commission Decision of 22 February 2006 in Case COMP/B-2/38.381—De Beers.

18

62 Part I: Effective Enforcement of Competition Law diamonds market there was an opportunity for genuine competition. This disregarded the fact that Alrosa was not happy at all about the deal reached between De Beers and the Commission. Alrosa needed to secure the sales to De Beers in order to fund its expensive distribution network and, until some months before the decision, it had been fully involved in the negotiation of an alternative solution. In January 2003, Alrosa received a Statement of Objections from the Commission alleging that the agreement constituted a restriction of competition. In December 2004, it submitted, with De Beers, a joint proposal to the Commission to cap De Beers’ purchases at 35 per cent of the original amount within six years. This proposal was market tested in June 2005. According to the Commission, the outcome of the market test of the joint commitments had been negative. A majority of the respondents to the market test, who were mostly De Beers customers, considered that there should be no purchasing relationship at all. These observations of third parties together with the Commission’s own analysis led the Commission to suggest amendments to the commitments. De Beer decided to comply. Alrosa was not happy at all and brought an action for annulment to the General Court, alleging, first, infringement of freedom of contract and the principle of proportionality and, second, an infringement of the right to be heard and hence a breach to due process. Surprisingly, the General Court upheld both grounds and quashed the Commission decision.19 The Commission brought an appeal to the ECJ, which overturned the judgment on both grounds.20 Interestingly, the ECJ first defined the nature of the Commission’s proceedings as a new mechanism introduced by Regulation 1/2003 that was intended to ensure that the competition rules laid down in the Treaty are applied effectively. On proportionality, the Court found that the reach of the principle was limited in the context of Article 9 proceedings to the extent that the commitments have to address the theory of harm and that the parties have not proposed less far-reaching commitments that would also address the concerns. On due process, the ECJ essentially considered that the Commission has a wide degree of discretion to reject or accept commitments, and it was therefore not bound to give reasons for denying the original proposal. So ended the Alrosa saga. What explains this succession of twists and turns, which is rather uncommon in the EU context? The story concerns unanticipated effects of the process known as the modernisation of EU competition law, initiated by the effectiveness paradigm that drives negotiated antitrust enforcement and its limits when it comes to devising efficient remedies. These unanticipated effects caused a legitimacy gap that has still not been overcome today. Modernisation can be apprehended as an attempt to experiment with a utilitarian approach to the regulation of economic competition, with substantive, institutional and

Case T-170/06 Alrosa Company Ltd v Commission [2007] ECR II-2601. Case C-441/07 P Commission v Alrosa Company Ltd [2010] ECR I-5949.

19 20

Part I: Effective Enforcement of Competition Law 63 procedural dimensions. From a substantive perspective, it led to the acceptance of the efficiency consensus; from an institutional perspective, it led to the development of a network-based form of enforcement; and from a procedural perspective, it led to an increasing reliance on negotiated procedures in the enforcement of EU competition law: most prominently, the leniency, settlement and commitment procedures. The advent of negotiated enforcement is driven by effectiveness, including deterrence considerations. That is a willingness to maximise the allocation of enforcement resources with a view to strengthening compliance and the social impact of competition policy. Over time, the Commission decisions adopted pursuant to Article 9 of Regulation 1/2003 have been the most representative form of this negotiated form of enforcement. In the 2005–2013 period, the Commission adopted 31 commitment decisions and seven non-cartel infringement decisions. In recent years, the trend toward negotiated enforcement has become even more pronounced: between January 2008 and July 2013, only three non-cartel prohibition decisions were adopted,21 compared to 19 commitment decisions. The Commission therefore favoured a negotiated outcome in 85 per cent of non-cartel cases in that five-year period.22 The focus on effectiveness and the promotion of a negotiated procedure have had the effect of putting a greater emphasis on remedies. Negotiated procedures are completely focused on the design of remedies. C ommitment proceedings, by nature, focus on devising remedies rather than finding an infringement. The advent of a negotiation procedure and the design of negotiated remedies are also driven by effectiveness considerations. The EU Courts have allowed the imposition of remedies that were found to go beyond the restoration of the status quo ante, notably because they were designed to prevent the possible recurrence of an infringement in the future.23 Interestingly, Regulation 1/2003 follows the same approach by expressly granting the Commission the ‘power to impose any remedy, whether behavioural or structural, which is necessary to bring the infringement effectively to an end’.24 Remedies are not only designed to address prevention concerns, but also to

21 Commission Decision of 13 May 2009 in Case COMP/C-3/37.990—Intel; Commission Decision of 22 June 2011 in Case COMP/39.525—Telekomunikacja Polska; Commission Decision of 23 January 2013, Telefónica/Portugal Telecom, above n 11. 22 By comparison, it is estimated that ‘over 60 percent of antitrust disputes are resolved … by means of consent decrees’. See Richard Epstein, Antitrust Consent Decrees in Theory and Practice, AEI Press, 2007, 1 (or ‘roughly 70%’—see Michael Weiner, ‘Antitrust and the Rise of the Regulatory Consent Decree’, Antitrust, Fall 1995, 4). 23 See, eg Case T-395/94 Atlantic Container Line AB and Others v Commission [2002] ECR II-875, paras 398 et seq; Case T-310/94 Gruber + Weber GmbH & Co KG v Commission [1998] ECR II-1043, paras 177-178; Case T-7/93 Langnese Iglo GmbH v Commission [1995] ECR II-1533, para 205. 24 Regulation 1/2003, Recital 12 and Article 7.

64 Part I: Effective Enforcement of Competition Law ensure that they are workable and easy to implement. Moreover, because it is the remedy discussion that largely shapes the underlying theory of harm, the negotiated remedies are designed to address more loosely defined concerns. This also exposes them to a greater risk of restructuring by third party interests in market-testing processes. Negotiated remedies therefore raise the question of the relationship between effectiveness and efficiency. The promotion of negotiated procedures as part of a utility-maximising approach to competition law enforcement was designed to increase the effectiveness of enforcement. However, insofar as it leads to negotiated procedures becoming the default enforcement mechanism, that approach has the reverse effect of blurring the contours of the law and of leading to a loss in the predictability of antitrust principles, thereby leading to a loss in (substantive) effectiveness. The paradox goes full circle once one considers that modernisation as a whole was premised on the stabilisation of competition law principles. How to reconcile maximised enforcement resources with the promise of competition law as a tool of welfare maximisation? How to design optimal remedies in a negotiated context? Two legal concepts can assist in reconciling effectiveness end efficiency in this context: proportionality and due process. In the Alrosa case they were both unfortunately interpreted in a way that makes them unable to perform that mediation function properly. By relaxing both concepts, the ECJ created a legitimacy gap that threatens the legitimacy of competition law enforcement and its ability to achieve its social objective. There is a case for relaxing proportionality requirements in commitment cases, but doing away with both concepts creates a gap that threatens the legitimacy of competition law itself. In turn, filling that gap requires a review of the sequencing of commitment proceedings and associated p rocedural rights, as well as the (re)development of a credible alternative thereto, in order to salvage the voluntary character of commitments as a guarantee of proportionality and to turn commitment proceedings into a collaborative process capable of delivering optimal outcomes from both an effectiveness and an efficiency point of view. The Commission has taken a few steps in that direction, as reflected in the best practice guidelines, which explain that parties to commitment proceedings have access to the Hearing Officer at any time. The General Court, furthermore, made two useful suggestions in Alrosa: first, by providing non-confidential copies of the full responses to the market test, which already exists on a national level at least in some countries; and second, by requiring the Commission to formally motivate the rejection of market-tested commitments. To conclude, I put forward a third proposal, which is more systemic in nature in the sense that it could also restore the relevance of the voluntary nature of commitments as a means of achieving optimal remedies. I would propose that the Commission should not be able to impose fines in infringement procedures once it has engaged previously in the commitment path. In such cases, the sanction would be the infringement decision itself, and no additional monetary penalty would apply.

Part I: Effective Enforcement of Competition Law 65 Monti: OK, so now it is my turn. The idea of my paper is to look at the question of effective remedies and ask: what does this mean? I will focus on Article 7 remedies, not Article 9 remedies. There is a general agreement as to the role of remedies, which is threefold: (i) to terminate the infringement; (ii) to prevent it from occurring again; and (iii) to re-establish effective competition in the market. I mainly have a problem with the third: to re-establish competition in the market. Is this a legitimate objective to pursue for competition authorities? I will be looking at EU law only. In its decision against the Trans-Atlantic Agreement (TAA), the Commission had imposed an obligation whereby the undertakings who had infringed Article 101 had to ‘inform customers with whom they have concluded service contracts and other contractual relations in the context of the TAA that such customers are entitled, if they so wish, to renegotiate the terms of those contracts or to terminate them forthwith’.25 These contracts were not in themselves contrary to Article 101, but the concern was that the cartel had affected the terms of these contracts, so renegotiation would indeed serve to restore the status quo ante. The General Court ruled that, since this remedy was not normally imposed, a detailed explanation had to be given by the C ommission. Moreover, in determining the proportionality of this remedy, the Court intimated that account should be had of the private law rights resulting from an infringement of Article 101. As a result, the remedy was quashed for failure to state reasons.26 I am not sure why that was the case because the Court makes a comparison with Astra, but for me the level of reasoning in Astra is not so different or more elaborate.27 One interesting point that was made by the General Court in the TAA case was that a remedy that seeks renegotiation of contracts is something that the parties to the agreement can do themselves. This concerns the question of whether the restoring of competition is the job of a competition authority or of private parties. It appears that market players who suffer loss as a result of a competition infringement should secure compensation themselves: private law restores parties (and thus, often, m arkets) to the status quo ante, often insofar as money can do so. However, one might consider whether competition authorities should themselves perform the compensatory/restorative function, thereby widening and improving their remedial capacity. Given the present state of play, leaving restoration to private law seems desirable. After all, if private parties have been injured, then they have an opportunity to have their loss restored through private enforcement. Having said that, there was a report from the UK of a few years ago— the Macrory Report—which reviewed all forms of regulatory agencies and DD

Atlantic Container Line, above n 23, para 414. Ibid, paras 412–416. 27 Commission Decision of 23 December 1993 in Case IV/32.745—Astra. 25 26

66 Part I: Effective Enforcement of Competition Law remedies.28 There is a suggestion in that report that the compensation of the harm suffered is something that should be handled by regulatory agencies and that this may be more economical because the regulatory agency is in a good position to assess the damages. The Macrory Report has been implemented by all national regulators in the UK except for the Competition Commission. It might open up new perspectives to suggest that restoring competition and private enforcement may be done more efficiently by public enforcers. Let me turn to the issue of prevention. There are three points to make here. First, some conduct is ambiguous. Take rebates and the question when is it lawful or unlawful. If a decision tells the parties ‘do not offer a rebate’, this does not provide very useful guidance. If you look at some of the C ommission decisions on the abuse of a dominant position you will find that they are a mixture of an Article 7 prohibition that is either followed or preceded by a commitment decision. In Michelin II, you find a statement according to which, between 1998 and 1999, Michelin had been negotiating with the C ommission on what sort of rebate scheme would be allowed. Therefore, after the decision was issued, this new form of rebate scheme was allowed.29 Here I find a problematic contrast. Although Article 9 can be criticised, there is a degree of transparency in these decisions that people can see. With Article 7, however, there is a prohibition that is followed by a discussion as to how to comply with the decision. That is less transparent and can be worrying in the situation that the subsequent conduct of the parties is not market-tested before a formal decision is issued. It is particularly worrying if the discussion takes place before the formal decision is issued. The second point about prevention is that one should be able to monitor compliance in some way. It is not enough to simply say: ‘Here is what you should do’. It is possible to monitor compliance under Article 7 versus Article 9. One of the good things about Article 9 commitments is that, because they are voluntary, one can ask the party submitting the commitments to voluntarily set up a compliance scheme as well. Now, after the General Court’s decision in Microsoft, such compliance under Article 7 may be a little more difficult to carry out because of the General Court’s more restrictive approach as to what sort of powers can be subcontracted to third parties in that sort of case.30 So, again, in this context, Article 9 cases have a comparable advantage in terms of allowing greater flexibility in designing monitoring schemes for the remedies that you set forth. When it comes to monitoring, I want to mention the pharmaceuticals sector inquiry.31 One of the issues that

28 Richard Macrory, Regulatory Justice: Making Sanctions Effective (November 2006), http://www.berr.gov.uk/files/file44593.pdf. 29 Commission Decision of 20 June 2001 in Case COMP/36.041/PO—Michelin, Recital 350. 30 Case T-201/04 Microsoft Corp v Commission [2007] ECR II-3601, paras 1251–1279. 31 See http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/index.html.

Part I: Effective Enforcement of Competition Law 67 the inquiry looked at was that of patent settlements. The Commission asked the parties, having identified the anticompetitive risks that arise, to notify such patent s ettlements to it. And we have now three annual reports that indicate the degree to which the parties have complied. So here, again, you have a situation where the probability of getting caught is 100 per cent because you must notify, and some breaches have been found. In the first year, 10 per cent of the settlements raised issues, in the second year it was 3 per cent and then it went back up to 11 per cent in the final year. The final spike upward is explained by some special cases. This raises questions about whether this is a method of enforcement, the message being: ‘You are being looked at, and we would like you to tell us what you are doing’. It also raised the question of whether 10 per cent non-compliance is a good number. Does this tell us how much compliance we want? So I think the experiment here leaves a number of questions open, but it is clearly an imaginative way to monitor compliance by simply asking the parties to report what they do. The third point about prevention is that remedies are a one-off. You impose them and then there is a risk of over- or under-enforcement with the remedy. It has been said before that the risk of over- or under-enforcement lies at the theory of harm stage; but with remedies it is even more pernicious, because you cannot correct. Should we build in a review so it can be checked whether the remedy has worked? This is what happens in Article 9 cases, and Microsoft, the browser case, is the primary example of this—after two years of implementation of the unbundling remedy, it can be asked whether that remedy has been efficient.32 Can you do so in Article 7 and is this advantageous? I know this is costly, but it makes sense to do. It strikes me that if you have a review clause it is likely to be to the advantage of the competition authority. That is to say that it is easier for the competition authority to claim that the remedy is not working than it is for the parties to say that the remedy has been excessive. This suggests that a review clause specifically protecting the undertaking might be warranted. My final point is about the remedy of a positive injunction. This is a duty to deal. It strikes me that some of the remedies imposed in some of these cases appear to be a bit excessive. This goes through the history of Article 102 cases. Going back to Commercial Solvents, the AG probably rightly held that the quantities that the defendant was asked to supply were excessive, given the nature of the problem.33 More problematic is an injunction, as in Microsoft, where the obligation is to deal with anyone. The aim of remedies is to terminate the infringement. The infringement in duty to deal cases is that it reduces

32 Commission Decision of 16 December 2009 in Case COMP/C-3/39.530—Microsoft (tying), Annex I, paras 20–21. 33 Cases 6 and 7–73 Istituto Chemioterapico Italiano SpA and Commercial Solvents Corporation v Commission [1974] ECR 223, para 48.

68 Part I: Effective Enforcement of Competition Law market access in downstream markets and therefore reduces workable competition in the downstream market. Now suppose a dominant firm has supplied six players in the downstream market so that there is effective competition on the downstream market since you have seven actors. Now number 8 comes along and says I too would like to have access to the relevant information in order to compete on the downstream market. Surely at that stage it should be right that the defendant can deny supplying access since the market is effective downstream so there is no competitive harm that can be fixed? An openended duty to deal with anyone therefore goes too far and goes beyond the rationale for the remedy, which is simply to terminate the infringement and not to regulate competition in the market to this degree. I’ll stop here. Frank Maier-Rigaud: I hope I will not be disappointing, because although I’m an economist I will talk about a purely legal question in front of a group of well-versed legal professors and lawyers, and it seems to be really the crème de la crème that is assembled in this room. I want to talk about proportionality, necessity and effectiveness. I will speak mainly about effectiveness, the subtopic in this group today. I will talk about Regulation 1/2003 and Article 7(1)—and, to be more precise, on the third sentence of this provision. Obviously, the words proportionality, necessity and effectiveness (or actually ‘effectively’ and ‘equally effective’) appear in Article 7(1). To bring an infringement (equally) effectively to an end, what does that really mean? ‘Equally effective’ implies that effectiveness is a gradual concept, not a concept that a particular remedy is either effective or not effective. Of course, there are such remedies, but Article 7(1) does not adopt a binary type of concept. The English version and the German version are not very clear on this. The French version of Article 7(1) is somewhat clearer, since there the word effectivement in the first part is used in the sense of actually terminating the infringement. This is a particular way of implementing this part of Article 7(1) also in the choice of words, and then in the second part, in contrast to the German and English versions, the word used is efficace; that is to say, ‘reaching the goal’. So effectiveness is not binary; it is a gradual concept. This then raises the question of which remedy is the most effective one. What I said is that I want to talk about effectiveness, but I still need to spend a second on proportionality and necessity. Here my argument would be that these are general filters, so it is not an ultimate selection criterion but is more of a filter that determines whether the remedy in the necessity part is capable of bringing the infringement to an end and does not go beyond this particular goal or address aspects that do not belong to the procedure. This is in stark contrast in some sense to the much more developed German law, where proportionality would automatically say something about effectiveness and vice versa. My claim would be that, under EU law, a more effective remedy is not automatically a less proportionate one and is not necessarily of milder DD

Part I: Effective Enforcement of Competition Law 69 means. So what does the test look like? The Commission may impose on the infringing firm any behavioural or structural remedies. Then two filters apply. In the second sentence it is specified that any such measure needs to be necessary and proportionate to the infringement. Therefore, obviously necessity and proportionality are criteria that both types of remedies (behavioural and structural) need to fulfil. The second type of filter, that is the third sentence, then basically says: choose from all the possible remedies the most effective one. This is conditional on what sentence 3 in Article 7(1) says, and that is that structural remedies can only be imposed if either there is no equally effective behavioural remedy or where any equally effective behavioural remedy would be more burdensome for the undertaking concerned than the structural remedy. This formulation has probably created the impression that structural remedies are subsidiary to behavioural remedies under EU law. But I argue this is not the case. So what does follow from this? There are two possibilities: either there is only a single remedy that comes out of this and that is proportionate and necessary, and then this is the remedy that you would want to choose; or, if there are many solutions that are proportionate and necessary but only a single one is the most effective, then this is the one to choose. In these situations, one would not care too much about the third sentence. However, if there are several remedies that are tied in the first place in terms of effectiveness, then one could distinguish two more situations. First, it may be that all the remedies are either all behavioural or all structural. Then, according to the case law,34 the undertaking should be allowed to choose; or, if the remedies include both structural and behavioural remedies, then the least burdensome solution has to be chosen. This may actually be, if one thinks, for example, of the E.ON case, the structural remedy. In conclusion: Regulation 1/2003 does not imply the subsidiarity of structural remedies. There is no preference for behavioural remedies, and the structural or behavioural nature of a remedy is immaterial from the perspective of Article 7 so long as they are not equally effective. Only in this highly theoretical case, when indeed they cannot be distinguished by the very criteria set forth in Article 7, does the Article suggest a preference for behavioural remedies. There is thus only a residual preference for behavioural remedies. The final point is a quote of the OECD Council on the role of structural remedies. As the text reads, Behavioural policies, unlike structural policies, do not eliminate the incentive of the regulated firm to restrict competition … despite the best efforts of regulators, regulatory controls of a behavioural nature, which are intended to control the ability of an integrated regulated firm to restrict competition, may result in less competition

Case T-24/90 Automec Srl [1992] ECR II-2223, paras 51 et seq.

34

70 Part I: Effective Enforcement of Competition Law than would be the case if the regulated firm did not have the incentive to restrict competition.35

This statement concerns regulated industries, but there is some truth to it for competition matters in more general terms since I spoke only about a very specific aspect of effective remedies. I thought it would be useful to put this more economic argument on one of my slides in order not to have talked only about the legal interpretation of Article 7. Monti: OK, so we’ve had 10 very rich and very diverse papers. Now we have about an hour for discussion, so what I suggest I do is that I will collect a few comments and suggestions at a time and go back to the panel and ask for their responses—so if you do want to comment, you just need to raise your flag like this so I know you want to say something, and I will try and pick you in as fair a manner as possible. So I have Jochen Burrichter first. DD

Jochen Burrichter: Yes, thank you very much. I think I have to explain that the German system is basically a criminal system and not an administrative system: if the BKA has imposed a fine, it is regarded as an indictment. So to some extent you can compare the system we have in Germany with the system in the US. The court has complete power to control the decision both from the factual and from the legal side. This implies that the court has to investigate the case as far as necessary, and if I look at the amount of fines that can be imposed under German law and also the fines that can be imposed on individuals, I think the criminal system is better equipped to deal with these aspects of the cases. In the case that lasted for three years, where we had to appear in more than 130 court hearings, the Vice-President of the BKA admitted that it had learned its lesson. The second point is that the court handled the case and the investigation in this way due to the deficiencies of the BKA, and it handled the evaluation of evidence in a way that was not completely appropriate for the handling of the case. But the system as such, in my view, is better than the EU system. In the EU, you appeal and then you have only 50 pages to make your case and you have 50 minutes to plead, and then the court is limited to manifest errors, giving broad discretion to the Commission and then confirming fines that can threaten a company’s very existence. That is not an appropriate system, and under German law if an EU-type system were adopted in Germany this would meet very substantial constitutional objections. We will have to see whether our Constitutional DD

35 OECD, Recommendation of the Council concerning Structural Separation in egulated Industries, C(2001)78/FINAL. See also OECD, Recent Experiences with R Structural Separation, DAF/COMP(2011)12.

Part I: Effective Enforcement of Competition Law 71 Court, which is actually dealing with a complaint against a fine of the EU, will confirm whether the fining system under Article 23 of Regulation 1/2003 is constitutional. Ian Forrester: The senior members around this table have seen, in their lifetime, fines growing from thousands to millions to hundreds of millions of euros. This phenomenon occurred in a period when judicial review in Luxembourg was in theory unlimited but in actual practice rather deferential. We have arrived in a situation where it is interesting that a fine of 500 million is imposed but the Court’s examination of such very heavy fines has not really been fundamentally rigorous. My suggestion is that the appropriate test for a fine should be at the level which achieves the legitimate amount of pursuing the goal of the administration. In other words, the right test is: ‘What level of fines should be achieved for the legitimate administrative objectives of deterrence and punishment’? Now, in Brussels, successive Commissioners are judged, at least by the press, and maybe by those who speak to the press, on the basis of the severity of the fines they have imposed. Therefore, Mr Monti was ‘better’ than Mr Van Miert because he imposed so many more millions in fines. That plainly equates heavy fines with good compliance, and that clearly is not the right way. So, penalties have moved from being what they should be—individualised and targeted on the particularly bad things that the individual did—to being arithmetical: they are the fruit of a mechanistic calculation. So they have evolved from alchemy, which was bad, but they have turned into a kind of taxation, which brings its own damage. There is a further problem, and that is that the fines go into the pocket of the European Commission, or at least they achieve the Commission’s achievement of its own budget, and that’s unacceptable. In any event, what I got from this morning’s discussion, which was intriguing, was the following proposition: in Germany, the competition rules are taken seriously and people worry about the BKA, and people worry and get angry when they’re investigated and when penalties are imposed as a sanction. Yet those penalties are very much lower than the penalties imposed in Brussels. Now I think it is a legitimate subject of inquiry whether the BKA deters more effectively or less effectively by reference to the levels of fines it imposes and the punishment it imposes than is the case with the Commission in Brussels. In short, I think that fines have got way out of control and that a public agency—at a time of concern regarding its legitimacy—doesn’t have the right to impose fines of that enormity without very careful reflection as to its entitlement to do so as a matter of justice, fairness, gravity and other individualised considerations. I think it would be a good thing at the end of this Workshop to reflect on what it is that other enforcement agencies in Europe do differently in terms of the setting of penalties and the success of those agencies in comparison to the success of the Commission in setting appropriate penalties. DD

72 Part I: Effective Enforcement of Competition Law Renato Nazzini: In terms of fines and sanctions again, the problem we have is that all the discussions about fines, in most of the papers, and certainly in defining the policy of most agencies in Europe, is about deterrence and is about what Ian Forrester was calling general deterrence, which comes again to the point that Simon Bishop was making well, namely: do we really know what the detection rate is—and we really cannot know this. Since the topic today is legitimate and effective enforcement, particularly legitimate enforcement, one question we need to ask ourselves is why punishment does not really feature highly in the pursuit of the goals of the administration and in the setting and calculation of these fines. Punishment as a factor would require looking at all sorts of elements, such as whether the infringement was intentional or negligent, the magnitude of the harm done to the economy, the duration of the infringement and so forth. The task at hand is to bring these factors to appropriate, commensurate, proportionate levels of punishment— and not general deterrence. This, I think, means a completely different framework in terms of thinking about fines, and it could address a number of issues that have been raised. In Article 102 cases, for example: what is the required degree of culpability—should it be intentional conduct only? What kind of abuse should be punished? Is it, what is termed in the US, a ‘naked’ abuse— something that is deliberate, intentional behaviour that cannot have any possible business justification other than excluding rivals, or is it something much more difficult and complicated, like loyalty rebates? Has the company excluded the only competitor that ever could have emerged in that market, or was the company just reacting to competition which was becoming more and more effective and stronger—as in the British Airways case,36 which cannot fail to be mentioned in this context? DD

Lowe: I came here this morning thinking that Alexander Italianer would have to deal with all the cases mentioned this morning, but all the cases mentioned were in the period when the Director-General for Competition was me. [Laughter] Apart from Michelin II and British Airways, which thankfully we’ve moved on from, I wanted to start off with legitimacy and say that, beyond the public recognition that something is harmful to society, surely an authority charged with policing that concern must demonstrate that it is active in pursuing it. Now, of course, it is the duty of the authority to pursue the objective of preserving competition, and to prevent and sanction abuses. From that point of view, if we don’t act proportionately and with necessity in relation to an abuse which manifestly gives legitimacy in our action, then that is the other side of the coin from what I heard about over-enforcement: there is under-enforcement, which certainly leads to a loss of legitimacy, a DD

36 Case T-219/99 British Airways plc v Commission [2003] ECR II-5917; appeal dismissed: Case C-95/04 P, [2007] ECR I-2331.

Part I: Effective Enforcement of Competition Law 73 loss of credibility for an institution if it is not willing to look at cases, hear evidence and investigate the facts—while respecting proportionality, necessity and due process. So there is a clear balance there—and a danger on both sides. Of course, in areas where the facts are more difficult to interpret and the theories of harm are more complex, the burden on the administration is much greater to get the answer right. From the point of view of the authority, in looking through the case, right to the first appeal and the second appeal, it is absolutely essential in the initial assessment of the case to consider whether you are going to harm or enhance the authority of the agency or the administration. So legitimacy is connected with not just law but the credibility of the action of the institution, which works both ways—over-enforcement and under-enforcement. Then you get to the issue of what is effective enforcement. It seems, before we get to the issue of what is the appropriate sanction or remedy, that the first question is: are we acting proportionately in relation to the supposed infringement—proportionately and in a necessary way either to get a cease-and-desist order or to achieve a situation on the market where things are at least not worse than they were before, and maybe even better but without any legal obligation to make them better? In that sense, there is still some fundamental logic in the law as far as Article 7 and Article 9 are concerned. The default position is that if there is a proven infringement then Article 7 applies and it is for the Commission or the national authority to judge. Alternatively, the parties come forward and say: ‘we have a solution to your problem, here is the remedy’. Now, there is absolutely nothing wrong—in fact, it enhances the due process and enhances the transparency of the operation—that there should be discussion with parties on possible remedies, notwithstanding the fact that if the parties are not willing to offer a remedy which is sufficient, the default option is an Article 7 decision. Now of course there are situations where, in order to preserve the legitimacy of an institution in relation to, for example, persistent abuses of market power of different kinds, maybe there isn’t an immediate remedy offered and therefore possibly the right thing from the point of view of the legitimacy of the action of the administration is to go for a cease-and-desist order. I just want to mention the case which Ian and I got heavily involved in, Microsoft, where the key issues at the beginning were the duty to deal and interoperability on the one hand, and the browser on the other. On the duty to deal, the situation was relatively clear and the defendant, the company concerned, was willing to offer what was needed. On the other issue, that of bundling, the situation was unclear, both from the point of view of the effectiveness of the remedy proposed by the parties but also because we had no particular answer to it, to be quite honest. So, in the initial decision, what we felt was proportionate and legitimate was a sanction on the conduct of the company on both issues, but with the prospect of being able to come back to the issue of bundling later if, indeed, there was a solution to it, and that’s how it happened. The second level, of course, is when you’ve

74 Part I: Effective Enforcement of Competition Law got a decision out there and you don’t enforce it, either through the action of the company or because you haven’t put in place the appropriate monitoring arrangements to make it happen. I think there would be a degree of selfcriticism on both sides there that that didn’t happen. Then the third issue is if someone has a precise responsibility to do a particular thing and doesn’t do it, then that surely, and I come now to fines, is certainly the worst thing that we should be envisioning in terms of sanctions. That is to say, someone deliberately either ignores or flouts the law, notwithstanding the need for due process in reaching the actual original decision substantively and procedurally, and all those situations occurred in the Microsoft case. On the Alrosa case,37 actually, I’m not sure that the problem was really an issue of the institutional processes itself but more the fact that there was genuine disagreement on what was a proportionate remedy. The clear view of one faction was that the proportionate remedy was a gradual reduction of the sales of Alrosa to De Beers. On the other hand, the other view, backed by a certain number of protagonists in the market test, was that you had to eliminate this supply entirely. I can tell you where I stood on that matter: I was in the first camp. Why? Because in any market, particularly for a market like diamonds, you have such a mixture of types of diamonds that it is inevitable that there is a minimum level of trade even between competitors. But the decision was taken the other way, and there I think that the issue of proportionality affects our legitimacy and the issue of due process because Alrosa itself was not fully involved. This was a good reason for the judgment of the General Court, which was overturned, maybe on the basis of higher principles, by the Court of Justice. There are a number of issues there that needed to be addressed, and hopefully they have been addressed subsequently, because they were really important. On the fines, I don’t disagree with Ian on the need for looking more closely at how courts and the authorities interact on the level of fines. Nevertheless, when you are in a situation of an infringement, which I think was described earlier as any collusive agreement of any kind which should be in principle per se sanctioned, then the question is: what is the proportionate level of the fine which actually deters not just the defendant but anyone else in the sector? That is a question of calculation and judgement as to what the damage has been in the past; I’m not sure it has much relevance to what happens in the future because in the future, apart from simply deterring, the issue is whether there is any alternative in that area of abuse which is more effective than a sanction or a fine that has to be proportionate and at the necessary level, and that is going to be debated over and over again. However, on the issue of other types of remedies, where you’re looking for something that is not just correcting the error of the past, then it must be significant improvements in market conditions Alrosa, above nn 19 and 20.

37

Part I: Effective Enforcement of Competition Law 75 which were justified by the authorities saying: irrespective of the infringement of the past, I am prepared to envisage this deal because it ultimately meets what the public expectation is—that the markets will work better, thanks not just to the removal of abuse, but to the change of behaviour of the companies concerned, and that is something that can be achieved. Well, in the last stage of our Microsoft browser discussion, where we actually did go for a settlement, the fine that came later wasn’t related to the substance of the settlement but to an incapacity to make sure that every updated Windows version was accompanied by the appropriate screen. But actually on the subject itself, the substantive discussion was seriously about how the market could work better between the parties and the authority. Those situations are naturally going to occur because they achieve results straightaway while avoiding a long period of contestation or alternatively, as Simon Bishop was suggesting, a long period of uncertainty due to private enforcement. I am not sure whether Alexander would agree with me, but I would love for all these plaintiffs to come to me and say: ‘Don’t worry, we’re going to get after this company; we don’t need you at all’. In every Article 102 case, every single company comes and says you’ve got to get after them, this is important for the industry, this is absolutely essential, you will achieve a fantastic result by public enforcement, which is much more effective and efficient than dragging the company and ourselves through court processes that could last 5–10 years. So effectiveness and efficiency tend, in the view of the plaintiffs in an Article 102 case, to support doing something through public enforcement. But we don’t necessarily need to oblige, and that’s why I thought it was very important that we produce guidance on Article 102, which we did. Monti: OK, I have nine contributors left waiting to speak. So if everyone could try and keep their contributions to two minutes at the most, that would be helpful. I’ll take Rafael and Mario, and then I’ll pause and ask the panel to respond if they wish to, and then I’ll take the remainder of the queue. DD

Rafael Allendesalazar: Thanks, two comments: one on Simon ishop’s intervention. I agree and support your idea, I don’t know about not B imposing fines on Article 102, but certainly on rethinking the idea of fining in Article 102 cases. Just to add an idea: deterrence is not only fines. There are also reputational issues, and we also have to take into account damages actions. Follow-on actions are much easier here than in cartel cases, so that should also be taken into account if and when setting fines in Article 102 cases. My second comment refers to an idea that Fred mentioned on the existence of differences compared to cartels, and I also agree with this. When we think of cartels and cartelists, we are always thinking of situations in which the company is the worst of the worst and therefore deserves any penalty it receives. We think of cartels as something very easy to distinguish, it’s an DD

76 Part I: Effective Enforcement of Competition Law animal everyone recognises when we get into the room, and I disagree with that. When you have to advise companies which, for instance, have a big part of their business related with an administration and the administration often insists on common proposals, or when you have network industries in which cooperation between companies (such as in telecoms) is necessary to provide a better service, advising them on what is legal and not legal is not easy. What is legal and not legal will easily become a cartel in the definition of the Commission. Furthermore, the Leniency Notice also blurs and tends to enlarge the distinction, because companies have an interest in obtaining a fine reduction, they have to confess that they are part of a cartel and therefore have an interest in defining a practice which may be in a grey area as a cartel. So my conclusion is, I think that we should not exclude cartels from the analysis of whether the sanction is proportionate or not, and that the issue of overenforcement may also occur in cartels. Mario Siragusa: I don’t think that the high level of fines is the major problem that we have in terms of legitimacy in our system. I think that the real problems are two: one, the never-ending problem of the limited jurisdiction of review, that’s the major defect in our legal system, and of course the combination of very high fines with a very limited judicial review becomes a very big problem for legitimacy. The second one is the use of fines in the commitment procedure, the threat of fines by an authority, which has the power to judge on the merit of the case, to impose huge fines and to induce the company to give commitments in cases where there is no serious investigation of the infringement. The combination of all those elements is a serious problem of our system. I think that these are the two major problems which destabilise the system and make it problematic from a legitimacy and constitutionality perspective. The commitment decisions also have a number of other very negative effects: they deprive us of jurisprudence and they don’t give clarity as to the law; they contain very opaque findings, which are not guidelines to the practitioners in the field; and they create obscurity in the law. The more we process it that way, the more our system is going to become absolutely unmanageable. So, for me, those are the two real problems of the legitimacy in our system. I find that fines are acceptable if they are subject to serious judicial review, because a judge who is going to look at the matter completely on the merits is going to assess whether the fine equitable or not, and I trust that the judge will do that. Unfortunately, in many countries, and especially at the European level, we don’t have judges who do this because of the limitations in our Treaty. They do not perform that kind of vetting of the Commission decisions. Then very quickly on some of the other issues: I fully agree that we need a Regulation No 2. I think this is going to become increasingly important because, frankly, most of the implementation and enforcement of the law is done by the national authorities. The Commission likes to do leniency and to pursue battles with the giants of high tech, but it leaves all DD

Part I: Effective Enforcement of Competition Law 77 the rest to the national authorities. National authorities are today the main enforcers of competition law, and there is a dangerous divergence of national laws on procedure and right of defence. It is important to harmonise that and bring it to a more level field. Finally, just a comment on the very interesting intervention of Frank Maier-Rigaud on the interpretation of Article 7: I congratulate you, because you have done a perfect lawyer job. That is, you took a provision that is very clear and demonstrated that it means the opposite of what it says. [Laughter] That is what lawyers do all the time. But that provision nevertheless has a big impact because, before that provision was adopted, behavioural remedies were not often discussed. Before that, it was generally thought that structural remedies were the priority type of remedies that enforcers should look for, and the existence of the provision has had an influence because at the national level you often discuss behavioural remedies. It has a practical impact. Monti: Thank you. Do any of the speakers want to respond to any of the points? DD

Lianos: I agree with what Mario has just said. I don’t think the fines are the major problem we have, as that can be fixed quite easily, either by limiting the 10 per cent turnover cap or by enhancing the judicial review of sanction decisions. We have already seen some steps of the Court in that direction.38 The most difficult part is related to commitment decisions and what I will call ‘regulatory antitrust’. Fuller wrote a paper back in the 1970s called the ‘Limits of Adjudication’.39 Basically, he was saying that if you bring in polycentric disputes, meaning disputes that relate not only to the two parties but also to other actors in the system—consumers, the broader public, etc— these kinds of disputes might prove difficult to adjudicate. Therefore, you can see an evolution of the system towards more regulation, or to a form of contractual or negotiated type of approach. This is a little bit what you have seen in EU competition law as you move to a more effects-based approach. It is less market access and more consumer welfare, or even the ‘public at large’. That is a very polycentric issue, and we have seen an evolution towards regulatory remedies or negotiated types of disputes. This resonates with what Philip Lowe said before in the sense that the Commission is even trying to improve the market equilibrium that prevailed before the infringement, which DD

38 See Case C-386/10 P Chalkor AE Epexergasias Metallon v Commission [2011] ECR I-13085, para 62. See also Case C-389/10 P KME Germany AG, KME France SAS and KME Italy SpA v Commission [2011] ECR I-13125. 39 Lon Fuller and KI Winston, ‘The Forms and Limits of Adjudication’, 92 Harvard Law Review 353, 397–398 (1978) (noting that ‘concealed polycentric elements are probably present in almost all problems resolved by adjudication’).

78 Part I: Effective Enforcement of Competition Law from a private law perspective is slightly strange. The other effect is to see an increasing number of commitment decisions. There I just want to say that the effects-based approach also leads to a focus on theories of harms related to narratives that have no clear principles in the sense of legal obligations. This increases the remedial discretion of the Commission. One of the major sideeffects of the Alrosa case is that if there is a complex economic assessment, the judicial review of the Commission is limited. But if you have an effects-based approach and a theory of harm which is an economic assessment and you try to devise remedies on the basis of this particular assessment that means that you also need to design remedies that forecast on the future, there the court is basically relieved of its obligation to do a review. In that sense, you can see that the effects-based approach, this polycentricism, leads to wider discretion for the Commission, and this is the major problem we have. The rise of commitment decisions is the most problematic development. Ost: On the issue of German procedural law, I want to restate that I think the system is fundamentally flawed. If you have 10–15 days reading out pleadings in the courtroom due to the principle of oral proceedings, it shows something is wrong in the system. I understand that you like the system as a defence lawyer. The undertaking infringing competition law likes to have an enforcement system which is too difficult to enforce on the basis of procedural means. I’m not advocating a one-to-one blueprint of procedural rules for the German system. There are ways in between. Some features can be taken over: the requests for information, the need to attack a decision quite precisely. Then you can streamline the procedure and allow for efficient judicial control. We need to see if it is really necessary to have the individual within this procedure because there we have a higher standard of fundamental rights to be applied. I wonder whether we should keep having the individual in our proceedings. Concerning the level of fines: to respond to Ian Forrester, we were obliged by our former law to calculate the effects, and the fines were pretty high then as well, but it was very burdensome to arrive there. In our cement cartel case, we had to inflict a 400 million euro fine on the wrongdoers, and in the liquid gas cartel case it was 240 million. But with the additional burden it is very difficult to take more cases. On the procedural issue, and on the call of Fred and Simon to do more on effects, I am very sceptical about whether we should really calculate the harm. We have to look at the impact, but more on general terms. It is not so much the effect of conduct that constitutes the wrongdoing as the conspiracy that intends to produce that effect. DD

Louis: You seem to be saying that the reason this is administrative is because it is an economic crime, but we don’t have to show the impact of the crime on the economy. You cannot have both. That is what the enforcer community has been trying to do for 10 years. I agree with Mario: the level DD

Part I: Effective Enforcement of Competition Law 79 of the fines in itself is not a problem, except for the fact that you cannot have the current level of fines and say: ‘But I can impose that in a way that (with the possible exception of Germany) is much easier than it is for somebody to fine me 25 euros because I went five kilometres per hour above the speed limit’. It is easier to impose a fine of 500 million euros for a cartel than it is to say ‘I have a picture of your car showing that you went too fast’. The argument that says ‘Don’t worry, it is corporations not individuals’ is flawed. We don’t have to be Mitt Romney to say that when you impose a 500 million euro fine on a company you are impairing its ability to invest, and this has a real impact on real people. You cannot say, for administrative convenience: ‘It is too hard to go for individuals’. This is a huge legitimacy issue because your aim is not compliance but to go for the quick and headline-grabbing fine. Refusing to pursue individuals means that you will never eliminate cartels from the world because the best compliance programme doesn’t impede an individual from doing something. You cannot have, at all times, one auditor per manager. It is impossible. And the problem is that the entire leniency system means that often we find ourselves in discussion with regulators where they are saying: ‘You cannot fire this person—we need them as witness’. Your policies sabotage internal compliance systems. You have to know that. We have to negotiate promotion plans over a 5- to 10-year period to get cooperative witnesses. What does that say about compliance? So you also have to look at individuals, and not only at astronomical fines. Maier-Rigaud: I’d like to thank Mario for complimenting me as being a good lawyer—although, as an economist, I had naïvely thought that lawyers normally tend to stay close to the true meaning of the law. I see I was wrong! My comment is more on the issue of fines, because it seems to be a hot topic here. I thought it would be useful to throw in that at least most of the economic studies I have that look at the deterrent effect of fines indicate that they are not sufficiently high and not sufficiently deterrent to actually match the illegal gains if the cartel. I think in this context I just wanted to throw in the deterrence trap that Christine Parker highlighted before. This is more of an issue, I think, than the notion that fines will over-deter. This is perhaps an empirical issue. DD

Monti: I’m not sure that we have enough time for all the speakers to rebut, but we’ll see. Alexander? DD

Alexander Italianer: Thanks. I have some quick comments. First, in response to Ian, fines go into the EU budget, but Member States then pay less, so there is no net effect on the budget. Second, I would like to put the size of the fines in perspective. Commitment decisions can have a much bigger monetary effect on the profits of a firm than a fine. Big numbers can have a

DD

80 Part I: Effective Enforcement of Competition Law small impact on a company’s bottom line. Some of the biggest fines that we have imposed amount to less than 1 per cent of the annual turnover of the companies involved. And finally, we do differentiate in fines where this is justified. For example, in the Telefónica/Portugal Telecom case, outright market partitioning was done not in secret, but publicly.40 We took that into account when setting the fine. We also impose a lower fine when there are novel issues. Turning to Fred’s point about us bringing in the parents, we interpret the 10 per cent cap not in the German way but in relation to a firm’s ‘capacity to pay’. It is very easy to set up a construction whereby the company that is being fined can duck the fine, and that is why we need to go after the parents. Finally, Fred makes a correct point about the 10 per cent cap being reached not in all cases but in cases where you have so-called mono-product companies. That may then lead to a problem of differentiation of fines imposed on the company, and the Court has actually expressed an obiter dictum with respect to that issue. But we have been responsive to that. It may not have been noticed yet, but if you look at the fines that were calculated in the Mountings case,41 which involved many mono-product companies, we had fines below the 10 per cent range, introducing more differentiation. I’ll leave it at that. Alberto Heimler: I have two points. One concerns what Frank just said, because we wrote a paper showing that fines were indeed too high and that there are ways to take into account issues of the market that would tend to reduce the fine. Above all, it can be relevant to look at elasticity of demand, which is often neglected. That could be something that can be assessed during the investigation to link the fine to the overcharge. Regarding the estimates that Simon was mentioning, where John Connor referred to a 25–30 per cent overcharge, that does not take into account the fact that what people look at is not the overcharge but the increased profits originating from the overcharge. That is quite important, because every overcharge brings with it a reduction in quantities that should be taken into account in the setting of fines. The s econd point is on effective remedies, and here I would just like to draw in the discussion of what should be meant by ‘effective’ in an antitrust context because ‘effective’ should mean bringing the infringement to an end. In abuse cases, in particular, this has not been the case, and very often we have introduced remedies going beyond that. And I would just like to refer to the Microsoft case again—sorry, Philip. In the Microsoft case, the effective remedy was a reasonable price that was imposed on the company for interface information, and this is quite clear both from the decision and in DD

Commission Decision of 23 January 2013, Telefónica/Portugal Telecom, above n 11. Commission Decision of 28 March 2012 in Case COMP/39452—Mountings for indows and window-doors. w 40 41

Part I: Effective Enforcement of Competition Law 81 articular from the judgment of the General Court. I’m wondering whether p such remedies are appropriate in an antitrust context, and whether ‘reasonable’ is the standard we should refer to, or whether indeed more appropriately we should refer to something like an exclusionary standard. It would be much more in line with antitrust thinking, and otherwise there would be a risk of the antitrust rules blurring with regulation. After all, the objective of regulation is to introduce reasonable pricing and remedies. Savvas Papasavvas: I need to underline at the start that opinions expressed by myself here are purely personal and do not reflect any official opinion of the General Court. Is the 10 per cent turnover rule excessive? I don’t think it is, and I hope to explain tomorrow why. With respect to the question of administrative or criminal sanctions, the General Court is, of course, part of an administrative system or procedure which is fully justified by the fact that, despite what Strasbourg might say, the Commission fines are administrative sanctions and not criminal or quasi-criminal. At least, that is my position. Do we get to limit the excessive fines? Last year we had E.ON/GDF, where there was a 1.1 billion euro combined fine, and we reduced it to 640 million.42 So we do get to reduce fines a lot, I know that quite well. Last but not least, with regard to the 50 pages, even though we do allow parties to have more than that, 50 pages are more than sufficient for a competent lawyer to point out the flaws of any kind of Commission decision. You need to focus on the one, two or three pleas before the Court, and you will be able to make your argument. There is no need for drowning the Court with more than that. I will save the rest for tomorrow. DD

Stephen Calkins: I do think it is harmful to have people suggesting that fines are high because there is a bidding war and that people want to outdo their predecessor and that fines are high to ensure that agencies are adequately funded. It is harmful to have those opinions out there. That is point one. Point two: I personally don’t think that we have sufficient deterrence, looking at the major cartels that indeed include some of the major corporations that end up price fixing in a way that is sort of shocking after all the publicity of the competition law enforcement. Obviously, something is not working. I would agree that taking huge amounts of money out of companies’ pockets does do harm to the companies sometimes. For me, the problem is that it is harming the wrong people because it is often harming successors or shareholders. It is not really harming the people that are responsible for the infringement. Which is why I get out of bed in the morning with the point that Christine Parker made in her paper. At least in theory, criminal enforcement is something that makes DD

42 Joined Cases T-360/09 E.ON Ruhrgas and E.ON AG, EU:T:2012:332; Case T-370/09 GDF Suez SA v Commission, EU:T:2012:333.

82 Part I: Effective Enforcement of Competition Law a great deal of sense—both in sending a message and in seriously deterring the individuals. I can’t think how many times I have seen corporate law firms giving advice, saying: ‘You really shouldn’t do this because you are risking criminal exposure but now let’s talk about all those other things where it’s going to be a judgement call and it’s a cost–benefit kind of thing’. When you look at the people that are trying to avoid the US as a matter of geography to avoid a criminal sanction, I really think that, if you can make it work, criminal sanctions against individuals are a terribly effective way to communicate a message and increase deterrence. Where that is not an option, focusing on the individual would solve the perception problems, and would perhaps be more deterrent than increasing the fines. John Davies: I just quickly wanted to comment on this question of fines versus remedies. I have had the privilege of being an enforcer in a system where fines were not available for abuse of dominance. That was a law that was heavily influenced by a couple of British economists (neither Simon nor me). A remedy-only system for abuse of dominance was great, and I still think it is great—with one exception, and that is repeat offences and essentially the same thing being done by other companies. Because what you see is that you remedy something and someone else comes along and does the same thing, but they are not quite the same products and not quite the same behaviour. In those circumstances you do need some sort of very narrow fine. Otherwise you are going around, trying to have an opinion on every single contract in the economy, and that’s not feasible. I would not take that too broadly, because you come back to a position of per se prohibitions established by precedent. But at the very minimum, the competition authority needs to have something like that to effectively give wider force to its decisions. DD

Bill Kovacic: I want to suggest that there are two corrective mechanisms that will influence a competition agency as sanctions increase. One of these is that, as sanctions go up, courts will exercise more intrusive oversight. There will come a point at which courts will begin to do two things. One is that the margin of discretion will disappear. The second thing is that they will start to reshape doctrine. They will begin to reformulate the legal standard without doing obvious harm to the existing framework. I can’t define for you the exact threshold at which that will happen, but the threshold does exist and the competition agency has to be attentive to that as it seeks additional monetary penalties—especially where the monetary penalties are sought for more ambiguous behaviour rather than so-called clear-cut offences. Again, it is hard to predict what that boundary is, but it will happen at some point, and perhaps even in an unconscious way. Judges will begin to respond to arguments about a lack of proportionality. The second thing that an agency invites over time is more intrusive political oversight. Again, there is no sign DD

Part I: Effective Enforcement of Competition Law 83 at the frontier that says you are approaching the boundary of more political oversight, but I think that boundary exists and that it will take several forms. One is that you will be called more often before parliamentary groups to explain what you are doing. There is the hidden threat in the background that they will change the law and take away your power. These are somewhat indistinct sources of constraint, but I think that, for a competition agency, day in, day out, as you climb the staircase for more powerful sanctions, you have to realise that it becomes a bit more dangerous up there. It requires greater efforts to provide justifications, foundations, a sound basis and facts that demonstrate action is warranted.

84

Joshua D Wright* The Federal Trade Commission and Monetary Remedies

I’m delighted to participate in this Workshop at the European University Institute, and I’d like to thank Philip Lowe, Mel Marquis and Giorgio Monti for inviting me to join you here in Florence and to share my views.

1. Introduction Today I would like to talk about the approach taken by the Federal Trade Commission (FTC) in pursuing monetary remedies against defendants in competition cases. Unlike the Department of Justice, which has the broad legal authority to pursue all sorts of remedies against antitrust defendants, the FTC’s authority is limited to pursuing so-called ‘equitable’ remedies.1 Equitable remedies typically involve court orders directing a defendant or defendants to engage or not engage in certain behavior, ie an injunction. In a merger case, the FTC will often ask a court to direct the parties divest a business in a particular geographic market. Or, in a case alleging anticompetitive conduct, the FTC might ask a court to issue an injunction preventing the defendants from engaging in the conduct the FTC alleges to be anticompetitive. Although monetary remedies are typically remedies awarded ‘at law’ rather than ‘in equity’—this distinction is a function of the twin court systems of law and equity in Anglo-American law—a court exercising its equitable powers can order a defendant to pay monies in certain circumstances. One broad category of equitable remedies that involves a defendant paying monies is ‘disgorgement’, which is a remedy requiring the defendant to in effect pay back his ill-gotten gains.2 * At the time writing, Commissioner, US Federal Trade Commission; currently: Professor of Law, George Mason University School of Law. The views stated here are my own and do not necessarily reflect the views of the FTC or of other Commissioners. For their invaluable assistance when I prepared this chapter I am grateful to my advisor Derek Moore and to my intern Brady Cummins. 1 15 USC § 53(b). 2 See United States v Grinnell Corp, 384 US 563, 577 (1966) (stating that adequate relief in a monopolization case can include ‘depriv[ing] the defendants of any of the benefits of the illegal conduct’); 2A Phillip Areeda and Herbert Hovenkamp, Antitrust Law: An A nalysis of Antitrust Principles and Their Application, 3rd ed, Aspen Law and Business, 2006, ¶ 325a (‘[E]quity relief may include… the disgorgement of improperly obtained gains’).

86 Joshua D Wright The FTC did not pursue disgorgement against antitrust defendants until 1999, when it sought $120 million from a pharmaceutical company the Commission alleged had overcharged consumers.3 In 2003, after accepting comments from interested parties, the FTC adopted a Policy Statement on Monetary Remedies in Competition Cases that was designed to provide guidance to the business community regarding when and under what conditions the FTC would seek monetary remedies against antitrust defendants.4 In 2012, before I joined the Commission, the Statement was clandestinely withdrawn—that is, without the opportunity for public comment from interested parties—over the dissent of Commissioner Ohlhausen.5 The Withdrawal of the Statement is concerning for several reasons. First, the Withdrawal was predicated upon a belief—that the Statement ‘chilled the pursuit of monetary remedies’6 while it was in effect—that has no empirical support. Second, the Commission, in withdrawing the Statement, incorrectly suggests that, because recent decisions by the Supreme Court of the United States have made it more difficult for a private plaintiff to bring a successful antitrust case, antitrust enforcement agencies in the US ought to ‘pick up the slack’ by pursuing monetary remedies with more frequency. In other words, the Commission suggests a perceived reduction in private enforcement of the antitrust laws requires greater public enforcement efforts to achieve optimal deterrence. This proposition makes sense only if there is some e vidence that the current state of the law results in under-deterrence of anticompetitive conduct. I am aware of no such evidence and, in fact, current economic thinking suggests that, at least in the context of single-firm conduct and vertical restraints, pursuing monetary penalties by seeking disgorgement against defendants with more frequency would almost certainly deter efficient behavior and harm consumers. There can be no doubt that disgorgement is a useful tool for the antitrust enforcer. In many cases, disgorgement of profits may be superior to divestiture or other behavioral remedies that require costly oversight by regulators to ensure compliance. Disgorgement in such contexts may sufficiently deter potential wrongdoing and reduce the cost of administering the antitrust system. In my view, however, the Commission ought not to pursue disgorgement to remedy against conduct that has plausible efficiency justifications. This is because, in the context of conduct that can be efficient and b enefit

FTC v Mylan Labs, Inc, 62 F Supp 2d 25 (DDC 1999). Policy Statement on Monetary Equitable Remedies in Competition Cases, 68 Fed Reg 45820 (4 August 2003) (hereinafter Policy Statement, or Statement). 5 Statement of the Commission, Effecting the Withdrawal of the Commission’s Policy Statement on Monetary Equitable Remedies in Competition Cases, 77 Fed Reg 47070 (31 July 2012) (hereinafter Withdrawal), http://www.ftc.gov/os/2012/07/120731commissio nstatement.pdf. 6 Ibid. 3 4

The Federal Trade Commission and Monetary Remedies 87 consumers in some contexts and harm competition and consumers in others—here I am referring to vertical distribution restraints imposed by a firm with market power—antitrust enforcers should be more worried about over-deterrence than under-deterrence. In any event, the Commission’s pursuit of certain remedies affects how businesses structure their dealings. Indeed, shaping the incentives of all m arket participants—and not punishment—is the point of pursuing remedies in many antitrust cases. For this reason, I am disappointed the Commission decided to withdraw the Policy Statement without a substantive discussion about the proper role of monetary remedies in the public antitrust enforcement system. Further, the Withdrawal is troubling because the absence of guidance creates uncertainty within the business community, which will undoubtedly affect firms’ behavior in ways that are unpredictable and will unnecessarily run the risk of harming the consumers we are charged with protecting.

2. Summary of the 2003 policy statement In the late 1990s and early 2000s, the FTC sought disgorgement in two antitrust cases.7 Though the Commission had long sought disgorgement of profits in consumer protection cases, seeking disgorgement in antitrust cases was breaking new ground.8 The Commission’s efforts to pursue disgorgement in antitrust cases led to critical commentary,9 and the Commission ultimately requested comments from the public about the conditions under which it would be appropriate for the Commission to pursue disgorgement and other monetary remedies in antitrust cases.10 After reviewing those comments, the Commission issued a Policy Statement in July 2003 with bipartisan support from all five commissioners.11 The Statement outlined three factors the Commission would consider: (i) whether the violation of law is ‘clear’; (ii) whether there is a reasonable basis upon which to calculate the disgorgement payment; and (iii) whether remedies in other litigations are likely to fail to accomplish fully the purposes of the antitrust laws.12 The Policy

See Mylan Labs, above n 3; FTC v The Hearst Trust, No 1:01CV000734 (DDC 2001). See Alden Abbott, ‘FTC Monetary Remedies Policy and the Limits of Antitrust’, Antitrust Source, December 2012, Article 2, 1; David Park and Richard Wolfram, ‘The FTC’s Use of Disgorgement in Antitrust Actions Threatens to Undermine the Efficient Enforcement of Federal Antitrust Law’, Antitrust Source, September 2002, Article 5, 1. 9 See Park and Wolfram, ibid. 10 Remedial Use of Disgorgement, 66 Fed Reg 67254 (28 December 2001). 11 Policy Statement, above n 4. 12 Ibid. 7 8

88 Joshua D Wright tatement was later endorsed without dissent by the Antitrust Modernization S Commission.13

3. The FTC’s 2012 Withdrawal Without asking for public comments from the business community, the Commission decided to withdraw the Statement in 2012 and gave several reasons that, in my view, are less than satisfying.14 The Commission offered both legal and policy reasons for withdrawing the statement. First, the Commission criticized the legal basis for the three factors laid out in the Guidelines. On the Statement’s guidance that monetary remedies will be pursued only when the violation is ‘clear’, the Commission observed that rarity or clarity of the violation is not an element considered by courts in disgorgement requests … Whether conduct is common or novel, clearly a violation or never before considered, has little to do with whether the conduct is anticompetitive; some novel conduct can violate the antitrust laws and can be even more egregious than clear violations.15

Next, the Commission criticized the requirement in the Policy Statement that the Commission consider whether alternative plaintiffs may seek monetary relief, which could potentially obviate the need for the Commission to seek disgorgement. The Commission reasoned that the presence of alternative plaintiffs seeking monetary recovery ‘is relevant in this context, but it is not dispositive. It is only one of several questions that might usefully be asked in deciding whether a Commission imposed monetary remedy is appropriate and necessary.’16 Finally, notwithstanding that the factors set forth in the Statement were not legal requirements, the Commission, in withdrawing the Statement, noted that it was ‘concerned that parties could mistakenly argue that the factors laid out in the Policy Statement are binding on the Commission, thus creating an unnecessary side issue in litigation’.17 The Commission also put forward two policy reasons for withdrawing the Statement. First, it argued that, in its experience, ‘the Policy Statement has chilled the pursuit of monetary remedies in the years [since it was issued]’.18 Second, and most interestingly from my perspective, the Commission also

Antitrust Modernization Commission, Report and Recommendations 288 (2007). Withdrawal, above n 5. 15 Ibid. 16 Ibid. 17 Ibid, 1, footnote 2. 18 Ibid, 2. 13 14

The Federal Trade Commission and Monetary Remedies 89 suggested that some recent decisions by the Supreme Court justify the Commission’s increased use of disgorgement as a remedy in antitrust cases: At a time when Supreme Court jurisprudence has increased burdens on plaintiffs, and legal thinking has begun to encourage greater seeking of disgorgement, the FTC has sought monetary equitable remedies in only two competition cases since we issued the Policy Statement.19

4. The FTC’s reasons for withdrawing the statement are not persuasive The Commission’s Withdrawal is troubling in many respects. First, unlike its decision to adopt the Policy Statement in 2003, the Commission’s decision to withdraw the Statement in 2012 was not unanimous. My colleague Commissioner Ohlhausen dissented from the Commission’s withdrawal and, in doing so, raised several interesting and important issues.20 Indeed, the fact that the Statement was withdrawn with minimal deliberation by the Commissioners, without a request for public comment and over the dissent of a Commissioner, is troubling by itself.21 Moreover, as Commissioner Ohlhausen points out, withdrawing the Statement obviates exactly what the Statement attempted to do in the first place: provide the business community with guidance regarding the Commission’s pursuit of monetary remedies in antitrust cases. Indeed, the Policy Statement was just that—a statement of policy regarding how the Commission would exercise its legal enforcement authority. If ‘rarity or clarity of the violation’ was an element considered by courts in deciding whether to award disgorgement, then pursing disgorgement only in such cases could not be a matter of Commission policy; under the law, the Commission would be forbidden from seeking disgorgement in cases in which the violation is somehow less than clear. This is simply another way of stating that a policy statement has no utility when it merely restates the law. Accordingly, it is of no moment to criticize a policy statement when it does something more than simply restate the law by arguing that the policy statement imposes

19 Ibid (citing Einer Elhauge, ‘Disgorgement as an Antitrust Remedy’, 76 Antitrust Law Journal 79 (2009)). 20 Statement of Commissioner Maureen K Ohlhausen, Dissenting from the Commission’s Decision to Withdraw its Policy Statement on Monetary Equitable Remedies in Competition Cases, 77 Fed Reg 47071 (31 July 2012) (hereinafter Ohlhausen Dissent), http://www.ftc.gov/os/2012/07/120731ohlhausenstatement.pdf. 21 Ibid.

90 Joshua D Wright a requirement that the law does not impose. As Commissioner Ohlhausen explains, a statement that the Commission will rely upon existing law could be used to justify virtually any decision by the Commission.22 More fundamentally, the Commission suggests in its Withdrawal that conduct cannot be ‘novel’ and constitute a ‘clear’ violation of the law. I see no reason why this observation must be true; indeed, it is not difficult to come up with examples of novel yet clear violations. Clarity does not come only from past experience. Novel conduct can certainly constitute a clear violation of the antitrust laws if it harms competition by restricting output and raising price and is without any efficiency justification. For example, there are myriad forms of deception, not all of which have been challenged in court as antitrust violations and, to the extent that an egregious example of deception by a firm with market power results in that firm increasing or maintaining monopoly power, that deception could constitute a clear violation of the antitrust laws that would justify disgorgement of profits even if it is not closely similar to a past successful antitrust case. The same can be said of rival firms concocting novel means of naked price-fixing. Novel or not in the form of their implementation, naked price-fixing schemes clearly violate Section 1 of the Sherman Act. Another reason the Commission gave for withdrawing the Statement is that the Statement ‘chilled’ the Commission from pursuing monetary remedies in antitrust cases.23 Yet the Commission cited no data or other evidence to support this assertion. Indeed, Commissioner Ohlhausen stated, ‘I have not been presented with any evidence that the Policy Statement has inappropriately constrained the Commission in the nine years it has been in effect’.24 Lack of data supporting this view is yet another troubling aspect of the Withdrawal. A review of Commission cases supports Commissioner Ohlhausen’s position. Indeed, the Commission sought disgorgement in two cases during the nine-year period before the Policy Statement was in effect,25 and also sought disgorgement in two cases during the nine-year period while the Policy Statement was in effect.26 These data could support the conclusion that the Commission does not pursue disgorgement very often in antitrust cases— only four times in 18 years—but they do not provide support for the conclusion that the Policy Statement has had any effect on the Commission’s pursuit

Ibid. Withdrawal, above n 5, 2. Ohlhausen Dissent, above n 20. 25 The Hearst Trust, above n 7 (settlement resulting in defendant paying $19 million in disgorgement); Mylan Labs, above n 3 (holding that the FTC could sue for monetary damages as well as injunctive relief, resulting in a $100 million settlement). 26 FTC v Lundbeck Inc, 650 F3d 1236 (8th Cir 2011) (affirming the district court’s ruling denying any relief on antitrust grounds); FTC v Perrigo Co, No 1:04CV01397 (RMC) (DDC 2006) (resulting in a settlement that included a $6.25 million disgorgement). 22 23 24

The Federal Trade Commission and Monetary Remedies 91 of monetary remedies, much less that the Statement has chilled Commission efforts to pursue disgorgement. It is possible, however, to expand the relevant universe of cases to consider remedies that are similar to disgorgement but do not actually require a monetary payment from the defendant. The Commission has, on a few occasions in recent years, sought a remedy whereby the owner of standardessentialpatents either cannot enforce the patents or must license the patents on a royalty-free basis.27 Requiring a patent holder to grant a royalty-free license to certain patents is similar to disgorgement in that the remedy effectively takes profits away from the defendant. In the typical context, a wouldbe licensee of the defendant’s patents complains that the defendant is causing ‘hold up’ by engaging in conduct that does not comport with the typical promise SEP-holders make to license their patents on fair, reasonable and non-discriminatory (FRAND) terms. This conduct can take the form of seeking an injunction against a willing licensee or demanding ‘supra-FRAND’ royalty rates. In this context, when the Commission requires the patentholder to license the patents royalty free, it is in effect ‘disgorging’ any profit the defendant would have made had it been able to reach licensing agreements with the complaining licensees. Indeed, Unocal, a defendant in one of the cases, argued that the royalty-free licensing requirement in that case amounted to ‘confiscation and disgorgement’.28 Adding the royalty-free licensing cases to the count of FTC actions further weakens the Commission’s claim that the Statement on monetary remedies has ‘chilled’ the Commission’s disgorgement efforts. Because only one of the four royalty-free licensing cases occurred before the Statement was adopted, adding these cases to the mix would mean that the Commission had in fact pursued disgorgement with greater frequency after the Statement was adopted. Of course, the sample size remains very small, so it would be a mistake to make too much of the numbers other than to point out that they do not appear to support the Commission’s concern that the Policy Statement chilled pursuit of disgorgement. Still, these cases raise a number of interesting issues regarding remedies. The Bosch case, the most recent decision by the Commission requiring royalty-free licensing, was followed six weeks later by the Commission’s consent agreement with Google relating to Google’s

27 Union Oil Co of Cal, 140 FTC 123 (2005); Dell Computer Corp, 121 FTC 616 (1996); Robert Bosch GmbH, No C-4377 (FTC 21 November 2012); Opinion of the Commission on Remedy, Rambus, Inc, No 9302 (FTC 5 February 2007), http://www.ftc.gov/os/adjpro/ d9302/070205opinion.pdf. 28 Respondent’s Trial Brief at 189, Union Oil Co of Cal, ibid, http://www.ftc.gov/os/ adjpro/d9305/041008unocalstrialbrief.pdf (‘Even though framed as a “cease and desist” remedy, there is no question that the essence of the relief sought in this action is a confiscation and disgorgement of Unocal‘s patent rights in California’).

92 Joshua D Wright failure to license standard-essential patents.29 In the agreement with Google, the Commission did not require royalty-free licensing to remedy the alleged law violation, instead requiring that Google go through a dispute resolution process before seeking injunctive relief against a willing licensee.30 The Commission failed to explain why it chose two different remedies in two cases involving similar conduct. Perhaps if the Policy Statement were in effect, the Commission would at least have had to grapple with this issue.

5. Would a reduction in private antitrust enforcement justify additional efforts by public enforcers to pursue monetary remedies? I would like to spend the balance of my time discussing what I find to be the most interesting aspect of the Commission’s decision to withdraw the Policy Statement: the idea that the FTC needs to pursue monetary remedies with more frequency because recent Supreme Court cases have made it more difficult for private plaintiffs to win antitrust cases. In its Complaint against Intel, former Chairman Leibowitz and former Commissioner Rosch issued a joint statement explaining why the Commission sued Intel under Section 5 of the FTC Act rather than under Section 2 of the Sherman Act: [C]oncern over class actions, treble damages awards, and costly jury trials have caused many courts in recent decades to limit the reach of antitrust. The result has been that some conduct harmful to consumers may be given a ‘free pass’ under antitrust jurisprudence, not because the conduct is benign but out of a fear that the harm might be outweighed by the collateral consequences created by private enforcement. For this reason, we have seen an increasing amount of potentially anticompetitive conduct that is not easily reached under the antitrust laws, and it is more important than ever that the Commission actively consider whether it may be appropriate to exercise its full Congressional authority under Section 5.31

Though the argument is framed in the context of the FTC’s increased use of its power to prosecute ‘unfair methods of competition’ under the FTC Act, the argument could just as easily apply to the FTC’s efforts to pursue

29 The Commission reached settlements with both defendants before I became Commissioner. I did not participate as Commissioner in considering the substance of either agreement. 30 Motorola Mobility LLC, No 121-0120, 2013 WL 124100 (FTC 3 January 2013). 31 Statement of Chairman Leibowitz and Commissioner Rosch in Intel Corp, No 9341, 2010 WL 4542454 (FTC 2 November 2010), http://www.ftc.gov/os/adjpro/ d9341/091216intelchairstatement.pdf.

The Federal Trade Commission and Monetary Remedies 93 disgorgement or other monetary relief from antitrust defendants. If certain defendants are given a ‘free pass’ under the current antitrust laws, then the FTC ought to pursue harsher remedies against those defendants it does sue to make up for the cases that would have been brought but for the Supreme Court’s decisions. For the former Commissioners’ position to make sense, two testable hypotheses would need to be confirmed: (i) that private antitrust lawsuits have become more difficult to win; and (ii) that anticompetitive conduct is currently under-deterred by the antitrust laws. I discuss both in turn below.

5.1 Is it now more difficult for a private plaintiff to win an antitrust case? The most commonly cited cases for the proposition that it has become more difficult for plaintiffs to win antitrust cases are a series of recent decisions by the Supreme Court beginning with Trinko in 2004.32 In that case, the Court rejected a monopolization claim brought under Section 2 of the Sherman Act alleging that an incumbent local telephone exchange carrier illegally monopolized the local telephone market by refusing to offer exchange service to its competitors.33 The Court held that any exception to the general proposition that a firm has the choice to deal or not deal with whomever it chooses was narrow and that, because the defendant had not discontinued a prior profitable course of dealing with competitors, the exception did not apply to the plaintiff’s case.34 Another case is Twombly, in which the Court altered the pleading standard a plaintiff must meet in alleging an illegal conspiracy in violation of Section 1 of the Sherman Act.35 The Court held that alleging an illegal conspiracy requires a complaint with enough factual matter (taken as true) to suggest that an agreement was made. Asking for plausible grounds to infer an agreement … simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement.36

Another case is linkLine, in which the plaintiffs alleged that a vertically integrated defendant violated Section 2 by ‘squeezing’ the profit margins of downstream competitors that also purchase inputs from the defendant by increasing input prices and simultaneously decreasing downstream prices.37

32 Verizon Communications, Inc v Law Offices of Curtis V Trinko, LLP, 540 US 398 (2004). 33 Ibid, 404–405. 34 Ibid, 409. 35 Bell Atl Corp v Twombly, 550 US 544 (2007). 36 Ibid, 556. 37 Pac Bell Tel Co v linkLine Communications, Inc, 555 US 438 (2009).

94 Joshua D Wright The Court held that for a plaintiff to state a viable claim of ‘price squeezing’, the plaintiff must allege that the defendant charge a price below some relevant measure of cost and thereby satisfy the same test the Court applies to ordinary predatory pricing claims.38 Yet another case is Credit Suisse, in which the Court held that certain antitrust claims reached conduct governed by federal securities law and, because the antitrust claims were ‘repugnant’ to federal securities law, they could not proceed.39 I think it is worth unpacking exactly what it means to suggest that it has become ‘more’ difficult for private litigants to win antitrust cases. Saying the law has changed necessarily raises the question of identifying the appropriate benchmark by which to evaluate the change, not to mention asking whether the chosen benchmark is helpful. A soccer team might have won its last five matches, but observing that the team ‘always wins’ based upon that information without the proper context can be misleading about the team’s overall results. Perhaps the team lost five consecutive matches immediately before its five-match winning streak. Or perhaps it had lost the prior 15 matches. A recent winning streak may suggest that the tide is turning, but we must be careful not to overstate the evidence. And so it is with antitrust decisions made by the US Supreme Court. Judge Douglas Ginsburg and Leah Brannon examined the Supreme Court’s decisions in antitrust cases, looking at the last 45 years rather than at just the most recent 10.40 They found that in each of the four decades, beginning with 1967 to 1976 and ending with 1997 to 2006, defendants won antitrust cases with increasing frequency. Whereas defendants won all 13 of the antitrust cases decided by the Supreme Court from 1997 to 2006, defendants won only 16 of 44 cases decided by the Supreme Court from 1967 to 1976. The authors found several other telling trends. The number of decisions signed on to by a ‘supermajority’ of six or more of nine Justices increases over time, with 11 of the 13 pro-defendant decisions of the decade from 1997 to 2006 being decided by a supermajority. Also, the authors found that briefs submitted by the United States as amici in a private antitrust dispute pending before the Supreme Court also favored the defendant’s position with increasing frequency as time went on from 1967 to 2007, a period that includes presidential administrations of both political parties. Ginsburg and Brannon also argue convincingly that the Court’s move to decide cases in favor of defendants is a result of economic analysis becoming more engrained in antitrust law, rather than a result of bias. As the authors

Ibid, 451–452. Credit Suisse Sec (USA) LLC v Billing, 551 US 264 (2007). 40 Leah Brannon and Douglas Ginsburg, ‘Antitrust Decisions of the US Supreme Court, 1967 to 2007’, 3(2) CPI Journal 1, 3 (2007). 38 39

The Federal Trade Commission and Monetary Remedies 95 note, ‘the Court, far from indulging in a pro-defendant or anti-antitrust bias, is [instead] methodically re-working antitrust doctrine to bring it into alignment with modern economic understanding’.41 In a separate article, Ginsburg opines that The Court’s reliance upon modern economic analysis reflects the near consensus among academics on proper antitrust analysis. There is now broad and nonpartisan agreement in academia, the bar, and the courts regarding the importance of sound economic analysis in antitrust decision making. Such analysis has utterly transformed the dialogue within the Supreme Court.42

Putting aside the issue of whether the more recent pro-defendant decisions by the Supreme Court reflect a keener understanding of economics—and I most certainly agree that they do when compared to the antitrust decisions by the Supreme Court in the late 1960s and early 1970s—the data compiled by G insburg and Brannon are clear evidence of a different claim. The data show that, even if the Supreme Court has been deciding cases in favor of defendants in recent years, that trend simply reverses a prior trend in which the Supreme Court tended to decide cases in favor of plaintiffs. The claim that the FTC needs to pursue monetary remedies against antitrust defendants to replace the deterrent value of private lawsuits that would have been successful but for the Supreme Court’s recent jurisprudence simply assumes the law provided the proper incentives prior to the recent string of victories by defendants. Before addressing that question—whether the pre-Trinko state of antitrust law provided the appropriate level of deterrence against anticompetitive conduct—I would first like to examine some data on private antitrust lawsuits in the United States. It is difficult to evaluate empirically whether recent decisions by the Supreme Court have made it more difficult for plaintiffs to win cases because so many lawsuits result in settlement. Looking only at cases that proceed to a certain phase and result in a victory for plaintiffs would obscure plaintiffs’ true success rates. Case filings by private plaintiffs are a useful proxy, however, because a potential antitrust plaintiff will incorporate a higher or lower probability of success based upon a favorable or unfavorable decision by the Supreme Court into his decision regarding whether to file a lawsuit in the first place. Accordingly, one testable implication of the hypothesis that recent decisions have made life more difficult for antitrust plaintiffs is whether recent case filings have decreased.

Ibid, 4. Douglas Ginsburg, ‘Originalism and Economic Analysis: Two Case Studies of Consistency and Coherence in Supreme Court Decision Making’, 33 Harvard Journal of Law and Public Policy 217, 222 (2010). 41 42

96 Joshua D Wright The data suggest otherwise. Paul Godek has examined antitrust case filings in the United States, comparing the number of private suits to the number of suits brought by the federal agencies through 2008.43 According to Godek, in recent years private suits have outnumbered suits brought by the federal agencies by more than twenty to one.44 With regard to private suits, the data show that they have increased significantly between 2004 when Trinko was decided and 2008.45 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0

1949 1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 Private Antitrust (Electrical Equipment)

Private Antitrust (All Other)

Government (Civil) Antitrust

Figure 1: Private and Government Civil Antitrust Cases Filed in Federal Courts Source: Godek (note 43).

The data on private suits between 2008 and 2012 tell a slightly different story.46 These data show a lull in private enforcement after 2008, perhaps explained by the economic collapse, but with a surge in 2012.47 It would be easy to make too much of this data; case filings are an imperfect proxy for win rates. Nevertheless, the data do indicate that the pro-defendant antitrust decisions starting with Trinko in 2004 have not resulted in a decrease in antitrust case filings by private plaintiffs.

43 Paul Godek, ‘Does the Tail Wag the Dog? Sixty Years of Government and Private Antitrust in the Federal Courts’, Antitrust Source, December 2009, Article 5, 1. 44 Ibid, 2. 45 Ibid. 46 Jonathan Randles, ‘Reversing Trend, Antitrust Suits Spiked in 2012’, Law360, 14 January 2013, http://www.law360.com/articles/406948/reversing-trend-antitrust-suitsspiked-in-2012. 47 Ibid.

The Federal Trade Commission and Monetary Remedies 97

5.2 Even if it is more difficult for a private plaintiff to win an antitrust case, does it follow that anticompetitive conduct is under-deterred? Even if there were evidence to support the claim that private antitrust lawsuits are declining, it would not follow that anticompetitive conduct is being under-deterred. Former Chairman Leibowitz and former Commissioner Rosch argue that the recent string of defendant victories in antitrust cases before the Supreme Court is because the Court is concerned about ‘costly’ private litigation—expensive discovery, class actions, treble damages—and not because the Court has substantive views about the competitive merits of the conduct alleged to be harmful in those cases.48 A close examination of the decisions in question reveals quite clearly that the Court is motivated by substance, ie the competitive merits of the conduct in question, and not solely by a concern about the cost of private litigation. This distinction is important because if the Court is motivated purely by a concern about designing antitrust rules to reduce the cost of private litigation, then those same concerns may not be present in antitrust cases brought by the government.49 To be sure, the Supreme Court has expressed concerns about the cost and uncertainty of private litigation.50 However, a much stronger theme in the Court’s jurisprudence is a concern about any court’s ability to separate anticompetitive conduct, which harms competition and consumers and ought to be condemned, from conduct that is benign or pro-competitive.51 The Court further recognizes that a court’s ability to distinguish between pro- and anticompetitive conduct is especially important in antitrust cases because it is a more severe error for a court incorrectly to condemn pro-competitive

Statement of Chairman Leibowitz and Commissioner Rosch, above n 31. See Statement of Howard Shelanski, Deputy Director for Antitrust (FTC), ‘Is There Life After Trinko and Credit Suisse? The Role of Antitrust in Regulated Industries: Before the Subcommittee on Courts and Competition Policy of the House Committee on the Judiciary’, 111th Congress (2010). 50 See Twombly, above n 35, 557–560 (explaining that discovery can be costly in antitrust cases and that a plaintiff with a ‘groundless’ claim may use the threat of discovery to improve positioning in settlement negotiations); Credit Suisse, above n 39, 281–282 (stating that ‘antitrust plaintiffs may bring lawsuits throughout the Nation in dozens of different courts with different nonexpert judges and different nonexpert juries’). 51 linkLine, above n 37, 451 (‘To avoid chilling aggressive price competition, we have carefully limited the circumstances under which plaintiffs can state a Sherman Act claim by alleging that prices are too low’); Credit Suisse, above n 39, 283 (‘[W]here the threat of antitrust lawsuits, through error and disincentive, could seriously alter underwriter conduct in undesirable ways, to allow an antitrust lawsuit would threaten serious harm to the efficient functioning of the securities markets’); Trinko, above n 32, 414 (‘Mistaken inferences and the resulting false condemnations are especially costly, because they chill the very conduct the antitrust laws are designed to protect’ (internal quotations omitted)). 48 49

98 Joshua D Wright behavior. This is because, as Judge Frank Easterbrook first explained, ‘the economic system corrects monopoly more readily than it corrects judicial errors’.52 Accordingly, the correct conclusion is that the Supreme Court has adopted rules designed to minimize the social costs of the antitrust system, which includes the cost of false negatives and false positives, but has explicitly recognized that the cost of false positives are greater and more intractable, and therefore are of greater concern in the antitrust system. The cost of discovery in suits brought by private plaintiffs is relevant to the Court’s approach within this framework, but it is certainly not the most important factor, much less the sole motivating factor. A close examination of the Court’s recent decisions makes clear that the Court is designing legal rules to reflect its concern about over-deterring conduct that is pro-competitive or benign.53 But potentially a more relevant question is what the economics literature says about the conditions under which certain conduct may harm the competitive process and reduce consumer welfare as a result. Perhaps the Supreme Court got it wrong and judicial modesty about a court’s ability correctly to identify anticompetitive conduct is resulting in would-be antitrust defendants walking away unpunished. If this proposition were true, then the FTC would be on firmer ground in pursuing monetary remedies against the defendants it does sue. But there is no empirical support for this proposition. In the realm of potentially exclusionary conduct by a dominant firm—a category that in my opinion includes vertical restraints, tying/bundling, discounting and exclusive dealing, among other forms of conduct—there is a rich theoretical literature modeling conditions under which certain conduct by a monopolist may have a harmful impact on consumer welfare.54 The empirical analysis of these restraints tells a different story. One study, authored by a group of economists from the FTC and the Department of Justice in 2005, concludes that, although ‘some studies find evidence consistent with both proand anticompetitive effects … virtually no studies can claim to have identified

Frank Easterbrook, ‘The Limits of Antitrust’, 63 Texas Law Review 1, 15 (1984). William Kovacic, ‘The Intellectual DNA of Modern U.S. Competition Law for Dominant Firm Conduct: The Chicago–Harvard Double Helix’, 2007 Columbia Business Law Review 1, 35–36 (2007) (‘Chicago School and Harvard School commentators tend to share the view that the social costs of enforcing antitrust rules involving dominant firm conduct too aggressively exceed the costs of enforcing them too weakly… [and that] antitrust rules and decision-making tasks must be administrable for the central participants in the antitrust system (courts, enforcement agencies, the private bar, and business managers)’). 54 See Alden Abbott and Joshua Wright, ‘Antitrust Analysis of Tying Arrangements and Exclusive Dealing’, in Keith Hylton, ed, Antitrust Law and Economics, Edward Elgar, 2010, chapter 8 (highlighting literature); Chiara Fumagalli and Massimo Motta, ‘Exclusive Dealing and Entry, When Buyers Compete’, 96 American Economic Review 785 (2006); Eric Rasmusen, Mark Ramseyer and John Wiley, Jr, ‘Naked Exclusion’, 81 American Economic Review 1137 (1991); Ilya Segal and Michael Whinston, ‘Naked Exclusion: Comment’, 90 American Economic Review 296 (2000). 52 53

The Federal Trade Commission and Monetary Remedies 99 instances where vertical practices were likely to have harmed competition’.55 Another study from 2009 concludes that, ‘it appears that when manufacturers choose to impose restraints, not only do they make themselves better off but they also typically allow consumers to benefit from higher quality products and better service provision’.56 Finally, in a paper considering newer empirical evidence concerning the competitive effects of vertical restraints, FTC economist Dan O’Brien concludes that, ‘with few exceptions, the literature does not support the view that [vertical restraints] are used for anticompetitive reasons’ and that vertical restraints ‘are unlikely to be anticompetitive in most cases’.57 The overall body of evidence supports a fairly strong conclusion that vertical restraints very rarely result in anticompetitive effects and most often benefit consumers. There is no reason to alter the design of legal rules and provide remedies to deter firms from engaging in conduct that rarely if ever harms consumers, even if there were reason to believe that suits challenging such conduct as illegal were decreasing over time. Moreover, in the United States at least, treble damages are available to private litigants in all antitrust actions arising under the two main US antitrust statutes, the Sherman Act and the Clayton Act.58 Economic theory teaches that penalties should be set at a level sufficient to induce offenders to internalize the full social cost of their crimes.59 In a world with imperfect detection and punishment, profit-maximizing market participants will need to face a potential damage award calibrated such that the gains from engaging in the prohibited conduct—the profits that accrue as a result of the anticompetitive behavior—are less than or equal to the expected penalty at the time the firm decides to engage in the challenged conduct. The expected penalty is, of course, a function of the probability of punishment and the magnitude of the penalty. Using this simple model, a damage multiplier can be justified on deterrence grounds if there is reason to believe plaintiffs—including both regulators and private litigants—do not successfully challenge every example of anticompetitive conduct in court. If, every time a firm engaged in anticompetitive conduct, it were sued in court and ordered to pay damages approximating the social harm caused by its conduct, all firms would

55 James Cooper et al, ‘Vertical Antitrust Policy as a Problem of Inference’, 23 International Journal of Industrial Organization 639, 658 (2005). 56 Francine Lafontaine and Margaret Slade, ‘Exclusive Contracts and Vertical Restraints: Empirical Evidence and Public Policy’, in Paolo Buccirossi, ed, Handbook of Antitrust Economics, MIT Press, 2008, chapter 10. 57 Daniel O’Brien, ‘The Antitrust Treatment of Vertical Restraint: Beyond the Possibility Theorems’, in Konkurrensverket, The Pros And Cons of Vertical Restraints, SCA, 2008, chapter 3, 72–73 (2008). 58 15 USC § 15(a). 59 Gary Becker, ‘Crime and Punishment: An Economic Approach’, 76 Journal of Political Economy 169 (1968). See also William Landes, ‘Optimal Sanctions for Antitrust Violations’, 50 University of Chicago Law Review 652 (1983); Douglas Ginsburg and Joshua Wright, ‘Antitrust Sanctions’, 6(2) CPI Journal 3 (2010).

100 Joshua D Wright be properly deterred from engaging in such conduct in the future and there would be no need for a damage multiplier. This simple model hypothesizes that the probability of a lawsuit is 100 per cent and the expected magnitude of liability corresponds exactly to the amount of harm caused by the conduct. If the probability of a lawsuit falls significantly below 100 per cent, then to achieve optimal deterrence, the magnitude of liability ought to be adjusted accordingly.60 In the case of pricefixing cartels and other horizontal conspiracies, we can reasonably expect that regulators and private litigants do not ferret out and challenge every illegal conspiracy that exists because such conspiracies are clandestine by their very nature.61 On the other hand, most examples of potentially harmful single-firm conduct are open and notorious. A downstream distributor of a monopolist’s product will be keenly aware of any restraints on distribution put in place by the monopolist and, to the extent the distributor is harmed by the restraint, will have the appropriate incentive to challenge the conduct. Accordingly, to the extent there are successful private suits challenging vertical restraints by a firm with monopoly power that result in trebled damage awards, those suits are likely to over-deter such conduct, and therefore ought not to be supplemented by government enforcement actions seeking disgorgement.62 Indeed, in the context of single firm conduct, regulators and courts should be primarily concerned with over-deterrence and not under-deterrence. As I mentioned earlier, antitrust liability rules should be designed to minimize all social costs associated with enforcement.63 These costs include false convictions, false acquittals and the costs of administering the system. Not only is there strong support for the notion that the Supreme Court actually uses this framework in designing legal rules,64 economic analysis supports it as well. The reason to be more concerned with the costs of false positives than false negatives is that, if bona fide anticompetitive conduct goes unpunished, then market forces will in time almost certainly erode the monopolist’s

60 Landes, ibid, 657; Frank Easterbrook, ‘Detrebling Antitrust Damages’, 28 Journal of Law and Economics 445, 454 (1985). 61 Ginsburg and Wright, above n 59. 62 Easterbrook, above n 60, 460 (‘When the risk of false condemnation rises, and so the costs of engaging in beneficial conduct go up, the penalty should fall’); Bruce K obayashi and Joshua Wright, ‘Federalism, Substantive Preemption, and Limits on Antitrust: An Application to Patent Holdup’, 5 Journal of Competition Law and Economics 469, 509 (2009) (stating that the case for treble damages applied to ‘open and notorious’ conduct is ‘weak’); Donald Turner, ‘The Durability, Relevance, and Future of American Antitrust Policy’, 75 California Law Review 797, 798 (1987) (explaining that mandatory trebling ‘has adverse effects, not only encouraging baseless or trivial suits brought in hopes of coercing settlements, but also discouraging legitimate competitive behavior in the gray areas covered by the rule of reason’). 63 See Easterbrook, above n 52. See also Cooper et al, above n 55; Geoffrey Manne and Joshua Wright, ‘Innovation and the Limits of Antitrust’, 6 Journal of Competition Law and Economics 153 (2010). 64 See above nn 48–53 and accompanying text.

The Federal Trade Commission and Monetary Remedies 101 arket position. Anticompetitive vertical restraints, like other forms of prim vate monopoly power, are simply not strong enough to stem the tidal wave of creative destruction indefinitely.65 By contrast, improper condemnation of a practice that does not harm consumers will remove that practice from the toolkits of firms operating in other industries and, because the literature has established that vertical restraints usually benefit consumers, will prevent consumers in all areas of the economy from reaping those benefits. The only hopes, then, are to use a different and potentially less efficient and effective practice to achieve the same result, or to convince a court to reverse course.66 To summarize, it is my belief that recent pro-defendant decisions by the Supreme Court fail to justify increased efforts by the Commission to pursue monetary remedies against antitrust defendants for a number of reasons. First, there is no evidence to support the proposition that private antitrust lawsuits are decreasing as the result of recent Supreme Court decisions, which is a necessary but not sufficient condition to render plausible the Commission’s increased efforts seek disgorgement to ‘replace’ the foregone deterrent effect of fewer private lawsuits. Second, the ‘anti-plaintiff’ decisions that former Commissioners Leibowitz and Rosch point to simply reverse a prior trend of decisions by the Supreme Court that were favorable to plaintiffs. Moreover, the correct view is that these recent decisions are motivated by economic learning and an acceptance of the error-cost approach to designing liability rules in antitrust and not out of a concern related specifically to private antitrust suits. These factors together compel the conclusion, contrary to the Commission’s analysis supporting the withdrawal of its Statement, that recent decisions by the Supreme Court provide no basis for the FTC to increase systematically its efforts to pursue monetary remedies.

6. When is it appropriate for an enforcement agency to pursue disgorgement? I hope I have provided enough support to illustrate that the Commission’s reasons for withdrawing the Policy Statement do not pass muster. The next— and perhaps more relevant—issues to consider are the conditions under

65 Joseph Schumpeter, Capitalism, Socialism, and Democracy, 3rd edn, Harper & Brothers, 1950, 83. 66 Convincing the Supreme Court to reverse course is likely to take a very long time. Past experience suggests reversal could take at least 10 years. See United States v Arnold, Schwinn & Co, 388 US 365 (1967), reversed, Continental TV, Inc v GTE Sylvania, 433 US 36 (1977). In other instances it may take as many as 96 years. See Dr Miles Medical Co v John D Park & Sons Co, 220 US 373 (1911), reversed, Leegin Creative Leather Products v PSKS, Inc, 551 US 877 (2007).

102 Joshua D Wright which the agency ought to pursue disgorgement and other monetary remedies in the future. A look at the four cases in which the Commission sought disgorgement in the past may prove helpful. In its 1999 case against Mylan Laboratories, the FTC challenged an arrangement whereby Mylan and three other pharmaceutical companies conspired to make Mylan the monopoly producer of certain pharmaceuticals, which the FTC alleged resulted in $120 million in overcharges.67 In 2001, the FTC reached a consent agreement with Hearst after challenging a consummated merger in which the FTC alleged that the defendant did not timely disclose relevant documents in its pre-merger filings. The agreement required disgorgement of $19 million as well as certain divestitures.68 In Perrigo, the Commission again sought divestiture in a challenge to an agreement between drug manufacturers not to compete, which resulted in a price increase. In that case, the FTC reached a consent agreement in which the two companies agreed to pay a total of $6.25 million in disgorgement.69 Finally, Lundbeck involved an FTC challenge to a consummated acquisition by a pharmaceutical company of the rights to a drug that was allegedly the sole competitor to its own drug. The FTC sought disgorgement because prices had increased substantially. The United States District Court for the District of Minnesota denied the FTC’s request for relief on the ground that the two drugs did not compete in the same product market, and the district court’s decision was affirmed by the court of appeals.70 One principle to draw from these cases is that they all involve agreements or mergers between actual or would-be competitors, and not a single firm acting unilaterally. I would support a limitation on the FTC’s ability to pursue disgorgement only against naked price fixing agreements among competitors or, in the case of single-firm conduct, only if the monopolist’s conduct has no plausible efficiency justification. This latter category would include fraudulent or deceptive conduct, or tortious activity such as burning down a competitor’s plant. Declining to pursue disgorgement in cases involving vertical restraints has the virtue of taking the remedy off the table in cases that present the most difficulty in distinguishing between anticompetitive conduct that harms consumers and pro-competitive conduct that benefits them. Of course, the requirement in the withdrawn Policy Statement that the violation be ‘clear’ also would seem to exclude disgorgement in cases that include plausible efficiency defenses. Because I was not a Commissioner when the Statement was adopted or when it was withdrawn, and was not privy to all the commentary and discussion surrounding the relevant issues, it would be

Mylan Labs, above n 3. The Hearst Trust, above n 7. 69 FTC v Perrigo Co, No 1:04CV01397 (RMC) (DDC 2006). 70 Lundbeck, above n 26. 67 68

The Federal Trade Commission and Monetary Remedies 103 inappropriate for me to take a firm position on whether the Policy Statement itself supplies the correct guidelines for the Commission to follow in pursuing disgorgement in antitrust cases. I will say that the other two elements—that there be a reasonable basis for calculating the monetary relief and that the Commission consider the potential for monetary relief in related litigations— make sense at first blush. I share the same concern Commissioner Ohlhausen expressed in dissenting from the Commission’s Withdrawal of the Statement: the business community is now without any guidance whatsoever regarding the conditions under which the Commission will pursue disgorgement or other monetary remedies in antitrust cases. Disgorgement can certainly be a useful item in the antitrust enforcer’s toolkit—indeed, there may be some support for the proposition that disgorgement can be more practical and have the same deterrent effect as behavioral remedies or divestiture in certain circumstances.71 However, I fear that a lack of guidance from the Commission could cause much mischief. Risk-averse companies concerned about the financial and reputational effects associated with a disgorgement order from the FTC could respond to the lack of guidance by not engaging in conduct that could plausibly benefit consumers. And the threat of disgorgement could lead a company to settle a case even if it has a strong position on the merits.

See Elhauge, ‘Disgorgement’, above n 19, 88–89.

71

104

Ioannis Lianos* The Principle of Effectiveness, Competition Law Remedies and the Limits of Adjudication

1. Introduction The principle of effectiveness is closely related to the development of the emerging EU law on remedies. Its instrumental use has enabled the EU Courts to restrict the principle of national procedural autonomy when this is convenient in order to ensure the accomplishment of the aims set by EU competition law enforcement and to establish EU-granted remedies, the most notable one being the right to claim competition law damages. The principle of effectiveness may also influence the design of injunctive relief by the European Commission, which should be adequate to ensure not only that the results of the violation of competition law are reversed, but also that there is no risk that the aims of the competition law enforced will be jeopardised in the future (general deterrence, specific deterrence and prophylactic/preventive aims).1 The principle of effectiveness may therefore reinforce the remedial discretion of the Commission and national competition authorities when implementing EU competition law. Discretion to adopt effective remedies cannot, however, be unlimited. There are various forces that may operate in order to keep it in check. First, due process rights and fundamental rights jurisprudence, following the conferral of a binding effect to the EU Charter of Fundamental Rights, may balance the need for effective (read: expansive) remedies and therefore limit the risk of discretionary remedialism.2 Second, well-established conceptions

* Professor of Global Competition Law and Policy, UCL Faculty of Laws; Director, Centre for Law, Economics and Society, UCL Faculty of Laws; Chief Researcher, HSESkolkovo, Institute for Law and Development, National Research University, Higher School of Economics, Moscow; Alexander von Humboldt Research Fellow, WZB B erlin. The author would like to acknowledge the support of the Leverhulme Trust. He also thanks Claudio Lombardi and Florian Wagner-von Papp for helpful comments. Any errors or omissions are the sole responsibility of the author. 1 Ioannis Lianos, ‘Competition Law Remedies in Europe: Which Limits for Remedial Discretion?’, in Ioannis Lianos and Damien Geradin, eds, Handbook of EU Competition Law: Enforcement and Procedure, Edward Elgar, 2013, 362 et seq, 379–380. 2 ‘Discretionary remedialism’ is the view that courts and competition authorities have discretion to award the ‘appropriate’ or ‘optimal’ remedy in the circumstances of each

106 Ioannis Lianos in private and public law about the inherent limits of the remedial exercise may also impose constraints on the remedial discretion of the Commission and other competition authorities: the principle of proportionality, for public law, or the correlativity of private law disputes cannot accommodate fully the demands of optimal enforcement theory for deterrence. For instance, remedies should fit the competition law problem identified at the liability stage and the theory of harm the decision-maker has relied upon in order to find the defendant liable for the competition law infringement.3 This chapter explores a further limit to remedial discretion: that of the legitimacy of decision-makers. Legitimacy in this context does not relate only to the fact that public action should be legitimate from a legal perspective, that is, not illegal. Because of its potential for generating expansive remedies, the principle of effectiveness may render this purely legal limit ineffectual. Legitimacy, in this context, refers to the specific legitimacy-building mechanisms elaborated by the specific social order in order to guarantee that its action is politically acceptable by those upon whom a remedy will be imposed. As different social order systems dispose of different mechanisms to guarantee the legitimacy of their action, it is important to guarantee that the use of the powers conferred on each system corresponds to the specific functions exercised by it and do not expand to the realm/functions exercised by other forms of social ordering, which have their own legitimacygeneratingmechanisms. If such a trespass occurs, it may create a legitimacy crisis. Therefore, in the event of a trespass, the decision-maker should emulate the legitimacy-building tools of the social order whose boundaries were crossed in order to guarantee the legitimacy of its action. More concretely, it is argued in this chapter that remedial discretion is an instance of adjudication and, as such, is subject to the inherent limits of adjudication, as a separate form of social ordering from those of contracts/negotiation, managerial/ administrative discretion or legislation.4 If remedial discretion were to move beyond the limits of adjudication and cross over the ‘territory’ of regulation or contractual governance, the decision-maker should adapt by developing legitimacy-building tools that would emulate those used in the context of these other forms of social ordering. The participation in the remedial process of the interests affected constitutes an important source of legitimacy

individual case rather than being limited to specific (perhaps historically determined) remedies for each category of causative events. What is optimal in these cases is decided according to the interests and aims of the decision-maker. 3 For analysis of these limits to discretionary remedialism and the need for remedial iscretion to be compatible with established legal conceptions of remedies, see Lianos, d ‘Which Limits for Remedial Discretion?’, above n 1. 4 Lon Fuller, ‘The Forms and Limits of Adjudication’, 92 H arvard Law Review 353 (1978).

The Principle of Effectiveness 107 for managerial/administrative discretion.5 Consequently, if competition law remedies move closer to regulatory ones and therefore cross the limits of adjudication, they should give rise to increased participatory rights of the interests affected, including interests others than the parties to the dispute. I explore the interaction between the principle of effectiveness and remedial discretion before exploring how the limits of adjudication may be crossed over by the remedial action of competition authorities, in view of the polycentric dimension of competition law disputes. I then criticise in the following section the narrow view of adjudication and advance a distinction between the dispute resolution adjudication model and the structural adjudication model, the latter being closer to the managerial or administrative discretion form of social ordering and thus conducive to resolving polycentric disputes. The final part reflects on the emergence of the ‘consensual’ model of competition law enforcement, with the development of the practice of commitment decisions. I argue that, contrary to what has been thought so far, commitment decisions do not constitute a contractual form of social ordering but present characteristics similar to the structural adjudication model. In addition to being theoretically a more accurate description of the reality of such r emedial practice, the reconceptualisation of commitment decisions as a form of structural adjudication should enable the integration of legitimacybuilding mechanisms emulating those of the managerial or administrative discretion model, such as increased participation of all interests affected by the remedy in the decision-making process.

2. The principle of effectiveness and remedial discretion For a long time, the topic of remedies has been the focus of EU constitutional scholars researching national procedural autonomy and its limitations by the principles of effectiveness and equivalence. In particular, the principle of effectiveness has been expansively interpreted by the European judiciary to encompass all forms of remedial action for infringements of EU law, and was constitutionalised with the adoption of Article 47(1) of the Charter of Fundamental Rights in the EU (Charter) and Article 19(1) TEU.6 This has led to the development of the emerging field of EU remedies law and has had

5 James Henderson, ‘Comment: Settlement Class Actions and The Limits of Adjudication’, 80 Cornell Law Review 1011, 1016 (1995), noting that ‘[e]ach problem-solving process has its own source of legitimation’. 6 According to Article 19(1), remedies should be ‘sufficient to ensure effective legal protection in the fields covered by Union law’. Article 47 of the Charter of Fundamental Rights provides for a right to an effective remedy and effective judicial protection.

108 Ioannis Lianos important implications in the enforcement of EU competition law. Norbert Reich has described the development of the principle of effectiveness in the case law of the ECJ as following three distinctive approaches:7 —— The principle of effectiveness has initially been understood as an ‘ elimination rule’, enabling national courts to put aside or disapply national provisions making the implementation of EU rights ‘practically impossible’ or ‘excessively difficult’ or to interpret the national remedy in conformity with EU law. The jurisprudence of the European Courts requires Member States to establish a system of legal remedies and procedures which ensure respect for the right to effective protection of individuals’ rights under EU law, and hence put in place effective remedies for violations of EU law. When adjudicating the protection of EU rights in private legal disputes, the ECJ has mostly relied on its ‘effectiveness and equivalence’ test to assess national procedures, ‘effectiveness’ referring to the requirement that national procedural rules should not make the enforcement of EU rights impossible or excessively difficult. —— The second step in the development of the principle of effectiveness is its ‘use as a “hermeneutical” ie interpretative principle’. This ascribes some positive content to the principle of effectiveness, requiring Member States to provide for remedies ‘sufficient’ to ensure the protection of EU granted rights. This involves a two-step approach from national courts: first, to spell out the EU right which must be protected by an adequate remedy; second, the development of a minimum core of what constitutes an effective or ‘sufficient’ remedy to ensure the protection of the EUgranted right. For instance, in Manfredi, the ECJ held that: the full effectiveness of Article 81 EC (now Article 101 TFEU) and, in particular, the practical effect of the prohibition laid down in Article 81(1) EC would be put at risk if it were not open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition … As to the award of damages and the possibility of an award of punitive damages … it is for the domestic legal system of each Member State to set the criteria for determining the extent of the damages, provided that the principles of equivalence and effectiveness are observed … it follows from the principle of effectiveness and the right of any individual to seek compensation for loss caused by a contract or by conduct liable to restrict or distort competition that injured persons must be able to seek compensation not only for actual loss (damnum emergens) but also for loss of profit (lucrum cessans) plus interest.8

7 Norbert Reich, ‘The Principle of Effectiveness and EU Private Law’, in Ulf Bernitz, Xavier Groussot and Felix Schulyok, eds, General Principles of EU Law and European Private Law, Kluwer Law International, 2013, 301 et seq. 8 Joined Cases C-295 to 298/04 Vincenzo Manfredi v Lloyd Adriatico Assicurazioni SpA et al [2006] ECR I-6619 paras 60–62 and 95.

The Principle of Effectiveness 109 As it transpires from the above excerpt, the ECJ first refers to the principle of effectiveness (effet utile) in order to recognise an EU-granted right for any individual harmed by a competition law infringement to claim damages for the loss caused by the infringement (the EU right of compensation), before elaborating on the corresponding remedy for that right, the award of damages, which should at least ensure (the minimum core) that the injured person may receive compensation for the above-mentioned heads of damages. In essence, the procedural dimension, which, in theory, is left to the national level, is subject to the interpretation of the EU-law-granted right and its scope, as this is determined by the ECJ at the EU level. There have been attempts to enlarge this minimum core with additional requirements to be imposed to the national level as to the development of adequate remedies. For instance, in his Opinion in Donau Chemie, Advocate General Jääskinen examined the scope of Article 19(1) TFEU, advancing the view that, in the light of that Treaty provision, the standard of effective judicial protection for EU based rights seems to be more demanding than the classical formula [of the ‘effectiveness’ principle] referring to practical impossibility or excessive difficulty. In my opinion, this means that national remedies must be accessible, prompt, and reasonably cost effective.9

The ECJ did not follow the AG’s approach on this issue but retained its previous definition of the principle of effectiveness. In VEBIC and in Kone, the ECJ employed the principle of effectiveness (or full effectiveness) in order to derive from the interpretation of Article 101 TFEU an obligation for Member States to entitle national competition authorities to participate, as a defendant or respondent, in proceedings before a national court which challenge a decision that the authority itself has taken (in VEBIC) or the right for victims of umbrella pricing to claim compensation for harm suffered by an anticompetitive conduct in case there is a causal link between that conduct and the harm they suffered (in Kone). What is interesting in both cases is the insistence that the aims followed by Article 101 TFEU should not be put ‘at risk’.10 According to the Court, it is clear from the case-law of the Court … that national legislation must ensure that European Union competition law is fully effective … Those rules must therefore specifically take into account the objective pursued by Article 101 TFEU, which

9 Case C-536/11 Bundeswettbewerbsbehörde v Donau Chemie AG and Others, EU:C: 2013:366, para 47. 10 Case C-439/08 Vlaamse federatie van verenigingen von Brood—en Banketbakkers, Ijsbereiders en chocoladebewerkers (VEBIC) VZW [2010] ECR I-12471, para 58 (‘the very existence of such a risk is likely to compromise the exercise of the specific obligation on national competition authorities under the Regulation to ensure the effective application of Articles 101 TFEU and 102 TFEU’); Case C-557/12 Kone AG and Others v ÖBBInfrastruktur AG, EU:C:2014:1317, para 33.

110 Ioannis Lianos aims to guarantee effective and undistorted competition in the internal market, and accordingly, prices set on the basis of free competition.11

The consideration of the objective pursued by Article 101 (and Article 102) TFEU therefore seems to be a passage obligé for the hermeneutical endeavours of the ECJ with regard to the principle of effectiveness. National remedial provisions should be interpreted accordingly so as to avoid any possible risk as to the full realisation of the objectives of the above-mentioned p rovisions of the Treaty. One may note the almost unlimited hermeneutical potential of this construction for intervention by the ECJ in curtailing national procedural autonomy. —— The third level of development of the effectiveness principle follows naturally from the previous one and, according to Reich, consists in the development of ‘hybrid’ EU remedies, the function of which is to ‘upgrade’ national remedies. Reich explains that Article 19(1), sentence 2 TEU establishes a clear link between ‘effective protection’ and ‘sufficient remedies’, thus positing a unidirectional relationship between EU granted rights and national remedies: the recognition of EU rights should lead to the development of ‘sufficient’ national remedies to fully ensure their respective scope of protection. The absence of ‘sufficient’ national remedial tools cannot nevertheless put in question the scope of the EU granted right. National law should be interpreted creatively so as to ensure the minimum core of effective enforcement for the EU granted right. This requires, according to Reich, a three-step approach: (i) ‘the first step is concerned with finding appropriate national remedies in case of violations of EU granted rights’; (ii) the ‘national remedy has to be measured against the yardstick of the negative, eliminatory EU principles of effectiveness and equivalence and if the result is unsatisfactory from an EU law point of view as interpreted as providing “insufficient remedies”, it has to be “upgraded” to meet EU standards’; and (iii) ‘the remedy thus found is a “hybrid” insofar as it takes up elements of national law in the limits of the principle of procedural autonomy, as well as effectiveness in its different functions’.12 Precisely because of this ‘hybrid’ character, the definition of what constitutes an ‘effective’ remedy is a highly contextual issue, which depends on the perceived adequacy of the national remedial tools at the disposal of EU law and of the scope of the rights and corresponding duties generated by the provision of EU law interpreted. For instance, the scope of the secondary right (remedy) to claim damages for infringements of EU competition law, recognised by the EU Courts even if national law is silent on this issue, may

Kone AG, ibid, para 32. Reich, ‘The Principle of Effectiveness’, above n 7, 309.

11 12

The Principle of Effectiveness 111 have a different scope, depending on the interpretation one may have of the primary right preserved by this remedy.13 Although the EU Courts do not explicitly posit the link between this secondary right (remedy) and a primary right, this is essentially required, the first step in their reasoning consisting in interpreting the substantive provisions of the Treaty in competition law (in particular Article 101 TFEU) so as to derive a primary right ‘of any individual to seek compensation for loss caused by a contract or by conduct liable to restrict competition’. By doing so, EU law goes as far as defining the scope of the secondary right, which should presumably reflect the scope of the primary right it aims to preserve: the ability of the injured person to seek compensation for actual loss, loss of profit plus interest. One may advance that the scope of the secondary right would have been different—presumably wider—if it reflected a different primary right, for instance that of deterring future antitrust violations by the specific defendant (specific deterrence) or that of deterring future antitrust violations by any competition law infringer (general deterrence).14 In Manfredi, the Court did not exclude such an interpretation of Article 101 TFEU of the Treaty, recognising that national legal systems can provide for the possibility to award punitive damages.15 Yet it did not interpret Article 101 TFEU as requiring the inclusion of punitive damages in the minimum core of the ‘hybrid’ EU remedy of claiming damages for competition law infringements, as this did not relate to the scope of the primary right recognised by the Court (that of receiving compensation).16 In other words, the main function of the principle of effectiveness is to maximise the ‘sufficient’ attainment of the ends pursued by the primary right by providing the ‘adequate’ content to the secondary right of claiming antitrust damages, and not to create the primary right. The largely hermeneutic function of the principle of effectiveness has not escaped the attention of legal commentators. Some, for instance, argue that the principle has been used without much consistency, as a ‘kind of

13 On the distinction between primary and secondary (remedial) rights in the context of competition law enforcement, see Ioannis Lianos, ‘Competition Law Remedies: in Search of a Theory’, in Ioannis Lianos and D Daniel Sokol, eds, The Global Limits of Competition Law, Stanford University Press, 2012, 177 et seq; Lianos, ‘Which Limits for Remedial Discretion?’, above n 1. 14 The ECJ recognises the deterrent effect of the right to claim damages, but this is not perceived independently from the primary right to claim compensation. See, for instance, Kone AG, above n 10, para 23 (‘[t]he right of any individual to claim compensation for such a loss actually strengthens the working of the European Union competition rules, since it discourages agreements or practices, frequently covert, which are liable to restrict or distort competition, thereby making a significant contribution to the maintenance of effective competition in the European Union’). 15 Manfredi, above n 8, paras 92–93. 16 With regard to punitive damages, the ECJ relied in this case on the principle of equivalence rather than the principle of effectiveness. See ibid, para 99.

112 Ioannis Lianos jack-in-the-box instrument’ allowing the ECJ to justify almost every result.17 The ‘principle’ of effectiveness was derided as being essentially ‘an empirical concept’, requiring the EU Courts to proceed to a comparative examination of the national remedies available and also providing the authorities with the discretion to establish a low or a high level of enforcement, the principle being an instrument to achieve undefined policy objectives.18 Although there is some grain of truth to this characterisation of the ‘principle of effectiveness’ and the criticisms over an inconsistent application of that principle may be spot on, the fact remains that the principle does not have a substantive content of its own, but reflects the substantive (primary) right to which it is associated. The principle of effectiveness cannot be seen functioning outside the context of the adjudication of the primary right violated by the competition law infringer. Claims for damages are usually perceived as an archetypical private law dispute, by which I mean a dispute between two parties whose rights and duties are correlative to each other. For instance, the infringer’s wrong consists in the violation of the primary right of the victim. The secondary right of the victim for compensation correlates to the wrong committed by the infringer. Yet not all competition law disputes fit this mould. Some remedies may have a considerable impact on economic actors other than the parties to the dispute, in a direct or an indirect way. Damages claims may also emanate from complex causation chains. One may think of claims introduced by indirect purchasers, counterfactual customers or umbrella customers. It may not always be easy to interpret the substantive provisions of EU competition law as giving rise to specific primary rights, like that of compensation for losses incurred because of the competition law violation, giving rise to secondary rights, such as the right to claim damages or obtain injunctive relief. It may, for instance, be quite complex to transpose the infringement of Article 102 TFEU by means of a loyalty rebate and a corresponding remedy of mandatory injunction into (primary or secondary) ‘rights’ or ‘duties’ talk. How would the effectiveness of the remedy be judged in this context? Should the primary right in this case be that of the equal opportunity of the dominant firm’s competitors to access the market? If so, what size of market would be considered ‘sufficient’ to preserve the essence of that ‘primary’ right? Would the primary right be that of the consumers of the dominant undertaking who may be charged higher prices in the future, should the competitors be excluded from the market? In which case, the primary right would need to reflect the economic theory

17 Hans-Wolfgang Micklitz, ‘The ECJ between the Individual Citizen and the Member States—A Plea for a Judge Made European Law on Remedies’, in Hans-Wolfgang Micklitz and Bruno de Witte, eds, The ECJ and the Autonomy of Member States, Intersentia, 2012, 349 et seq, 397. 18 See ibid.

The Principle of Effectiveness 113 of consumer harm advanced—a quite difficult task. Or is the primary right that of the ‘public at large’, which has been deprived of a moral right to the protection of ‘competition as such’?19 This will inevitably raise the issue of the delimitation of this primary moral right. The conceptual plasticity of the substantive provisions of EU competition law may lead, if combined with an instrumental view of the principle of effectiveness, to a quite broad remedial discretion for decision-makers. Similarly, the secondary right (remedy) may be interpreted broadly so as to enable the adoption of competition law remedies that have a prophylactic (preventive) aim.20 These remedies seek to ensure that there remain no practices likely to result in distortions of competition and infringements in the future. Prophylactic remedies may be distinguished from specific deterrence as they affect the ability (and not the incentive) of the infringers to commit equivalent anticompetitive practices in the future by focusing on specific facilitators of potential infringements. These are not illegal practices in themselves but, in the specific circumstances of the case, they may facilitate illegal conduct. By prohibiting these practices, the decision-maker’s objective is not to deter the potential infringers from adopting such conduct, as this is not illegal, but to reduce their ability to commit illegal practices. In addition, in an economically oriented competition law, the definition of what is an ‘optimal’, ‘sufficient’ or ‘appropriate’ remedy may also be influenced by the view economists take on optimal deterrence (the optimal deterrence model) and on how the market equilibrium existing prior to the competition wrong may be improved by subsequent remedial action. The remedy may thus offer the opportunity to design a new market equilibrium, more competitive than the one following the infringement but also, in some circumstances, more competitive than the one existing prior to the infringement in order to m aximise welfare. Linking the principle of effectiveness with the concept of efficiency, perceived as wealth maximisation, may nevertheless open a Pandora’s box with regard to the remedial discretion enjoyed by competition authorities and the courts. These may adopt far-reaching remedies which would not correlate with the wrong committed and thus the scope of the primary right that was violated. Yet ‘discretionary remedialism’ cannot be the rule of the game.21 This is clear in view of the importance the principle of proportionality has in

19 See, eg Case C-8/08 T-Mobile Netherlands BV and Others [2009] ECR I-4529, para 38. In this case the Court of Justice accepted that Article 101, ‘like the other competition rules of the Treaty, is designed to protect not only the immediate interests of individual competitors or consumers but also to protect the structure of the market and thus c ompetition as such’. 20 On prophylactic remedies in competition law, see Lianos, ‘Which Limits for Remedial Discretion?’, above n 1. 21 See Lianos, ‘Competition Law Remedies’, above n 13.

114 Ioannis Lianos elimiting the remedial discretion of competition authorities and courts in d EU competition law, if one takes a public law perspective on remedies. The principle of proportionality requires that measures adopted by Community institutions do not exceed the limits of what is appropriate and necessary in order to attain the legitimate objectives pursued by the legislation in question; when there is a choice between several appropriate measures, recourse must be had to the least onerous one, and the disadvantages caused must not be disproportionate to the aims pursued. This trade-off exercise involves, in addition to considering whether the means chosen are indeed a rational means to a purported end (step 1 of the test), some assessment of the possible excessive costs of the remedial action in relation to its benefits (step 2) and whether the means chosen are the least restrictive alternative (step 3). The first step of the proportionality principle is of particular interest for our purposes. The importance of remedial fit is often stressed by antitrust law literature.22 It is also indirectly linked with the existence of a causal relationship between the undertaking’s conduct and the theory of harm advanced. The scope of the obligations imposed on the undertakings concerned in order to bring the infringements to an end identified should be implemented according to the nature of the infringement declared, and the obligations imposed ‘must not exceed what is appropriate and necessary to attain the objective sought, namely re-establishment of compliance with the rules infringed’.23 This relates to the obligation of the Commission to give the undertakings concerned the opportunity of being heard on the matters to which it has taken objection. For example, the Commission is not entitled to impose a fine on an undertaking without having previously informed it in the statement of objections that it intended to do so, a requirement which also applies, by analogy, to remedies.24 The existence of a competition law violation (even if there is no explicit finding of an infringement) ‘constitutes the basis of the obligation of the parties to terminate the infringement’, hence the reason for imposing remedies.25 However, while the principle of proportionality requires a close fit between the harm and the remedy, determining the nature of that fit (functional, instrumental) remains an open question. The flexibility of the concept of the theory of harm, in particular its linkage to economic theory, enables the See Lianos, ‘Which Limits for Remedial Discretion?’, above n 1, with references. Case T-76/89 Independent Television Publications Ltd v Commission [1991] ECR II-575, para 93; Case C-279/95 P Langnese-Iglo v Commission [1998] ECR I-5609, para 74. 24 Case T-395/94 Atlantic Container Line AB [2002] ECR II-875, para 417; Case 322/81 NV Nederlandsche Banden Industrie Michelin v Commission [1983] ECR 3461, para 20. 25 Joined Cases 56 and 58/64 Établissements Consten SARL and Grundig-VerkaufsGmbH v Commission [1966] ECR 299, 338; Joined Cases T-125 and 127/97 The Coca-Cola Company [2000] ECR II-1733, para 80 (observing that ‘where an undertaking is in a dominant position it is obliged, where appropriate, to modify its conduct accordingly so as not to impair effective competition on the market regardless of whether the Commission has adopted a decision to that effect’). 22 23

The Principle of Effectiveness 115 ommission or the competition authorities to enjoy a wide remedial discreC tion, in particular when adopting prophylactic remedies. While in phase with the principle of effectiveness, prophylactic remedies have nevertheless been considered in certain circumstances as extending the scope of the remedy unreasonably, with regard to the scope of the p rimary right violated and thus the wrong committed. For instance, in a number of cases, the Commission required the undertakings concerned under its infringement decision to refrain in the future from any conduct which may have the same or a similar effect to those covered by the infringement decision, with the aim of preventing the undertakings from repeating the behaviour found to be unlawful.26 In Cartonboard, the Commission prohibited any future exchange of commercial information by which the participants directly or indirectly obtained commercial information on competitors, even if this was not by its nature unlawful under Article 101 TFEU as the information related also to certain aggregated statistical data.27 The General Court found that such prohibition exceeded what was necessary in order to bring the conduct in question into line with what was lawful because it was seeking to prevent the exchange of purely statistical information which was not in, or capable of being put into, the form of individual information which could thus be used for anticompetitive purposes. Indeed, the Commission had not considered the exchange of statistical data to be in itself an infringement of Article 101(1) TFEU. According to the Court, the mere fact that a system for the exchange of statistical information might be used for anti-competitive purposes does not make it contrary to Article [101(1) TFEU], since in such circumstances it is necessary to establish its actual anti-competitive effect.28

In Atlantic Container, the ECJ annulled part of the Commission’s d ecision for having imposed on the parties to the infringement an obligation to renegotiate or terminate the service contracts concluded between the s hippers and the maritime conference, which were not found to be illegal under Article 101 TFEU (as only the provisions of the TAA relating to price-fixing and capacity were found by the Commission to infringe this provision).29

26 Case T-310/94 Gruber + Weber GmbH & Co KG v Commission [1998] ECR II-1043, para 167; Case T-83/91 Tetra Pak International SA v Commission [1994] ECR II-755, para 220 (‘its aim is to put an end to all the practices found unlawful in the Decision and to preclude any similar practice’). 27 Gruber & Weber, ibid, para 177. 28 Ibid, para 178. 29 Atlantic Container Line, above n 24, para 398 et seq. Service contracts are agreements under which the shipper undertakes to ship a minimum volume or value of cargo during the period of the contract and, in return, the carrier undertakes to provide to the shipper specific service guarantees, such as a capacity guarantee, and negotiates a price lower than that which is normally applicable.

116 Ioannis Lianos The Commission had adopted this requirement of renegotiation or termination as a prophylactic remedy in order to prevent the members of a cartel from continuing to apply unlawfully fixed prices simply because these prices were incorporated in long-term contracts. In other words, the requirement to renegotiate or terminate the service contracts was justified by the fact that the effects of the infringements identified in the decision would have continued to exist if the addressees of that decision were able to continue to enjoy the economic advantages secured by ongoing contracts entered into on the basis of the horizontal agreement to fix prices and limit supply found illegal by the Commission.30 As this section of the decision formed part of the order bringing the infringement to an end, the Commission alleged that there was no need to give specific reasons or to draw it to the attention of the parties concerned in the statement of objections. The Court did not agree with this view, noting that the likelihood of private actions for damages should be a sufficient disincentive for the defendants to continue behaviour that would have maintained or facilitated the effects of the core infringement to Article 101 TFEU, and in any case, the Commission had the obligation to ‘explain its reasoning’ as to how the prophylactic measures suggested were ‘obviously necessary’ to bring the main infringement to an end—something that the Commission’s decision had not done.31 The Court even observed that, in view of the rights of defence of the defendants and the requirement that they should be offered a proper opportunity to make known their view,32 the statement of objections should in any event have set out, even briefly, but in sufficiently clear terms, the measures which the Commission intended to take in order to bring an end to the infringements and should have given the applicants all the information necessary in order to enable them properly to defend themselves before the Commission adopted a final decision on that point.

The instrumental use of the principle of effectiveness in order to expand the remedial discretion of the competition authorities is closely interrelated to the question of the legitimacy of competition authorities and the judiciary in competition law cases to adopt far-reaching remedies that may restrict individual rights.33 Both public and private lawyers recognise the existence of inherent limits to the remedial action of competition authorities and the judiciary, even if they may take different perspectives in this context.

Ibid, para 406. Ibid, paras 414–415. 32 Ibid, paras 418–419. 33 Arianna Andreangeli, ‘Between Economic Freedom and Effective Competition Enforcement: The Impact of the Antitrust Remedies Provided by the Modernisation Regulation on Investigated Parties Freedom to Contract and to Enjoy Property’, 6(2) Competition Law Review 225 (2010). 30 31

The Principle of Effectiveness 117 The private law account of remedial action emphasises correlativity as an essential feature of private law disputes.34 Correlativity perceives the parties’ relationship as a ‘bipolar unit in which each party’s normative position is intelligible only in the light of the other’s’.35 The duty of one party is the mirror image of the other party’s right. The structure of the remedy should thus ‘reflect the structure of the injustice, retracing and reversing the movement between the parties’. Courts may effectively exercise their adjudicatory function to determine, based on the evidence heard on the structure of the pre-existing relationship between the claimant and the defendant, the appropriate relational structure post-infringement, with the understanding that this should be equivalent to that prior to the infringement. The court’s or other decision-maker’s discretion is thus bound in the context of private law resolution of disputes by the fact that remedies should not go beyond the structure of the pre-existing relationship between the correlative entitlements and obligations of the parties to the dispute. An important difference between the private and public law accounts of the remedial process is that, while the former is based on the idea of correlativity, the latter is by essence polycentric, because of the variety of interests to be considered by the public authority charged with the protection of the general interest—by essence, a polycentric concept. In a public law context, because the judge or authority is seeking to implement generally articulated, aspirational norms in highly differentiated contexts, liability norms do not dictate the content of the remedy. Liability norms only provide the goals and boundaries for the remedial decision. In this context, the linkage between remedies and rights (or wrongs) is instrumental, as the liability stage indirectly constrains the targets of the remedial process, the aim of which is to provide a solution to a specifically determined (at the liability stage) problem.36 The normative parameters that have been set at the liability stage in the form of problems that the remedy must address operate simultaneously as a guide and as a constraint to the exercise of remedial discretion in a public law context. Some trade-off devices are thus developed in order to mediate between the different interests represented in these polycentric disputes, the principle of proportionality being one of them. It follows from the above that, despite the instrumental use of the principle of effectiveness in order to elaborate a minimum core of ‘hybrid’ EU/national remedies with the aim of ensuring the effective enforcement of competition law, legitimacy concerns may limit the remedial action of competition authorities and courts. The following section attempts to address the question

Earnest Weinrib, Corrective Justice, Oxford University Press, 2012, 2. Ibid. 36 See Lianos, ‘Which Limits for Remedial Discretion?’, above n 1. 34 35

118 Ioannis Lianos of legitimacy in the context of remedial action, by exploring the hypothesis that this is related to the limits of adjudication, as a form of social ordering distinct from, for instance, regulation or contract.

3. Legitimate remedies and the limits of adjudication In exploring the limits of adjudication, with the aim of setting clear limits to the legitimacy of judicial action, Fuller referred to the principle of polycentricity, which he defined as ‘situation(s) of interacting points of influence’ which ‘involve many affected parties and a somewhat fluid state of affairs’.37 Intervention in this context may have ‘complex repercussions’.38 Fuller observes that one may: visualize this kind of situation by thinking of a spider’s web. A pull on one strand will distribute tensions after a complicated pattern throughout the web as a whole … This is a ‘polycentric’ situation because it is ‘many centered’—each crossing of strands is a distinct center for distributing tensions.39

According to Fuller, the adjudication of polycentric disputes is problematic because the complexity of the dispute and the range of those affected, which it is sometimes difficult to foresee, render it quite difficult to organise the participation of all affected parties in the dispute so that they may represent their various positions. Informed only by the litigating parties and confined by limited competences, the decision-maker is ill-equipped to determine the impact of the decision reached on the different interests affected, with the consequence that the decision reached may negatively affect societal welfare. What becomes important is thus the ‘question of knowing when the polycentric elements have become so significant and predominant that the proper limits of adjudication have been reached’.40 Problems that are sufficiently polycentric may be unsuited for adjudication and may be resolved through managerial direction, through negotiation and contract,41 or left to the forces of the market. Some problems, such as the allocation of economic resources, may indeed ‘present too strong a polycentric aspect to be suitable for adjudication’.42 Fuller explains what happens when an attempt is made to deal by adjudicative forms with a problem that is essentially polycentric: three things can happen, sometimes all at once. First, the adjudicative solution may fail. Unexpected repercussions make the decision unworkable; it is ignored,

Fuller, ‘The Forms and Limits’, above n 4, 395 and 397. Ibid, 395. 39 Ibid, 395. 40 Ibid, 398. 41 Ibid. 42 Ibid, 400. 37 38

The Principle of Effectiveness 119 ithdrawn, or modified, sometimes repeatedly. Second, the purported arbiter ignores w judicial proprieties—he ‘tries out’ various solutions in post-hearing conferences, consults parties not represented at the hearings, guesses at facts not proved and not properly matters for anything like judicial notice. Third, instead of accommodating his procedures to the nature of the problem he confronts, he may reformulate the problem so as to make it amenable to solution through adjudicative procedures.43

This does not necessarily mean that contracts and managerial administrative discretion do not have problems of their own when dealing with polycentric disputes.44 Contracts are generally ill-suited to inequalities of bargaining power, and managerial and administrative discretion may raise important problems of unlimited discretion. However, these methods may integrate more fully the under-represented interests to the adjudicatory procedure and take into account evidence and arguments emanating from third parties rather than the initial parties to the dispute. Fuller’s reference to polycentric disputes is highly relevant for our discussion of competition law remedies, the remedial process constituting an instance of adjudication. The enforcement of competition law requires the balancing of different interests, even though recourse to balancing (or the rule of reason as it is called in US antitrust law) is in some circumstances limited by categorical thinking and the establishment of presumptions ( per se categories in US antitrust law or object restrictions in EU competition law). In fine, the formation of specific categories, such as specific types of abuse, subject to particular standards or tests (ie margin squeeze, refusal to deal), depends on some pre-balancing of the interests usually affected, together with considerations of procedural economy and error cost analysis.45 Hence, categorisation may be considered as a form of dynamic balancing of principles and policies with the aim of promoting the effectiveness of competition law enforcement: in this case, the reduction of administrative costs of enforcement while avoiding the risk of substantive errors. An illustration of this dynamic approach in establishing legal categories constitutes the evolution of the object box in EU competition law, which has been expanded to cover certain forms of information exchange,46 the prohibition of internet sales in the context of a vertical agreement,47 or even vertical practices that are particularly suspicious in view

Ibid, 401. JWF Allison, ‘Fuller’s Analysis of Polycentric Disputes and the Limits of Adjudication’, 53 Cambridge Law Journal 367 (1994). 45 See Arndt Christiansen and Wolfgang Kerber, ‘Competition Policy with Optimally Differentiated Rules’ Instead of “Per se Rules vs Rule of Reason”’, 2 Journal of Competition Law and Economics 215 (2006); Ioannis Lianos, ‘Categorical Thinking in Competition Law and the “Effects-based” Approach in Article 82 EC’, in Ariel Ezrachi, ed, Article 82 EC—Reflections on its Recent Evolution, Hart Publishing, 2012, chapter 2. 46 T-Mobile Netherlands, above n 19. 47 Case C-439/09 Pierre Fabre Dermo-Cosmétique SAS v Président de l’Autorité de la concurrence [2011] ECR I-9419. 43 44

120 Ioannis Lianos of the structure of the specific market,48 the latter being considered by some as an excursion outside what has been considered so far as the traditional domain of the object box, which does not require the consideration of information relating to the structure of the relevant market affected. The move towards a more effects-based approach has accentuated the polycentric dimension of competition law disputes. Final and intermediate consumers active in the specific relevant market were added to the list of the participants affected by the adjudicated transaction, their interest(s) being given the most important weight in the decision-making process (because of the emphasis on consumer harm). Because of the variety of interests that must be taken into account, the number of affected participants and the complexity of repercussions are particularly noteworthy in competition law disputes involving market leaders controlling industry standards, thus affecting an array of interrelated economic sectors that are not necessarily directly linked to the relevant market of the specific competition law dispute. For instance, cases like Google and Microsoft have profound implications on innovation and the development of competition in the broader IT sector globally. A similar conclusion may be reached with regard to competition law disputes involving key inputs to economic production, ie in energy and telecommunications, which may have an important impact on the economy overall. The remedies adopted in the context of such disputes have often been characterised as an instance of ‘regulatory antitrust’, the perception being that competition law has moved away from its archetype of adjudication towards a different form of social ordering, such as regulation.49 There seems to be a fine line between competition law remedies and regulatory remedies, which in some cases EU competition law has seemingly transgressed, thus leading to the accusation of ‘regulatory antitrust’, the latter perception being perceived as an oxymoron. For instance, Ibañez Colomo argues that this transgression may take different forms: first, competition may become regulatory in nature ‘when its application on a proscriptive basis (rather than prescriptive basis) would not be possible given the features of the relevant market’.50 Second, the

Case C-32/11 Allianz Hungária Biztosító Zrt and Others, EU:C:2013:160. Giorgio Monti, ‘Managing the Intersection of Utilities Regulation and EC Competition Law’, 4(2) Competition Law Review 123 (2008), noting that competition law has been applied, ex ante, in a regulatory fashion in the utilities sector and arguing that competition law should give way to regulation, in certain circumstances, ‘either because suspending competition law can yield greater efficiency or because it can allow the pursuit of other non-economic policy objectives’; Pablo Ibañez Colomo, ‘On the Application of Competition Law as Regulation: Elements for a Theory’, 29 Yearbook of European Law 261 (2010). 50 Ibañez Colomo, ‘Elements for a Theory’, ibid, 264. 48 49

The Principle of Effectiveness 121 ‘expected standards of intervention in a competition law case can be defined as the composite of (i) the gravity of the infringement identified and (ii) the remedies (if any) required to bring an end to it’, the relationship between the two being presumed to be a ‘linear one, that is, the intrusiveness of a given remedy increases in direct proportion with the gravity of the infringement’.51 However, when competition law is ‘instrumentalised’, and this expression is left without definition by the author, ‘the remedies imposed in a given case may exceed what would be necessary to bring an end to the infringement identified by the authority’.52 The correlative relationship between remedies and rights/wrongs is thus perceived as the defining boundary between competition law remedies and regulatory remedies. The two ‘do not follow the same logic’, as the former are generally concerned ‘with preserving the existing market structure from being further deteriorated’, thus leading to remedies that reflect the wrong committed, and not with redesigning the current market structure, by ‘sharing (or neutralising competitive advantages)’, which may give rise to remedies that go beyond the wrong committed.53 In an economically oriented competition law, this boundary is more easily described than practised. Theories of consumer harm may not only relate to the structure of the supply side but may also be generated by the specific characteristics of the demand side. Behavioural economics may provide insights into how some behavioural biases of consumers may be exploited by incumbents in order to raise prices. If the practices of the incumbents are caught by competition law, the remedy will need to address these behavioural biases in order to be effective. However, providing for remedies dealing with existing behavioural biases will not just restore the competitive process, but will generate a very different one than the one prior to the identified ‘competition law’ infringement. Would that remedy be considered as having a regulatory nature and hence as being outside the normal scope of competition law remedies, given that it aims to shape the conditions of competition in the market? Yet the polycentric character of complex competition law disputes is much more limited than that of pure regulatory law disputes. First, competition law remedies54 relate to the exercise of an adjudicative function, either of a competition authority or of a court, defined as the adversarial presentation

Ibid, 277 (emphasis in original). Ibid, 279. Ibid, 283. 54 With the notable exception of remedies imposed in the context of market investigation references in the UK, following Part 5 of the Enterprise Act 2002. In the EU context, sector inquiries do not carry the possibility for the Commission to impose remedies, but may instead lead to the initiation of competition law proceedings under Articles 101 and 102 TFEU. Consequently, the mandate of the Commission in exercising its competition law competence is exclusively adjudicatory. 51 52 53

122 Ioannis Lianos of evidence and reasoned arguments to a decision-maker,55 and should thus be distinguished from remedies adopted in the context of a rule-making activity, as is often the case in regulation. Second, even when regulators exercise an adjudicative function in enforcing regulation, the polycentric nature of the regulatory dispute is more pronounced than in the context of competition law, the decision explicitly taking into account the economic conditions of an entire sector of activities, rather than the competitive conditions of a specific relevant market on which the parties to the dispute are active—by definition, a narrower exercise. Third, the interests that are usually considered in a regulatory dispute are in principle more diverse than those taken into account in competition law disputes, the regulators assuming various responsibilities, such as the protection of the environment, universal service and security of supply, while the competition authorities’ role is primarily confined to the protection of the competitive process. As a result of the variety of regulatory goals, there is more extensive participation in the decision-making process of actors representing diverse interests, often not directly related to the dispute. Focusing, for illustration purposes, on merger control, which is the closest a competition law procedure can come to a regulatory law one, the EU Merger Implementing Regulation provides for the participation in the process of ‘third parties’, a category which is narrowly defined as including those having a ‘sufficient interest’ in the Commission’s procedure, such as customers, suppliers, competitors, members of the administration or management organs of the undertakings concerned, or recognised workers’ representatives of those undertakings.56 Certainly, the Commission has appointed a consumer liaison officer, and might also invite the views of other interested third parties, including consumer organisations,57 but these parties do not have a right to be heard in the absence of an explicit invitation by the Commission. In any case, the third parties are expected to comment only on the competition implications of the merger, rather than on broader issues, such as the protection of employment and the environment.58 This contrasts with the wide participation of various interests in the context of regulatory decision-making, often with the involvement of intermediary, although not elected, bodies representing a supposed public interest, and, less frequently, by direct intervention from the interested public. Consequently, despite the polycentric dimensions of most competition law decisions,59 remedies are precisely confined to address the

See Allison, ‘Fuller’s Analysis of Polycentric Disputes’, above n 44. On the role of third parties, see Article 18(4) of Regulation 139/2004 and Articles 16(1) and (2) of the Implementing Regulation. 57 Article 16(3) of the Implementing Regulation. 58 See DG Competition, ‘Best Practices on the Conduct of EC Merger Control Proceedings’, para 37, referring only to ‘competition concerns’. 59 Decisions are polycentric in that they affect not only the parties to the dispute but also other competitors, consumers, customers, shareholders and employees. 55 56

The Principle of Effectiveness 123 specific situation under adjudication. Indeed, the boundaries of remedial discretion are delimited by the interplay of the specific goals entrusted to competition authorities, the principle of remedial proportionality and the control of legality for misuse of powers.60 One may, however, criticise Fuller’s narrow view of adjudication as essentially involving adversarial presentation of evidence and arguments between the parties to the litigation. First, ‘concealed polycentric elements’ exist in all problems solved by adjudication.61 Second, dispute resolution does not constitute the only model of adjudication. Commenting on the development of constitutional adjudication, Fiss argued that a new model of adjudication, which he called ‘structural reform’, has emerged that challenges the narrow conception of the function of adjudication.62 While the dispute resolution model is a ‘sociologically impoverished universe’, ‘one that does not account for social groups and bureaucratic institutions’, its world being composed exclusively of individuals (the litigants), the ‘structural’ model is characterised by a multiplicity of parties and an array of competing interests and perspectives.63 Although dispute resolution ‘implies a unity of functions in party structure’, ie ‘the plaintiff is simultaneously the victim, the beneficiary of the remedy, and also the spokesperson’, the structural model is characterised by a fragmentation of the roles precisely because of the introduction of sociological entities, such as, in the context of competition law disputes, competitors or consumers. For instance, the possibility for the Commission, acting on its own initiative pursuant to Article 15(3) of Regulation 1/2003, to submit written observations (amicus curiae observations) to courts of the Member States where the coherent application of Article 101 or 102 TFEU so requires provides the opportunity to the national courts to hear evidence and arguments that may not have been proffered by the litigants and which relate to the broader EU interest to ensure a coherent enforcement of EU competition law throughout the Union. The function of remedies is also different in the context of the ‘structural’ model. Its main role consists in eliminating threats to the values (effective competition) protected by the law (a prophylactic aim), eventually restructuring the organisation that committed the infringement—‘a complex and difficult task wholly alien to the dispute resolution model’.64 Consequently, while the remedial process in the dispute resolution model is based on the assumption that the aim of adjudication is to assess the ‘abnormal’ event that has caused the dispute and to restore the 60 This ground of judicial review refers to cases where an authority uses its powers to take a measure with a purpose other than that for which the powers in question were conferred upon it. 61 Allison, ‘Fuller’s Analysis of Polycentric Disputes’, above n 44, 371. 62 Owen Fiss, ‘The Social and Political Foundations of Adjudication’, 6 Law and Human Behavior 121 (1982). 63 Ibid, 123. 64 Ibid.

124 Ioannis Lianos arties to their rightful position, that is, the position that they would have p occupied absent that specific abnormal event (in other words, the violation of EU competition law), the ‘structural’ model ‘reflects doubt on whether the status quo is efficient’, eventually promoting the establishment of a new status quo.65 One should therefore come to grips with the fact that competition law enforcement constitutes an instance of ‘structural’ adjudication, and not of the ‘dispute resolution’ model. This renders the distinction with the administrative/managerial model particularly difficult at times, at a practical level, although there is some value in thinking of the two (adjudication and administrative managerial model) as ideal types forming a continuum with regard to the ‘appropriate’ degree of discretion and consequently the legitimacy of the action of the institutions in charge, which is closely related to the participation of the interests affected. Put simply, the more EU competition law moves towards the regulatory/managerial model, and ‘structural’ adjudication comes close to that, the more it should integrate the legitimacy-building mechanisms of that model, with the enhanced participation of the entities subject to the remedies as well as of all those whose interests may be affected (ie consumers, competitors in related markets and interests vicariously represented by organisations and citizen’s groups, ie environmental associations). The triadic model of dispute resolution, limited to the parties and the adjudicator, needs to give way in circumstances of significantly polycentric disputes to the more inclusive model of ‘structural’ adjudication in order to preserve the legitimacy of competition law enforcement and its continued relevance and appeal to society at large.

4. Remedial discretion and commitment decisions: exploring the limits of adjudication The delimitation of the fine boundary between adjudication and the managerial or administrative model is not the only challenge to which mature competition law enforcement systems are confronted in devising effective remedies. In recent years, we have witnessed a significant displacement of the adjudicative EU competition law enforcement model by a presumably ‘consensual’ model of competition law enforcement, with the increasing use of commitment decisions under Article 9 of Regulation 1/2003.66 From 2004 Ibid, 124. Niamh Dunne, ‘Commitment Decisions in EU Competition Law’, 10 Journal of Competition Law and Economics 399 (2014). But see Wouter Wils, ‘Ten Years of Commitment Decisions Under Article 9 of Regulation 1/2003: Too Much of a Good Thing?’ (2015), ssrn.com/abstract=2617580, p 9 (‘[I]t cannot be concluded from the statistics that there is or has been an increasing trend to use commitment decisions.’). 65 66

The Principle of Effectiveness 125 to 2014 there were 35 commitment decisions, as opposed to only 21 infringement non-cartel decisions adopted under Article 7 of Regulation 1/2003. National competition authorities have also turned with increasing zeal to a sustained use of commitment decisions in order to resolve competition law disputes.67 Theoretically justified by the need to ensure an effective use of the scarce resources of competition authorities and procedural economy benefits,68 the use of the procedure of commitment decisions constitutes in reality another illustration of the limits of the classic model of adjudication in competition law enforcement, and the need to adopt procedures that maximise the aims of competition law enforcers, while keeping an eye on the legitimacy of their action. One may validly ask if commitment decisions fit the adjudicative model or may be considered as closer to the model of negotiation and contract or that of the regulatory model, which form distinct categories of social ordering if we follow Fuller’s perspective. One could explore the similarities and differences between commitments decisions in antitrust and in merger control in order to characterise such decisions as fitting in one of the models of decision-making advanced by Fuller. In merger control, remedies take the form of commitments offered by the parties to the merger, either at Phase I or Phase II of the merger procedure, which are eventually accepted by the Commission if they address its ‘serious doubts’ over the legality of the merger or the ‘competition concerns’ identified. This leads to the publication of a decision under Article 6(2) or Article 8(2) of the EC Merger Control Regulation, which makes binding the commitments offered by the parties. In the context of the ex post competition law enforcement of Articles 101 and 102 TFEU, Article 9 of R egulation 1/2003 enables the Commission to make commitments offered by parties to its proceedings binding on them, instead of issuing a regular prohibition decision, when those commitments address the concerns expressed in the Commission’s preliminary assessment. Such a decision may be adopted for a specified period and shall conclude that there are no longer grounds for action by the Commission. Technically, commitment decisions offered under Article 9 of

67 For an excellent analysis of national practices, see Heike Schweitzer, ‘Commitment Decisions in the EU and in the Member States: Functions and Risks of a New Instrument of Competition Law Enforcement within a Federal Enforcement Regime’, e-Competitions Bulletin, Special Issue on Commitment Decisions, 2 August 2012, http://ssrn.com/ abstract=2101630. 68 There has, however, been some doubt over this justification for the increasing use of commitment decisions. See Mario Mariniello, ‘Commitments or Prohibition? The EU Antitrust Dilemma’, Bruegel Policy Brief, Issue 2014/01 (January 2014). One may also further expect that negotiations between Commission officials and the legal/economic teams of global giants such as Microsoft, Google, Coca Cola, to cite randomly some major corporations having offered commitments to the Commission, are particularly time consuming and human resource-devouring.

126 Ioannis Lianos Regulation 1/2003 are not remedies as they do not aim to put the infringement to an end, as is the case for Article 7 of Regulation 1/2003 and Phase II merger control decisions, and do not make any finding as to whether there has been an infringement.69 Their only legal effect is to close the Commission’s proceedings. Essentially, it is considered a measure of ‘procedural economy’.70 In addition, as noted by AG Kokott in Alrosa, ‘unlike Article 7, Article 9 of Regulation 1/2003 is not an instrument for establishing infringements of competition law, but merely gives the Commission the possibility of effectively addressing concerns over competition for the future’.71 Contrary to Article 7 infringement decisions, Article 9 decisions cannot be used as conclusive evidence of the existence of an infringement of EU competition rules in followon private actions for damages.72 Yet, from a functional perspective, they can be qualified as ‘remedies’, as they aim to redress the situation of the victims of the competition law violation to that prior to the infringement. As both Article 9 of Regulation 1/2003 commitment decisions and decisions adopted in the context of merger control are formally suggested by the parties to the transaction, they have been distinguished from other competition law remedies and sanctions, which are imposed unilaterally by the Commission and are not the product of a ‘voluntary’ agreement between the Commission and the parties to the dispute (coercive remedies).73 In a similar vein, commentators as well as the ECJ consider that commitment decisions form part of what has been characterised as a ‘consensual competition law enforcement’ or a culture of ‘settlement’, hence accentuating the opposition between the voluntary nature of commitment decisions and the coercive nature of Article 7 of Regulation 1/2003 decisions imposing injunctions on the parties.74 69 John Temple Lang, ‘Commitment Decisions under Regulation 1/2003’, in Charles Gheur and Nicolas Petit, eds, Alternative Enforcement Techniques in EC Competition Law, Bruylant, 2009, 121 et seq, 122. 70 Case C-441/07 P Commission v Alrosa [2010] ECR I-5949, para 35. For a critical perspective on this justification for commitment decisions see Mariniello, above n 68. 71 Opinion of Advocate General Kokott in Alrosa, ibid, para 50. 72 Firat Cengiz, ‘Judicial Review and the Rule of Law in the EU Competition law Regime after Alrosa’, 7 European Competition Journal 127, 130 (2011). But see recent national case law hinting to the contrary—described in Anna Duron, ‘Private Damages Actions in the Wake of a Commitment Decision: New Risks after the Judgment of the Paris Commercial Court in Eco-Emballages?’, forthcoming. 73 Opinion of AG Kokott in Alrosa, above n 70, paras 51 and 55, noting the ‘voluntary’ character of commitments. According to the Advocate General, procedural economy requires that the Commission should not be asked to conduct a detailed assessment of the appropriateness of commitments to address the Commission’s concerns, the only requirement being that such appropriateness should be clear or manifest (para 53). Hence, procedural economy may be considered a facet of ‘effectiveness’ if this concept is given a broad definition as including anything that reduces the costs of enforcement while maintaining its corrective and/or deterrent effect. 74 See Alrosa, above n 70, para 48 (noting that undertakings ‘consciously’ accept concessions in the context of a commitment procedure under Article 9 of Regulation 1/2003). See also Florian Wagner von Papp, ‘Best and Even Better Practices in the European Commitment Procedure after Alrosa: The Dangers of Abandoning the Struggle for Competition Law’, 49 Common Market Law Review 929, 932–933 (2012) (noting the

The Principle of Effectiveness 127 The EU Courts have relied on the classification of remedies as voluntary or coercive when dealing with the question of the degree of the remedial discretion competition authorities may exercise in EU antitrust and merger proceedings. Competition authorities are subject to restrictions in the use of voluntary remedies, at least in antitrust proceedings. Recital 13 of R egulation 1/2003 warns that commitment decisions under Article 9 are not appropriate in cases where the Commission intends to impose a fine. Hardcore cartel cases, which are generally subject to fines, cannot be closed by a commitment decision.75 The principle of proportionality may also limit the remedial discretion of competition authorities in both merger and antitrust proceedings, thus reinforcing the legitimacy of the remedial action of the competition authorities. In Alrosa, however, the ECJ struck down the judgment of the General Court for having applied the proportionality control to a similar extent in Article 9 and Article 7 decisions.76 The ECJ noted that ‘the obligation on the Commission to ensure that the principle of proportionality is observed has a different extent and content, depending on whether it is considered in relation to the former or the latter article’.77 It further explained that: application of the principle of proportionality by the Commission in the context of Article 9 of Regulation No 1/2003 is confined to verifying that the commitments in question address the concerns it expressed to the undertakings concerned and that they have not offered less onerous commitments that also address those concerns adequately.78

Although both Article 7 and 9 decisions are subject to the principle of proportionality, the application of that principle differs according to which of those provisions is concerned. Hence, according to the ECJ: [T]here is therefore no reason why the measure which could possibly be imposed in the context of Article 7 of Regulation No 1/2003 should have to serve as a reference for the purpose of assessing the extent of the commitments accepted under Article 9

‘hybrid character of commitment decisions’, distinguishing the ‘public law paradigm’ of ‘an authoritative, unilateral top-down hierarchical command by the State’ from the ‘contract law paradigm’ which relies on voluntary negotiations between the parties). For critical discussion, see, inter alia, Denis Waelbroeck, ‘The Development of a New “Settlement Culture” in Competition Cases’, in Gheur and Petit, eds, Alternative Enforcement Techniques, above n 69, 221 et seq; Claus-Dieter Ehlermann and Mel Marquis, eds, European Competition Law Annual 2008: Antitrust Settlements under EC Competition Law, Hart Publishing, 2010. 75 See, however, the possibility for settlements in cartel cases: Commission Regulation (EC) No 622/2008 amending Regulation (EC) No 773/2004, as regards the conduct of settlement procedures in cartel cases, [2008] OJ L171/3. 76 Alrosa, above n 70. 77 Ibid, paras 38 and 48 (noting the specific characteristics of the mechanisms provided for in Articles 7 and 9 of Regulation 1/2003 and the voluntary character of commitments under Article 9). 78 Ibid, para 41.

128 Ioannis Lianos of the regulation, or why anything going beyond that measure should automatically be regarded as disproportionate … Undertakings which offer commitments on the basis of Article 9 of Regulation No 1/2003 consciously accept that the concessions they make may go beyond what the Commission could itself impose on them in a decision adopted under Article 7 of the regulation after a thorough examination.79

Following Alrosa, the distinction between voluntary and unilateral remedies leads to a different application of the proportionality principle, hence to a greater variation in the degree of judicial scrutiny of remedies and consequently the remedial discretion of the Commission. In addition to the differential implementation of the proportionality principle, in the context of judicial review, the perceived consensual nature of the commitment procedure may weaken the link between the wrong and the remedy adopted, presumably pushing the authority to use its bargaining power in order to achieve remedies that would not only attempt to reverse the situation to the status quo ante but would also aim to establish a new, allegedly more competitive, equilibrium, under the pretext that the parties subject to the remedy have consented to it. Indeed, the voluntary nature of commitments may enable them to go further in their scope than what could be the scope of an infringement decision, if the latter option were chosen.80 The distinction between infringement decisions under Article 7, allegedly inspired by a ‘public law’ paradigm, and commitment decisions relying on a ‘contract law paradigm’ does not, however, take sufficiently into account the important similarities between injunctions and commitments in EU competition law. The reference to the ‘public law paradigm’ as a separate pole to the ‘contract law’ one seems far-fetched, in view of the importance of ‘administrative contracts’ in continental administrative law, and also of the distinction between imperium merum (the power to coerce) and jurisdictio (the power to make legal decisions).81 Remedies do not form part of the imperium but do form part of the mixtum imperium, the power which a magistrate has for the purposes of administering the civil (not criminal) part of the law, which is incident to jurisdictio. If remedies were classified within the imperium, it would not have been possible, first, for arbitration clauses to be included in merger remedies, arbitration being in this case a forced ‘contract’, which is a

Ibid, paras 48–49 (emphasis added). Opinion of AG Kokott in Alrosa, above n 70, para 60; see also para 48 of the ECJ’s judgment. 81 Gerasimos Sofianatos, Injonctions et Engagements en Droit de la Concurrence, LGDJ, 2009, 3–5. 79 80

The Principle of Effectiveness 129 distinct possibility in EU merger control,82 and, second, for remedial injunctions to produce extraterritorial effects.83 More troubling is the opposition sometimes made between the passive role of the parties in Article 7 proceedings and their active role in commitment decisions, in merger control or in the context of Article 9 of Regulation 1/2003. Despite the ‘coercive’ appearance of an injunction, this is often the result of a prior (failed) negotiation between the Commission and the parties concerned, the Commission attempting at least to achieve some form of adhesion from the parties that will guarantee the proper execution of the remedy.84 The psychological pressure that an infringement decision might be adopted by the Commission in the absence of commitments offered by the parties largely belies the voluntary and consensual nature of the process, and enables the Commission to extract disproportionate remedies. To this one may add the possibilities offered to the Commission to make strategic use of commitment decisions in order to achieve regulatory objectives, such as the liberalisation of the energy sector, the regulation of p ayment systems or the opening up of systems competition in the high tech and car industry sectors, to cite but a few examples. As I have shown elsewhere, the parties ‘consent’ to these commitments, despite the obvious resource constraints of the Commission to follow all possible cases with an infringement decision, in view of the collective action problem they are facing, thus enabling the Commission and other competition authorities to leverage their investigative powers into substantial bargaining power, leading to commitments that may go beyond what would have been achieved had the C ommission chosen an Article 7 infringement decision.85 The competition authority may also adopt the strategy of investing first in some high-profile Article 7 infringement decisions for certain kinds of practices, which it can later capitalise on with a number of commitment decisions anchored to this quite favourable legal precedent of an infringement decision, pushing the parties to commit to far-reaching remedies. A closer look at the commitment decisions adopted by the European Commission in recent years indicates that these relied on contested theories of harm, which may have been risky for the Commission to rely upon in an Article 7 infringement

82 Christoph Liebscher, ‘Drafting Arbitration Clauses for EC Merger Control’, 21 Journal of International Arbitration 67 (2004); Gordon Blanke, ‘International Abritration in EC Merger Control: A Supranational Lesson to be Learned’, 27 European Competition Law Review 324 (2006); Laurence Idot, ‘Une innovation surprenante: L’Introduction de l’arbitrage dans le contrôle communautaire des concentrations’, 4 Revue d’arbitrage 591 (2000). 83 Sofianatos, Injonctions et Engagements, above n 81, 486. However, that does not guarantee the execution of remedial injunctions outside the EU. 84 Ibid, 188–191. 85 Lianos, ‘Which Limits for Remedial Discretion?’, above n 1, 451–454.

130 Ioannis Lianos decision: excessive prices,86 patent ambush,87 collective dominance,88 strategic underinvestment,89 anticompetitive use of court injunctions,90 to cite but a few. As negotiations occur at the highest levels between the Competition Commissioner and the CEOs of these global (in most cases) corporations, commitment decisions may offer more room for politics and the consideration of broader public interests and values than the customary narrow focus on competition concerns, hence highlighting the polycentric nature of most of these disputes. For instance, although issues of privacy were not as such touched upon in the Commission’s competition investigation against Google, it is inevitable that the Commission’s investigation and the final decision on Google’s commitments which should be taken by the college of commissioners will be influenced by the overall context of Google’s disputes with European regulators91 and, likely, by the European policy to form a single digital market.92 Broader competition policy concerns, such as market liberalisation, were particularly influential in the choice of the instrument of commitment decisions in various cases the Commission investigated in the gas and electricity markets.93 Similar concerns regarding the need for regulation may have played a role in the financial services sector.94 Finally, one should also factor in the considerable technical complexity of some markets investigated by the Commission, in particular the high tech sector. It is virtually impossible to develop sound and effective remedies without extensive and ongoing cooperation and sharing of information with the business entity that was found to infringe competition law and was asked to restructure its

86 See, eg Commission Decision of 9 December 2009 in Case COMP/38.636—Rambus; Commission Decision of 15 November 2011 in Case COMP/39.592—Standard & Poors; Commission Decision of 26 February 2014 in Case AT.39398—VISA MIF. 87 Rambus, ibid. 88 Commission Decision of 26 November 2008 in Case COMP 39.388—German Electricity Wholesale Market; Commission Decision of 26 November 2008 in Case COMP 39.389—German Electricity Balancing Market. 89 Commission Decision of 18 March 2009 in Case COMP/39.402—RWE gas foreclosure; Commission Decision of 3 December 2009 in Case COMP/39.316—Gaz de France. 90 Commission Decision of 27 April 2014 in Case AT.39939—Samsung—Enforcement of UMTS standard essential patents. 91 See, eg the references by former Commissioner Almunia to the various legal troubles Google is facing in Europe, including, among others, privacy disputes: Joaquín Almunia, ‘The Google Antitrust Case: What Is at Stake?’, SPEECH/13/768, Brussels, 1 October 2013. The Google case also seems to have divided the College of Commissioners, some of whom reportedly expressed concerns about the deal reached provisionally with the company. See ‘Google’s Almunia Deal Said to Be Criticized by EU Officials’, Bloomberg (12 February 2014), http://www.bloomberg.com/news/2014-02-12/google-deal-with-almunia-said-to-becriticized-by-eu-officials.html. 92 As the European Parliament’s Resolution of 27 November 2014 on supporting consumer rights in the digital single market (2014/2973(RSP)) reminded us. 93 For a discussion, see Dunne, ‘Commitment Decisions’, above n 66, 408–409. 94 Ibid, 410–411.

The Principle of Effectiveness 131 rganisation and/or modify its conduct.95 This may be best achieved in the o context of a commitment procedure, rather than an Article 7 infringement decision, as the atmosphere of open conflict that the latter may generate may be an impediment to cooperation. The above considerations, and not reasons of procedural economy, constitute the major drivers for the increasing use of commitment procedures in EU competition law. Remedies adopted in the context of commitment decisions often fit closely the model of ‘structural’ adjudication: being prospective by nature and aiming to eliminate any potential threat to the value of competition, by proceeding to the restructuring of the organisation involved in the violation of competition law and not just the issuance of a prohibition aimed at some specific act or conduct.96 For instance, in the Visa commitment decision, in addition to the various price caps on the setting of multilaterally agreed interchange fees to which Visa agreed, it also took the commitment to implement further transparency measures to reorganise its relationships with the merchants’ banks (acquirers).97 The process is also not solely at the hands of the competition authority and the infringer, as one would have expected to happen in view of the ‘contractual’ nature of the procedure, but involves the participation of interested third parties. These may contribute, according to Article 27(4) of Regulation 1/2003, to the ‘market test’ of the commitments, offering their view on the commitments offered by the defendant, before these are made binding by a decision of the Commission. In order to enhance the transparency of the process to the public, the Commission also publishes the full text of the commitments, as well as a press release setting out the key issues of the case. Interested parties may submit their observations within a fixed time limit, which cannot be less than one month. It is also mentioned in its best practices that the Commission may also ‘actively promote the market test’ by sending, for instance, the market test document to third parties ‘which can potentially

95 An illustration of the extensive cooperation between the Commission and the undertaking offering commitments needed in the design and implementation of remedies in high tech sectors may be offered by the Microsoft cases: Nicholas Economides and Ioannis Lianos, ‘A Critical Appraisal of Remedies in the EU Antitrust Microsoft Cases’, 10 Columbia Business Law Review 346 (2010). 96 For a similar conclusion, see Skyscanner Limited v CMA [2014] CAT 16, where, although the CAT cites approvingly the ECJ’s view that commitments are offered ‘voluntarily by the parties’ (para 40), it also noted that ‘[t]his is not an infringement finding and we agree with the CMA that this is more in the nature of a regulatory decision subject only to the normal control of judicial review’ (para 160, emphasis added). Although the CAT does not seem to note the distinction between the models of regulation and structural adjudication, the implications of this re-characterisation of commitment decisions with regard to participatory rights for third parties are obvious. 97 VISA MIF, above n 86.

132 Ioannis Lianos be concerned by the outcome of the case (eg consumer a ssociations)’ and by ‘informing in writing the complainant, inviting it to submit comments’.98 Yet, despite these efforts to enhance participation in order to address the legitimacy concerns raised by the extensive use of the commitment procedure, the Commission enjoys a significant degree of unfettered discretion in comparison to the one it can exercise when adopting an infringement decision. First, the Commission enjoys a wide discretion to make the commitments binding or to reject them, without that choice being framed by self-restraining guidelines, as is the case in some Member States.99 Second, there is no specific time-frame for accepting commitment decisions, which may also be agreed upon even after the statement of objections has been sent to the parties,100 whereas some national competition authorities explicitly limit the exercise of

98 DG Competition, ‘Best Practices on the Conduct of Proceedings Concerning rticles 101 and 102 TFEU’, http://ec.europa.eu/competition/consultations/2010_best_ A practices/best_practice_articles.pdf, para 116. 99 In comparison, Article 31D(1) of the UK Competition Act 1998 requires the publication of guidelines as to the circumstances in which it may be appropriate to accept commitments and provides that the Competition Authority ‘must have regard to the guidance for the time being in force’. More detailed guidance is provided in Part 4 and Annex A of the OFT’s Enforcement Guidance, still valid for the purposes of the Competition and Markets Authority (CMA), which, inter alia, notes that the ‘OFT will not accept binding commitments in circumstances where compliance with and the effectiveness of any binding commitments would be difficult to discern and/or where the OFT considers that not to complete its investigation and make a decision would undermine deterrence’. The Guidance of the CMA on its investigation procedures also provides that ‘10.15. [t]he CMA is likely to consider it appropriate to accept commitments only in cases where the competition concerns are readily identifiable, will be fully addressed by the commitments offered, and the proposed commitments can be implemented effectively and, if necessary, within a short period of time’. Further, ‘10.17. [t]he CMA is very unlikely to accept commitments in cases involving secret cartels between competitors or a serious abuse of a dominant position’. The concept of ‘serious abuse of a dominant position’ is further explained by the OFT’s Enforcement Guidance, where it is mentioned that ‘[w]hen making its assessment, the OFT will consider a number of factors, including the nature of the product, the structure of the market, the market share(s) of the undertaking(s) involved, entry conditions and the effect on competitors and third parties. The damage caused to consumers whether directly or indirectly will also be an important consideration’, this assessment being made on a case by case basis, ‘taking into account all the circumstances of a case’. Notwithstanding this individual assessment the OFT Enforcement Guidance recognises that, ‘[a]s a general rule, the OFT will regard predatory pricing as a serious abuse’. Furthermore, the UK Competition Appeal Tribunal (CAT) has set some broad standards governing the exercise of the discretion of the UK competition authorities to discuss binding commitments, requesting the consideration of the broader interests of deterrence and transparency, but also of those of third parties or consumers, commitments being explicitly excluded ‘in serious cases of infringement or where deterrence would be undermined’: Wanadoo UK Plc v Office of Communications, [2004] CAT 20, paras 128–129. Similar Notices have been published, for instance, by the French Competition Authority. See Notice on Competition Commitments, 2 March 2009, http://www.autoritedelaconcurrence.fr/doc/cpro_enga_2mars09_uk.pdf. 100 European Commission, Notice on best practices for the conduct of proceedings concerning Articles 101 and 102 TFEU [2011] OJ C308/6, para 109.

The Principle of Effectiveness 133 that discretion by imposing a specific time frame.101 Third, other interested parties and the complainant are not offered adequate opportunities to participate in the procedure and represent their own arguments and evidence on the anticompetitive conduct in question. Certainly, according to Article 27(4) of Regulation 1/2003, interested third parties may submit observations after the Commission has published a summary of the case, as well as the main content of the commitments or of the proposed course of action, in the Official Journal and the full text of the commitments has been published on the DG Competition website, within a time limit fixed by the Commission, which may not be less than one month from the date of publication. However, the interested parties do not have access to the full evidence collected by the Commission, in particular its preliminary assessment, which may affect their ability to form a more accurate view of the anticompetitive conduct in question and its impact on their interests.102 Fourth, interested third parties have limited access to the courts in order to challenge commitment decisions. Third parties constitute ‘non-privileged applicants’ and must satisfy the quite strict criteria of Article 263 TFEU. In particular they must demonstrate that they are individually concerned by the decision they challenge.103 It remains to be seen if these restrictive standing requirements will impede interested third parties from challenging in front of the ECJ commitment decisions that

101 For instance, in France, commitments may not be given once the statement of objections is issued. See Notice on Competition Commitments, above n 99 in fine, para 13. Compare with the CMA Guidance on its investigative procedures (2014), which provides that ‘10.18. (a) business under investigation can offer commitments at any time during the course of that investigation, until a decision on infringement is made’, although it is also made clear that the CMA is ‘unlikely to accept commitments at a very late stage in the investigation, in particular after the CMA has considered representations on the Statement of Objections’. 102 Furthermore, EU law establishes a distinction between the right of access to the public file conferred to the defendants or undertakings concerned (in the context of Article 9 commitment decisions), interested third parties involved in the proceedings (such as complainants and intervening parties) and third parties that are not involved in the competition authorities’ proceedings. The distinction between these three categories is deemed to be of particular importance. For instance, in Alrosa, the ECJ noted that even though Alrosa was previously a defendant in proceedings opened against it and De Beers under Article 101 TFEU, the company was only an interested third party as far as the Commission’s commitment decision in the investigation against De Beers under Article 102 TFEU was concerned. Consequently, it did not enjoy the same right of access as De Beers to the public enforcement file. See Alrosa, above n 70, paras 88–95. 103 With regard to the condition of individual concern, the relevant test (established in Case 25-62 Plaumann & Co v Commission [1963] ECR 95) is satisfied only if the challenged act affects them ‘by reason of certain attributes which are peculiar to them or by reason of circumstances in which they are differentiated from all other persons, and by virtue of these factors distinguishes them individually just as in the case of the person addressed’. For a more recent case supporting this restrictive interpretation of that condition, see Case C-583/11 P Inuit Tapiriit Kanatami and others v Parliament and Council, EU:C:2013:625.

134 Ioannis Lianos affect their own interests.104 Furthermore, as I have noted previously, in Alrosa the ECJ distinguished the proportionality ground of review for Article 9 of Regulation 1/2003 commitment decisions from that applying to Article 7 infringement decisions, thus transforming it into some form of reinforced control of the rationality (means–end test) of the remedy, even if the ECJ still keeps the proportionality label. The third step of the proportionality test, the assessment of the existence of a least restrictive alternative, which may usually exercise an important constraining effect upon the discretion of the Commission, finds itself significantly emptied of its content. Judicial scrutiny thus cannot constitute an effective check and balance mechanism of the remedial action of the Commission in the context of commitment decisions. Finally, the Commission is not formally obliged to take into account the views presented by third parties, but simply to acknowledge them without explaining the weight it did or did not apply to them in its final decision to accept the commitments ‘offered’ by the parties.105 The absence of extensive participatory rights for interested third parties in the context of commitment decisions, despite the polycentric nature of the disputes frequently addressed by them, constitutes one of the major weaknesses of that procedure. In view of the increasingly important role commitments play in the conduct of competition law enforcement by the Commission, expanding the participation of interested parties (including the complainant) is becoming an important area for procedural reform. As recognised in the ECN Recommendation on Commitment Procedures of 9 December 2013, ‘the views of other players in the market on the proposed commitments can play an important part in assessing their adequacy to meet the competition concerns and to allow such third parties the opportunity to submit their observations’.106 The courts may also play an important role in reminding competition authorities of the need to reinforce the position of third parties (and the complainant) in the commitment decisions procedure. For instance, in some of its judgments, the UK Competition Appeal Tribunal (CAT) has emphasised the need to provide the complainant with a fair and ‘structured’

104 Such litigation is emerging in the Member States. See, for instance, the appeal brought by Skyscanner against the decision of the OFT to accept binding commitments from online travel agencies (OTAs) such as Booking.com, Expedia and the Intercontinental Hotel Group. Skyscanner, one of the OTAs not subject to the OFT’s commitments, argued that the OFT acted ultra vires, given its powers under Section 31A of the Competition Act 1998, and that Skyscanner should not be subject to commitments to which it had not agreed but which impacted its business. See Skyscanner, above n 96. 105 For an interesting discussion of the nature of the obligation of the competition authorities to engage with the comments presented during the consultation period by the consulted third parties, see Skyscanner, above n 96, and discussed below. 106 http://ec.europa.eu/competition/ecn/ecn_recommendation_commitments_09122013_ en.pdf para 15.

The Principle of Effectiveness 135 opportunity to comment until informal commitments (‘undertakings’ in UK competition law jargon) have been accepted, the CAT noting that, although the commitment procedure does not envisage ‘an adversarial system’, ‘this does not preclude the need to afford the complainant an opportunity to defend its interests during the administrative proceedings’ and the need to ensure that he be ‘given an opportunity to be heard before the OFT closes its file’ and/or accepts the undertakings proposed.107 The judgment of the UK Competition Appeal Tribunal in Skyscanner v CMA may provide some food for thought.108 In this case, an appeal was brought by Skyscanner against a decision of the OFT (now replaced by the Competition and Markets Authority, or CMA), in which the OFT accepted commitments from some online travel agents and hotel groups. Skyscanner was a third party operating a price comparison website, also known as a metasearch site, assisting customers to compare pricing between various OTAs and hotels, with whom Skyscanner contracted for the inclusion of their offerings in its metasearch results. The main competition concern the commitments accepted by the OFT attempted to address concerned the restriction imposed on arrangements between the specific OTAs and the hotel groups to restrict each OTA’s ability to discount the rate at which room-only hotel accommodation bookings were offered to customers (so-called ‘price agreements’). The OFT also expressed concerns with regard to some most favoured nation clauses that ensured that the retail rates for hotel room bookings provided by hotels to OTAs were no less favourable than the lowest retail rate displayed by other distribution outlets (so-called ‘rate parity obligations’), which the OFT found were capable of reinforcing the restriction of competition resulting from the discounting restrictions, although it did not consider whether they could on their own be considered as a restriction of competition. The OFT accepted commitments proposed by the parties, who agreed to remove the complete prohibition on discounting room-only rates and to replace these by limited discounting to ‘closed groups’ of consumers—basically a membership group which consumers could actively choose to join, up to the level of the commission or margin of OTAs. Although, according to the commitments, the OTAs could not publicise information about the specific level or extent of discounts outside the ‘closed group’, they could publicise information regarding the availability of discounts on their own websites or on

107 Pernod Picard/Campbell Distillers [2004] CAT 10, paras 241–243 (emphasis in original). See also Wanadoo UK, above n 99, para 132, noting that, ‘in the course of any negotiations about binding commitments, the regulatory authority should bear in mind, among other appropriate matters, the position of the complainant. The weight to be given to a complainant’s interests may well vary from case to case … This may particularly be so where the complainant has a detailed knowledge of the market and/or may be closely affected by the outcome.’ 108 Skyscanner, above n 96.

136 Ioannis Lianos price-comparison and metasearch websites. Skyscanner alleged that the OFT failed to take into account properly or not at all its representations during the consultation (‘market-testing’) process on the impact that these commitments had on the metasearch sector in which Skyscanner was active. Skyscanner expressed concern that the commitments only focused on intra-brand competition by allowing OTAs to offer discounts, but that allowing hotels to prevent OTAs from publicising specific information about discounts to consumers outside the OTAs’ closed group, and hence on metasearch websites, had a negative effect on inter-brand competition (and price transparency for consumers), as consumers would be unable to use metasearch sites in order to compare the actual room prices and discounts offered by different hotels, the only information these metasearch websites would be able to provide being that discounts are available, but not the exact level of discounts. Of particular interest for our discussion is the allegation that the OFT violated its statutory duty to consult and to consider representations made in response to its consultation notice. Despite the fact that the OFT had acknowledged the concerns expressed by Skyscanner and had even met with Skyscanner representatives to discuss those concerns, and despite the fact that Skyscanner was a ‘third party respondent to the consultation’ and not a complainant in the OFT’s original investigation, the CAT found that the consultation process was ‘defective’ as it had ‘failed conscientiously to address the objections raised’ by Skyscanner and two other respondents to the consultation, which concerned the possible effect of the proposed commitments on price transparency and metasearch websites.109 The CAT noted that the fact that Skyscanner was a third party, and not a complainant, should not affect ‘the significance the OFT would attach to a material point raised by a respondent’,110 and that the demands made by the OFT to Skyscanner for further evidence as to the impact of the proposed commitments on the metasearch website sector or price transparency ‘was not acceptable’.111 The CAT noted that the fact that the OFT was pursuing its investigation on the basis that it had identified a restriction ‘by object’ may have deprived it ‘of the ability properly to appreciate the significance of the role of operators such as Skyscanner’, but this did not excuse the OFT from not investigating ‘a plausible point further’ before taking a decision, and, in any case, the OFT should not have insisted on more evidence or supporting material from Skyscanner itself on this point.112 This finding was accompanied by some derogatory remarks of the CAT, raising the possibility that ‘the OFT found

Ibid, para 74. Ibid, para 71. 111 Ibid, paras 86–93, especially para 92. 112 Ibid, paras 93 and 100. 109 110

The Principle of Effectiveness 137 the S kyscanner objection inconvenient because it threated to upset a carefully constructed edifice that the OFT believed’.113 Consequently, the CAT upheld Skyscanner’s appeal on this ground.114 The Skyscanner judgment, with the emphasis put by the CAT on the consultation process and the need to actively engage with the representations made by third parties, illustrate the polycentric nature of commitment decisions. This specific nature calls for the consideration of the views (and interests) of all those affected by the decision, beyond the parties to the dispute.115 One cannot, therefore, apply the same principles as in the adjudicatory model. While conceptually distinct from the model of administrative management/ regulation, the ‘structural model’ of adjudication offers a more appropriate description of the hybrid nature of commitment decisions than the model of contractual governance. This has implications for the role and conceptualisation of the consultation process, or of the intervention of the judiciary, among other issues, in order to guarantee the legitimacy of the decisionmaking process.

5. Conclusions Left unbounded, the principle of effectiveness may offer the opportunity for competition authorities to expand their remedial discretion and re-design market processes and outcomes in accordance with the dominant interpretation of their statutory objectives. This may appear to be a sound sacrifice of legal form in favour of ‘future-oriented’ remedies that ‘lay down rules about how markets should behave in the future’.116 The point made in this chapter is that, whatever one thinks of the appropriateness of an expansive view of remedial discretion, which in my view is not supported by the restrictive interpretation of the principle of effectiveness in EU law, remedial discretion is naturally limited by the specific function exercised by the remedial process

Ibid, para 97. The CAT also noted that, ‘if a consultation response raises an important and obvious point of principle, it is for the authority to examine it further. This is particularly so where the authority has not carried out an analysis of the economic effects of the practices which it proposes to address with its commitments decision and where that decision itself may generate its own economic effects within the market’ (ibid, para 90). 115 However, requirements of participation for third parties in commitment procedures should not be as expansive as requirements of participation in merger regimes involving ‘public interest’ considerations such as, for example, the South African regime. There is a difference of degree in polycentricity between ‘competition’ concerns and ‘public interest’ considerations. 116 Daniel Crane, ‘Optimizing Private Antitrust Enforcement’, 62 Vanderbilt Law Review 675, 708, 721 (2010) (discussing the need for private enforcement to be forward looking, insisting on the need to ensure an ‘effective’ enforcement). 113 114

138 Ioannis Lianos chosen or, more contentiously, imposed by the nature of the dispute. Drawing on Fuller’s account of the existence of various forms of social ordering, each of them emerging in specific circumstances/contexts and having their own principles and limitations, I offered some reflections on the possible limits that the essence of each ideal type of social ordering sets on the expansive interpretative potential of the principle of remedial effectiveness. For instance, the limits of adjudication are of a different sort than those of contracts/negotiation or managerial/regulatory discretion. For each of these ideal types, legitimacy concerns operate differently and generate dissimilar demands on process or substantive rules bounding discretion. The polycentric nature of competition law disputes calls for flexibility in the choice of the adequate form of social ordering aiming to achieve the objectives set by the legislator. Its specificity also breaks with the classic view of the adjudication model and hints at the prevalence, in a significant number of cases with a pronounced polycentric element, of what has been called the ‘structural adjudication’ model, still distinct from the model of regulatory governance. I discussed the nature of commitment decisions as an illustration of the difficulties of classification without a proper consideration of the functions and respective limits of each form of social ordering. Commitment decisions have erroneously been characterised as closer to forms of contractual governance or, taking a starkly different perspective, to regulation. In reality, these characterisation disputes offer little, and may be as confusing and unpurposeful as discussions over the gender of angels, if one does not develop an overall theory with regard to the meaning of each category and the practical implications of such categorisation. This study aimed to sketch such a theory by insisting on the need to keep an eye on the specific limitations of remedial discretion, of a procedural or substantive nature, that have emerged in each form of social ordering with the aim of guaranteeing the legitimacy of decision-making. It is not impossible for a competition authority to make the choice of one or the other form of social ordering, should it enjoy the power to make such a choice, if this advances its purpose. Yet the authority should also adopt the mechanisms that were put in place in order to respond to the calls for the legitimacy of decision-making in the context of the specific type of social ordering. New tools, such as commitment decisions, which do not fit into the existing categories, may require the development of new mechanisms or a different conceptualisation of existing mechanisms in order to ensure the legitimacy of decision-making. This creative process is presently ongoing in EU competition law.

Damien MB Gerard * Negotiated Remedies in the Modernisation Era: The Limits of Effectiveness

The entry into force of Regulation 1/2003, which marked the formal roll-out of a multi-faceted process known as ‘modernisation’, has given rise to a tension between effectiveness and legitimacy in the enforcement of EU competition law which has not yet been solved. Inasmuch as it revamped the procedures governing the enforcement of antitrust law in the European Union, Regulation 1/2003 is largely driven by effectiveness considerations. Notably, in pursuance of ‘the objective of enhancing administrative efficiency and effectiveness in dealing with competition concerns’,1 Regulation 1/2003 introduced a new form of proceedings whereby the Commission can close cases by making commitments binding on the ‘undertakings concerned’2 without reaching a finding of infringement. As such, commitment decisions constitute the closest EU equivalent to the consent decrees heavily relied upon to resolve civil antitrust complaints in the United States.3 Whereas commitment decisions were originally perceived as a peripheral tool that the C ommission would use on ‘unusual and rare’ occasions,4 they quickly developed into the

* University of Louvain (UCL, Belgium). Comments welcome at Damien.Gerard@ uclouvain.be. 1 Report on the functioning of Regulation 1/2003 (COM/2009/0206 final), paras 13 and 18 (note that ‘administrative [or procedural] efficiency’ and ‘effectiveness’ are often used as synonymous in policy documents, and so they are in this contribution). 2 Article 9 of Regulation 1/2003 on the implementation of the rules on competition laid down in Articles [101] and [102] of the Treaty [2003] OJ L1/1: ‘Where the Commission intends to adopt a decision requiring that an infringement be brought to an end and the undertakings concerned offer commitments to meet the concerns expressed to them by the Commission in its preliminary assessment, the Commission may by decision make those commitments binding on the undertakings.’ 3 Article 9 of Regulation 1/2003 was even directly ‘inspired by “consent decrees” in the Americal system’: Alexander Schaub, ‘The Commission’s Position within the Network’, in Claus-Dieter Ehlermann and Isabela Atanasiu, eds, European Competition Law Annual 2002: Constructing the EU Network of Competition Authorities, Hart Publishing, 2005, 237 et seq, 240. US consent decrees typically provide that they do ‘not constitute any admission by any party regarding any issue of fact or law’. See, eg United States v Microsoft, No. 98 Civ 1232 (CKK), 2002 (DDC 12 November 2002). 4 John Temple Lang, ‘Commitment Decisions and Settlements with Antitrust Authorities and Private Parties under European Antitrust Law’, in Barry Hawk, ed, International Antitrust Law and Policy: Fordham Corporate Law Institute, Juris Publishing, 2005, chapter 13, 270.

140 Damien MB Gerard enforcement mechanism of choice in the modernisation era, outside of the field of hard-core cartels.5 Hence, commitments have come to embody the advent of a ‘negotiated’ form of enforcement and of associated transformations in the EU antitrust enforcement system. These transformations, which have profoundly modified the respective incentives of enforcement authorities and firms, were not immediately perceived, let alone anticipated. Yet the revelation of these consequences gave rise to situations of acute cognitive dissonance, as is apparent from the infamous Alrosa case,6 and to serious legitimacy concerns. By growing in prominence, commitments have caused the focus of enforcement proceedings to shift towards the negotiation of ‘effective’ remedies to address concerns expressed succinctly by the Commission in what is known as a ‘preliminary assessment’.7 As such, commitments have embodied a shift in the focus of EU antitrust enforcement from the wrong to the remedy.8 Starting from that observation, this chapter questions whether effectiveness is the proper benchmark to govern the design of remedies in the EU ‘negotiated’ enforcement framework. To that end, after mapping the central position taken by negotiated remedies in the modernisation era (Section 1), it attempts to identify some of the limits of effectiveness and endeavours to set forth concrete policy proposals to address these limits (Section 2). Generally, it aims to explore persisting tensions in the ‘modern’ EU antitrust enforcement framework between negotiated procedures, effectiveness, due process and legitimacy.

1. Negotiated remedies in the modernisation era Over the past 10 years, the nature, scope and design of remedies have grown in importance in the enforcement of competition law in the European Union. That evolution can be viewed as one of the many consequences of a process known as the modernisation of EU competition law. Modernisation

5 Indeed, Recital 13 of Regulation 1/2003 provides that: ‘[c]ommitment decisions are not appropriate in cases where the Commission intends to impose a fine’, which would typically be the case for hard-core cartels. In that sense, see also the ECN Recommendation on Commitment Procedures, 9 December 2013. 6 Decision of the Commission of 22 February 2006 in Case COMP/38.381—De Beers; Case T-170/06 Alrosa Company Ltd v Commission [2007] ECR II-2601; Case C-441/07 P Commission v Alrosa Company Ltd [2010] ECR I-5949. 7 Article 9(1) of Regulation 1/2003. 8 A similar shift has been associated in the US, since the mid-1990s, with the growing reliance on consent decrees by enforcement authorities and the increased sophistication of e conomic tools. See, eg A Douglas Melamed, ‘Antitrust: The New Regulation’, 10 Antitrust 13, 15 (Fall 1995).

Negotiated Remedies in the Modernisation Era 141 consists in a comprehensive attempt to experiment with a utility-maximising approach in the regulation of economic competition. This is apparent in its three intrinsically interrelated dimensions. ‘Substantive modernisation’ entailed a shift in the substantive rationality of EU competition law from the static protection of the freedom to trade of competitors to the dynamic promotion of a competitive process conducive to efficiency gains, contributing, as a result, to the welfare of consumers. That evolution is often presented as a move from a form-based to an effects-based approach in EU competition law enforcement, ie to greater attention being paid to case-specific contexts apprehended by means of increasingly sophisticated economic tools.9 In parallel, ‘institutional modernisation’ entailed a move towards a form of network antitrust enforcement in the European Union by means of the so-called ‘decentralisation’ process that allowed for the full applicability of EU competition law by national competition authorities (NCAs) involved with the Commission in enforcement coordination and policy design within the E uropean Competition Network (ECN).10 The third related dimension is that of ‘procedural modernisation’.

1.1 Procedural modernisation and the rise of negotiated procedures In addition to the transition from a prior notification to an exception s ystem for the review of coordinated practices, ‘procedural modernisation’ was marked by the emergence of and increasing reliance on negotiated procedures in the enforcement of EU competition law, ie leniency, settlement and commitments proceedings, against the background of a significant increase in the amount of fines. While the three dimensions of the modernisation process have contributed to a transformation of the inner rationality of EU competition law enforcement, procedural modernisation itself has profoundly

9 Several sources discuss the process of ‘substantive modernisation’. In relation to unilateral practices, see, eg Giorgio Monti, ‘Article 82 EC: What Future for the EffectsBased Approach?’, 1 Journal of European Competition Law & Practice 2 (2010); Nicolas Petit, ‘From Formalism to Effects?—The Commission’s Guidance on Article 82 EC’, 32 World Competition 485 (2009). In relation to coordinated practices, see, eg Alison Jones, ‘The Journey toward an Effects-based Approach under Article 101 TFEU—the Case of Hardcore Constraints’, 55 Antitrust Bulletin 783 (2010); Damien MB Gerard, ‘The EffectsBased Approach under Article 101 TFEU and its Paradoxes: Modernisation at War with Itself ?’, in Jacques Bourgeois and Denis Waelbroeck, eds, Ten Years of Effects-Based Approach in EU Competition Law—State of Play and Perspective, Bruylant, 2013, 18 et seq. 10 See, eg Firat Cengiz, ‘Multi-level Governance in Competition Policy: the European Competition Network’, 35 European Law Review 660 (2010); Damien MB Gerard, ‘Public Enforcement: The ECN—Network Antitrust Enforcement in the European Union’, in Ioannis Lianos and Damien Geradin, eds, Handbook on European Competition Law— Enforcement and Procedure, Edward Elgar, 2013, chapter 3.

142 Damien MB Gerard odified the respective incentives of enforcement authorities and firms in m resolving antitrust issues. Hence, procedural modernisation raises important systemic issues, including as to the design of the procedural safeguards guaranteeing the legitimate exercise of public authority in the enforcement of EU antitrust rules. As noted, a prominent feature of procedural modernisation has been the formalisation by Regulation 1/2003 of the possibility of closing cases by means of commitments made binding by the Commission. In practice, when adopting a commitment decision, the Commission ‘conclude[s] that there are no longer grounds for action’,11 ie it closes the case without reaching a formal finding of dominance or infringement. Though the Commission did resolve cases by means of informal commitments in the past, the possibility of making commitments binding was timidly put forward by the 1999 Modernization White Paper as a ‘useful’ complement to existing enforcement tools.12 A few years later, however, in its first report on the functioning of Regulation 1/2003, the Commission acknowledged that the commitment procedure had in fact ‘added considerable value’ to the enforcement toolbox.13 Moreover, Article 5 of Regulation 1/2003 also empowered NCAs to accept commitments as a means of closing national cases involving the (joint) application of EU competition law; as a result, commitment procedures are now expressly provided for in the legal rules of almost all EU Member States,14 albeit with some procedural variations. The transformations induced by an increased reliance on negotiated procedures are therefore not limited to the EU level but have permeated antitrust enforcement throughout Europe. As further developed below, national enforcement systems have sometimes proven to be better equipped to accommodate and respond to these transformations and, generally, to ensure a sustainable balancing of effectiveness and legitimacy considerations.

1.1.1 Modernisation and the shift in enforcement rationality The three dimensions of the modernisation process have altered the inner rationality of EU competition law enforcement, which is to say they have altered its objectives and means of action. Interestingly, that phenomenon presents striking similarities with the move, associated with the growing reliance on consent decrees in the United States, from a law-enforcement to a regulatory approach in the application of antitrust rules. That novel approach

Article 9(1) of Regulation 1/2003. White Paper on modernisation of the rules implementing Articles 85 and 86 of the EC Treaty—Commission Programme No 99/027, 28 April 1999, para 90. 13 Report on the functioning of Regulation 1/2003, COM/2009/0206 final, para 18. 14 See ECN Recommendation on Commitment Procedures. 11 12

Negotiated Remedies in the Modernisation Era 143 was labelled ‘regulatory’ because of its forward-looking nature, its tendency to work by guidance and its consensual decision-making model.15 In turn, challenges raised by the move towards that regulatory model in the US appear equally similar to those prompted by the EU modernisation process,16 including in terms of legitimacy, even if the defining features of the US enforcement system arguably limit the magnitude of these challenges17 compared to the situation in the Union. The effectiveness paradigm From an enforcement point of view, the entire modernisation process has been driven by effectiveness considerations.18 This is particularly apparent when it comes to procedural modernisation. According to the European Court of Justice, the commitment procedure, in particular, ‘is a new mechanism introduced by Regulation No 1/2003 which is intended to ensure that the competition rules laid down in the EC Treaty are applied effectively’, inasmuch as it enables ‘a more rapid solution to the competition problems identified by the Commission’ and is inspired by ‘considerations of procedural economy’.19 In the procedural modernisation context, however, effectiveness is not a purely functional concept but has a normative ambition, namely to maximise the allocation of enforcement resources with a view to strengthening compliance on the part of economic actors and the societal impact of competition policy at a time when markets are becoming increasingly dynamic. Driven by effectiveness, the enforcement practice of the Commission appears increasingly inspired by cost/benefit considerations in the selection of cases and the conduct of proceedings.20 ‘When the EU competition authority decides

Harry First, ‘Is Antitrust ‘Law’?’, 10 Antitrust 9 (Fall 1995). Ibid, 11. See also Melamed, ‘The New Regulation’, above n 8, 13–14. 17 Relevant features include the much greater importance of private enforcement and the need for public enforcement agencies in many instances to bring infringement actions to court, as well as the judicial approval of DOJ consent decrees. 18 Anecdotally, the terms ‘effective[ly]’ and ‘effectiveness’ appear more than 10 times in the Recitals of Regulation 1/2003. 19 ECJ in Alrosa, above n 6, para 35. 20 On the link between the emergence of a culture of negotiated enforcement and antitrust agencies’ selection of cases, see, eg Douglas Ginsburg and Joshua Wright, ‘Antitrust Settlements: The Culture of Consent’, Concurrences, No 2-2013, Article No 51634, 56 et seq, 59 (‘Another consequence of an agency bringing cases primarily with an eye to settlement is to change the agency’s case selection criteria. In addition and to some extent in lieu of the criteria that would otherwise make a case attractive, such as the benefit to consumers from terminating an anticompetitive business practice, the probability and ease with which the case will settle become part of the mix. That is, instead of pursuing the cases that advance most the agency’s law enforcement mission, it will tend to pursue cases with the best prospect for settlement, cases that will consume few investigative resources, settle quickly, and are more likely to result in a consent decree that provides a continuing role for the agency’). 15 16

144 Damien MB Gerard to pursue an antitrust case’, such considerations determine for example the choice between ‘one of two main paths: a prohibition decision under article 7 of Regulation 1/2003 or a commitment decision under article 9’.21 In such an effectiveness-driven approach, the notion of risk becomes the main driver of the application of the law with, as a c orollary, a substantive alteration of notions of legal certainty and due process. Nowadays, antitrust compliance has very much become a matter of risk management: companies are invited to self-assess their commercial practices and self-comply with general guidance while managing the risk of complaints and proceedings, which, if and when these occur, they strive to contain or settle. Though it may have achieved results inasmuch as most companies today internalise the ‘antitrust risk’ when devising commercial strategies, that new paradigm has upset many, in particular counsel, whose traditional role (providing legal certainty) appears ill-suited to the new effectiveness p aradigm, which calls instead for acute damage control skills. Moreover, it is a widely shared perception that the move towards a negotiated form of antitrust enforcement has led to an increase in the Commission’s discretion to the detriment of due process, notably in the absence of a credible alternative.22 Generally, the focus on effectiveness and the promotion of negotiated procedures has had the effect of putting greater emphasis on sanctions and remedies, and on how they are tailored. In fact, negotiated procedures are largely driven by the nature and scope of remedies, rather than by an attempt to apply the law to the facts. Yet the impact of the effectiveness paradigm goes further: it also governs the design of remedies. As former Director-General Italianer emphasised, ‘the most important “innovation” in our remedies these last years has been a simplification push on our side for both mergers and antitrust, leading to greater effectiveness’.23 By hailing the virtues of ‘simplification’, which include ‘considerations of expediency’,24 DirectorGeneral Italianer seemed to mean that remedies ought to be designed in ways that make them more administrable, thereby maximising both the monitoring resources of the Commission and the social impact of the remedies. However legitimate, these considerations raise the question of the relationship between effectiveness and efficiency in the design of remedies and how to align them— in particular, in negotiated proceedings driven by procedural economy.

21 Joaquín Almunia, ‘Remedies, Commitments and Settlements in Antitrust’, SPEECH/ 13/210, Brussels, 8 March 2013. 22 See, eg Denis Waelbroeck, ‘Le développement en droit européen de la concurrence des solutions négociées (engagements, clémence, non-contestation des faits et transactions): que va-t-il rester aux juges?’, Global Competition Law Center Working Paper 1/08, http:// www.gclc.coleurope.eu. 23 Alexander Italianer, ‘Legal Certainty, Proportionality, Effectiveness: The Commission’s Practice on Remedies’, speech, Brussels, 5 December 2012. 24 Commission Staff Working Paper accompanying the Report on the Functioning of Regulation 1/2003, SEC(2009) 574 final, para 99.

Negotiated Remedies in the Modernisation Era 145 Effectiveness versus efficiency As noted, substantive modernisation has led to the emergence of a new consensus whereby competition law is viewed as a dynamic process conducive to efficiency gains.25 In turn, that process is subject to rules designed to tackle restrictions of competition which distort the incentives to achieve efficient outcomes. As a reflection of that consensus, the modernised approach in the EU entails that those practices which are liable to have an ‘appreciable adverse impact on the parameters of competition on the market, such as price, output, product quality, product variety and innovation’, will be caught by Article 101/102 TFEU.26 To make the efficiency consensus operational, it is submitted, enforcement must transcend effectiveness considerations to pursue welfare maximisation objectives, in particular in the design of remedies. In other words, it is not sufficient for an enforcement authority like the Commission to pursue the maximisation of its own administrative resources; it is bound to maximise the efficiency of the activity that it is regulating, ie competition. That proposition can be captured as a need to move from effective to optimal enforcement, in order to ensure the legitimacy of the Commission’s remedial practice. Hence, a key threshold question is how to reconcile the maximisation of enforcement resources with the promotion of competition law as a tool of welfare maximisation and, as a corollary, how to ensure the optimal character of negotiated remedies. Admittedly, achieving legitimate remedial outcomes involves complex trade-offs which, in the EU administrative enforcement framework, have historically been captured by concepts known as proportionality and due process (understood as ‘fair trial’). However, as further explained below, negotiated procedures, and commitment proceedings in particular, involve a relaxation of the substance of both concepts, thereby creating a legitimacy gap. Indeed, unilaterally favouring effective over optimal enforcement by loosening proportionality and due process requirements carries risks for the substantive legitimacy of the EU competition law enforcement process, and for the acceptance of its outcomes by those to whom it is addressed. The concern is heightened by the fact that negotiated decisions now account for the bulk of EU antitrust enforcement outcomes. In turn, filling that legitimacy gap requires a review of the sequencing of commitment proceedings and associated procedural rights, as well as the (re)development of a credible alternative to those proceedings,

25 That consensus is reflective of a broader-scale agreement (with sometimes important nuances in the way it is implemented) to the effect that ‘consumers benefit from competition through lower prices and better products and services’ and promotes reliance on a ‘sound analytical framework firmly grounded in economic principles’. ICN, ‘A Statement of Achievements’, April 2010, 6–8. 26 See, eg Guidelines on the application of Article 81(3) of the Treaty, [2004] OJ C101/08, para 16.

146 Damien MB Gerard in order to carve out space for fair dialectical exchanges conducive to efficient remedial outcomes and compatible with effectiveness concerns.

1.1.2 The inexorable attractiveness of negotiated procedures The utility-maximising approach driving modernisation (notably insofar as it has led to a dramatic increase in the amount of fines) combined with, first, the typical aversion of firms to uncertainty and, second, a persistently suboptimal judicial review system, have made the temptation to negotiate rather than litigate cases almost irresistible, to the point of becoming the norm in noncartel cases. This section attempts to document and explain the rise in negotiated procedures. Statistical overview At the EU level, commitment decisions were introduced by Regulation 1/2003, which entered into force on 1 May 2004. Whereas commitment decisions were originally relied upon to settle cases that had been ongoing for years prior to the entry into force of Regulation 1/2003, they subsequently emerged as the default antitrust enforcement tool in the modernisation era and are still today ‘becoming increasingly frequent’.27 For illustrative purposes, the following chart summarises the Commission’s antitrust decisional practice over the May 2004–July 2013 period, by type of decision and nature of infringement. 35

31

30 Article 9 decisions

25 16

20 15 7

10

9 4

5 0

6 0

Total

Article 102

Article 101 vertical

3

Infringement decisions

Article 101 horizontal

Figure 1 *excludes collusive practices that are not amenable to Article 9 decisions

27 Alexander Italianer, ‘To Commit or Not to Commit, That is the Question’, speech, Brussels, 11 December 2013.

Negotiated Remedies in the Modernisation Era 147 As is apparent from Figure 1, commitment decisions have outnumbered infringement decisions by a ratio of more than three to one. Moreover, commitment decisions have been adopted predominantly in the field of dominance, but also in relation to coordinated practices, including in horizontal cases.28 In recent years, the trend towards negotiated enforcement has become even more pronounced; between January 2008 and July 2013, only three non-cartel prohibition decisions were adopted,29 compared to 19 commitment decisions. The Commission, therefore, favoured a negotiated outcome in 85 per cent of non-cartel cases in that five-year period.30 Since the entry into force of Regulation 1/2003, a large number of EU Member States have replicated Article 9 (with some variations) in their domestic competition law enforcement system.31 While ECN statistics do not track the number of commitment decisions adopted at national level, selected national statistics reveal that the NCAs of large Member States have built a strong record of commitment decisions over the past few years,32 though the situation is not comparable to that at the EU level, especially when it comes to the proportion of commitment versus infringement decisions. Whereas the NCAs’ statistics do not often isolate cartel cases from other cases, Figure 2 suggests that NCAs continue to resort primarily—or at least equally—to infringement decisions to resolve antitrust cases, which is a key difference with the situation prevailing at the EU level, even if cartel cases are also accounted for.33 One may speculate at length about the possible reasons 28 Interestingly, in all but one of these horizontal cases, an ‘object restriction’ was alleged. This reflects the Commission’s willingness to test the limits of the scope of Article 9, which, as noted, ‘is not appropriate in cases where the Commission intends to impose a fine’. Recital 13 of Regulation 1/2003. 29 Commission Decision of 13 May 2009 in Case COMP/37.990—Intel; Commission Decision of 22 June 2011 in Case COMP/39.525—Telekomunikacja Polska; Commission Decision of 23 January 2013 in Case AT.39839—Telefónica/Portugal Telecom. 30 As a comparison, it is estimated that ‘over 60 per cent of antitrust disputes are resolved … by means of consent decrees’. Richard Epstein, Antitrust Consent Decrees in Theory and Practice, AEI Press, 2007, 1. Compare with the figure of ‘roughly 70%’ provided in 1995 by Michael Weiner, ‘Antitrust and the Rise of the Regulatory Consent Decree’, 10 Antitrust 4 (Fall 1995). 31 The practice existed in Spain prior to the entry into force of Regulation 1/2003. Some Member States also derived the power to make commitments binding directly from the direct applicability of Article 5 of Regulation 1/2003 empowering NCAs to apply Articles 101 and 102 TFEU in individual cases, including by ‘accepting commitments’. See the position taken by the Belgian NCA in Decision 2006-I/O-12 of 31 August 2006 in Case CONC-I/ O-00/0049, Banksys SA, 10. 32 The 2012 Annual Report of the Polish NCA also reports (at page 11) the adoption of 38 commitment decisions out of a total of 86, including only eight decisions pertaining to horizontal agreements (none of which was a commitment decision). With respect to smaller Member States, the situation appears to vary significantly from one NCA to another. For example, the Danish NCA appears to have adopted five commitment decisions in 2013 alone (compared to four infringement decisions), whereas the Belgian NCA has only adopted two commitment decisions since 2004. 33 In December 2013, Director-General Italianer indicated that, ‘[s]ince May 2004, the Commission has adopted thirty-two commitment decisions under Article 9 and seventeen

148 Damien MB Gerard 2007

2008

2009

2010

2011

2012

GERMANY Infringements

13

10

6

5

Commitments

7

19

3

5

FRANCE Infringements

24

15

15*

11*

6*

10*

Commitments

8

7

3

6

5

5

Infringements

11

5

6*

6*

9*

9*

Commitments

9

11

9

13

5

3

Infringements

12

19

16*

14*

33*

34*

Commitments

0

3

4

11

2

5

*

*

ITALY *

*

SPAIN *

*

Figure 2: Antitrust Enforcement Statistics of Selected NCAs (2007–2012) *

includes collusive practices not amenable to commitment decisions

for this difference in the ratio of commitment decisions at national compared to EU level. It is submitted that, among them, the design of the competition law enforcement framework and its impact on the sequencing of proceedings, the associated exposure to and magnitude of fines, and the strength of the judicial review system can all influence the incentive of firms to favour negotiation over litigation.34 Explaining the success of the commitment procedure As noted, explanations for the success of commitment decisions, particularly at the EU level, can be manifold. This section inquires successively into the role played by two types of factors: (i) the benefits directly associated with engaging in commitment procedures; and (ii) the growing financial exposure and risks associated with infringement decisions. It is submitted that, taken together, these factors go a long way to explaining the incentive of firms to forgo litigious strategies and favour negotiated solutions, in spite of the uncertainties and pitfalls that such negotiations entail. prohibition decisions under Article 7’. Italianer, ‘To Commit or Not to Commit’, above n 27. Thus, even including cartel cases, the ratio between committment and infringement decisions remains close to two to one at the EU level. 34 Empirical testing of that claim falls beyond the scope of this contribution, but is part of a broader research project conducted by the author on the occasion of the 10th anniversary of the entry into force of Regulation 1/2003.

Negotiated Remedies in the Modernisation Era 149 Engaging in commitment proceedings carries many benefits, both for enforcers and for firms. Judging by the success of commitment decisions, these benefits appear to outweigh by far the costs associated with such proceedings, at least at the EU level, whether in terms of wealth transfer or repressive utility. Former Director-General Italianer cited ‘procedural efficiencies’, ‘quick market impact’, ‘swift resolution of concerns’ and the involvement of ‘fewer resources’ as the main benefits of commitment proceedings from the Commission’s perspective.35 As noted, gains in terms of effectiveness constitute a powerful driver of enforcers’ preference: even if the monitoring of commitments can prove demanding,36 procedural economies can be significant in terms of human capital and duration of proceedings,37 as illustrated in Figure 3.38 31

35 30 21

25 20

14

15 10 5 0

Commitment proceedings

6

5

6 0

< 1 year

Infringement proceedings

0 1 to 2 years

2 to 4 years

> 4 years

Figure 3: Duration of Proceedings: Commitment vs Infringement

The reduced formalities of commitment proceedings also allow enforcement authorities to secure the effectiveness of their intervention in highly dynamic markets on the basis of a ‘preliminary assessment’ and with the comfort of being entitled to reopen formal proceedings in case of ‘material change’ in the market context in question.39 Conversely, free from the constraint of

Italianer, ‘To Commit or Not to Commit’, above n 27. Monitoring the commitments made binding in the Repsol case, for example, required the detailed review of a large number of contracts between Repsol and individual gas stations, notably to determine the conditions according to which the termination of such contracts was to take place. See Commission Decision of 12 April 2006 in Case COMP/38.348—REPSOL CPP SA—Distribution de Carburants et Combustibles. 37 In the US, widespread reliance on consent decrees was also associated with a willingness to ‘economize on enforcement and compliance resources’, as well as on litigation costs. See Melamed, ‘The New Regulation’, above n 8, 13. 38 Commitment proceedings that lasted more than four years relate to cases started under Regulation 17/62 and then concluded by means of commitments under Regulation 1/2003. 39 Articles 9(1) and 9(2) of Regulation 1/2003. 35 36

150 Damien MB Gerard e stablishing an infringement and, beforehand, of developing formal objections, enforcers can limit the articulation of their theory of harm and rely on a narrower set of evidence. Relaxed proportionality requirements also allow them to experiment with ‘innovative’ theories and remedies, including of a structural nature.40 The increased flexibility in the design of negotiated remedies has also enabled the Commission to pursue regulatory objectives under the shadow of commitments ‘proposed’ by private parties.41 Finally, by resolving cases through the use of commitments, enforcers de facto shield their decisions from judicial review. Thus, as has been pointed out, appeals brought against Article 9 decisions have in practice been quite rare.42 In the speech mentioned above, Italianer also contended that ‘[f]or companies under investigation, the decision whether to commit or not to commit seems easy’ in view of the possibilities to ‘avoid paying fines’, ‘escape entanglement in long drawn out legal procedures’, ‘limit the reputational damage that goes with the finding of an infringement’ and, more positively, ‘offer tailor made solutions to competition concerns’.43 These benefits are, indeed, very appealing: escaping a finding of infringement means avoiding a fine, adverse publicity and possible follow-on damages actions,44 but also increased scrutiny in the future and, as the case might be, a label of dominance. The ability to better control the solution of the case is also real, but should not

40 According to Article 7 of Regulation 1/2003 and Recital 12: ‘structural remedies can only be imposed either where there is no equally effective behavioural remedy or where any equally effective behavioural remedy would be more burdensome for the undertaking concerned than the structural remedy’. To date, structural remedies have not been imposed pursuant to Article 7, whereas they have been imposed in a number of commitment decisions. See Commission Decision of 26 November 2008 in Cases COMP/39.388 and 39.389—German Electricity Balancing Market and German Electricity Wholesale Market [2009] OJ C36/8; Commission Decision of 18 March 2009 in Case COMP/39.402—RWE Gas Foreclosure [2009] OJ C133/10; Commission Decision of 29 September 2010 in Case COMP/39.315—ENI [2010] OJ C352/8; and Commission Decision of 10 April 2013 in Case AT.39727—CEZ [2013] OJ C251/4. The German Electricity and RWE Gas Foreclosure decisions were considered by the Commission to be ‘unprecedented’ insofar as they were ‘expected to open two separate markets to competition’. Commission Staff Working Paper accompanying the Report on the Functioning of Regulation 1/2003 SEC(2009) 574 final, para 64. 41 Indeed, various commitments entered into by major actors of the energy sector went beyond what energy regulators could achieve by means of the tools available under the applicable EU energy framework. For commentary, see, eg Suzanne Rab, Daphne Monnoyeur and Anjali Sukhtankar, ‘Commitments in EU Competition Cases—Article 9 of Regulation 1/2003, its Application and the Challenges Ahead’, 1 Journal of European Competition Law & Practice 178 (2010). 42 Italianer, ‘To Commit or Not to Commit’, above n 27; ECN Recommendation on Commitment Procedures, para 24. 43 Ibid. 44 This is acknowledged by the Commission in its Manual of Procedure (2012), http:// ec.europa.eu/competition/antitrust/antitrust_manproc_3_2012_en.pdf. See chapter 16, para 12.

Negotiated Remedies in the Modernisation Era 151 be overstated, given the many other contingencies involved in the process which also affect the alleged voluntary character of commitments.45 In terms of legal certainty, a more direct benefit lies with the de facto validity of commitments across the EU.46 Generally, though, the decisive factor driving the incentive of firms to seek negotiated solutions lies in the growing financial exposure and risks associated with infringement proceedings and, as a result, the perception of a lack of alternative in order to achieve a satisfactory outcome, independently of the strengths and weaknesses of the case at hand. The increase in the amount of fines observable at the EU level since the publication of the Commission’s first fining guidelines in 1998 is a welldocumentedphenomenon, illustrated in Figure 4.47 At the time, and ever since, the underlying rationale was ‘to set the fine at a level which ensures that it has a sufficiently deterrent effect’.48 Though it has rarely reached the statutory 10 per cent worldwide turnover ceiling provided for by Regulation 1/2003,49 the Commission has continuously increased the amount of fines over the past decade to the point of exceeding the one-billion-euro threshold on three occasions since 2009.50

45 Consider in this regard the saga surrounding the Google case, in which Google’s second commitment proposal was again deemed ‘not acceptable’ by the Commission in D ecember 2013. See Frances Robinson, ‘EU’s Almunia: Google’s Antitrust Proposals Are “Not Acceptable”’, Wall Street Journal (Europe edition), 20 December 2013. 46 As the Commission indicated, it usually ‘strives in commitment cases to address the competition concerns in such a way that parallel enforcement action by the national competition authorities within the territorial coverage of the Commission decision should in principle not be needed’. Commission Staff Working Paper accompanying the Report on the Functioning of Regulation 1/2003 SEC(2009) 574 final, para 106. See, however, the decision of the Spanish NCA finding a breach of the commitments made binding in Repsol (above n 36), which was a central element supporting the judgment of the General Court in Case T-342/11 Confederación Española de Empresarios de Estaciones de Servicio (CEEES) and Asociación de Gestores de Estaciones de Servicio v Commission, EU:T:2014:60, especially para 66. 47 See, eg Damien Geradin and David Henry, ‘The EC Fining Policy for Violations of Competition Law: An Empirical Review of the Commission Decisional Practice and the Community Courts’ Judgments’, 1 European Competition Journal 401 (2005). For a more recent account, see John Connor, ‘Has the European Commission Become More Severe in Punishing Cartels? Effects of the 2006 Guidelines’, 32 European Competition Law Review 27 (2011). 48 Guidelines on the method of setting fines imposed pursuant to Article 15(2) of Regulation No 17 and Article 65(5) of the ECSC Treaty, [1998] OJ C9/3, as confirmed by the EU Court of Justice in Joined Cases C-189/02 P, C-202/02 P, C-205/02 P to C-208/02 P and C-213/02 P Dansk Rørindustri and Others v Commission [2005] ECR I-5425, paras 260 and 292. 49 Article 23(2) of Regulation 1/2003. 50 See Commission Press Releases IP/09/745 of 13 May 2009 (Intel—€1.06 billion), IP/12/1317 of 5 December 2012 (TV and computer monitor tubes—€1.47 billion) and IP/13/1208 of 4 December 2013 (interest rate derivatives—€1.71 billion).

152 Damien MB Gerard ( million) 9414

10000 8000

5358

6000

3463

4000 2000 0

540 1990–1994

293 1995–1999

2000–2004

2005–2009

2010–2012

Figure 4: Fines: Cartels

It is tempting to link together the evolution in the amount of fines and the rise of commitment decisions, as if the underlying deterrence rationale had expanded its reach to the point of deterring firms from litigating cases in the first place and of creating an insuperable incentive to engage in negotiated procedures. However, that expansion has also been fuelled by a growing perception of the limits of the EU judicial review system, notably as it submits complex economic and technical appraisals inherent in modern substantive antitrust assessments to a so-called ‘manifest error’ standard, ie to limited review. Limited review has been a trademark of dominance cases in particular—an area in which the EU Courts have not overturned any Commission decision (except on minor ancillary points) in close to 15 years.51 However, similar considerations can be found in horizontal cases, including recent ones.52 Even though some Advocates General have endorsed—more or less openly—the need to move beyond the limited review standard in cases where the Commission has imposed a fine, these calls have so far had limited effect on the case law of the Court of Justice.53 The perception of a lack of alternative to negotiated solutions is equally supported by the outcome of cases involving comparable practices resolved

51 A prime example is the Microsoft case, where the General Court started the substantive part of its reasoning by stating that ‘in so far as the Commission’s decision is the result of complex technical appraisals, those appraisals are in principle subject to only limited review by the Court, which means that the Community Courts cannot substitute their own assessment of matters of fact for [that of the Commission]’. Case T-201/04 Microsoft Corp v Commission [2007] ECR II-3601, paras 88, 379 and 482. 52 See, eg Case T-111/08 MasterCard, Inc and Others v Commission, EU:T:2012:260, paras 82 and 201; appeals dismissed: Case C-382/12 P, EU:C:2014:2201. 53 See, in particular, Opinion of Advocate General Sharpston in Case C-272/09 P KME Germany AG v Commission, EU:C:2011:63, paras 60–70; Opinion of Advocate General Wathelet in Case C-295/12 P Telefónica SA v Commission, EU:C:2013:619, paras 107–145.

Negotiated Remedies in the Modernisation Era 153 either by means of a commitment decision or of an infringement decision, as illustrated in a stylised way in Figure 5:54 Siemens/Areva (2012) (Commitment proceedings)

Telefónica/Portugal Telecom (2013) (Infringement proceedings)

—

on-compete obligation (‘NCO’) N part of a nuclear power plants joint venture

—

on-compete obligation (‘NCO’) N included in a stock purchase agreement entered into between Telefónica and Portugal Telecom, whereby Telefónica acquired sole control over the Brazilian mobile operator Vivo and sold its stake in Portugal Telecom

—

CO not only covered the lifetime — N of the JV but, in its original form, was to continue for a period of 8 to 11 years after Siemens’ loss of joint control of the JV

CO was to apply for 15 months, N but the parties in fact removed the NCO after 4 months

—

he Commission came to the T conclusion that the post-JV NCO raised concerns as to its compatibility with Article 101, due to its broad scope and duration

—

he Commission found that the T NCO constituted an infringement by object

—

he Commission closed its T investigation pursuant to Article 9 by accepting commitments from the parties to set aside the NCO

—

he Commission fined Telefónica T €67 million and Portugal Telecom €12 million, imposed fines for a total of €79 million

Figure 5

In view of the above, adopting a litigious approach before the Commission with the hope of containing the exposure to fines and relying on the EU Courts to possibly overturn a finding of liability has become a notoriously risky option. Conversely, the loss in repressive utility resulting from the Commission’s acceptance of commitments appears relative, notably since it is able to maintain a high level of general deterrence by adopting a tough stance in infringement cases.55 The above analysis may have been candidly— if perhaps unwittingly—captured by former Director-General Italianer in a 54 See, respectively, Commission Decision of 18 June 2012 in Case COMP/39736— Siemens/Areva and Commission Decision of 23 January 2013 in Case AT.39839—Telefónica/ Portugal Telecom. Example suggested by Frédéric de Bure, counsel with Cleary Gottlieb LLP (Paris). 55 On the notion of ‘general deterrence’, see Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation 1/2003, [2006] OJ C210/2, para 4.

154 Damien MB Gerard comparison between the choice of firms pondering the option of engaging in commitment proceedings and that of Hamlet in Shakespeare’s famous play, where the young Danish prince faces an agonising question: ‘“To be, or not to be”, he asks himself, and carefully weighs the merits of life and death. He chooses life, but for negative reasons: only because he fears the alternative may be worse.’56 In closing, as yet another illustration of the interrelationship between the different dimensions of modernisation, one may also formulate the hypothesis that the increase in enforcement/justification costs resulting from the advent of an effects-based approach associated with substantive modernisation may have paradoxically increased the incentives of both enforcement actors and firms to resort to negotiated procedures instead of engaging in protracted inquiries as to the actual impact of the practices in question on competition and welfare.57 That hypothesis finds support in the link suggested between the growing sophistication of economic theories relied upon in the application of antitrust rules and the turn towards a regulatory approach to competition law enforcement in the US. Already in the mid-1990s, Melamed contended that ‘[t]he role of economics has changed’ and The power of economic insights appears subtly to have promoted a kind of thought process in which government antitrust officials sometimes ask, not whether the defendant violated a legal norm, but whether constraining the defendant’s use of its property might improve or ensure its contribution to consumer welfare.58

In turn, the prospective nature of that analysis was viewed as regulatory in nature and ‘fundamentally nonlegal’, with the consequence that ‘[i]t can thus erode the rule of law and leave government officials largely unconstrained’, ‘especially when prospective analysis is combined with consent decree process’, because that process is subject to a ‘more limited judicial oversight’.59 Assuredly, these considerations echo concerns associated in the EU with the transformations induced by procedural modernisation.

1.2 Negotiated procedures and the focus on remedies At the EU level today, ‘[r]emedies lie at the core of competition law enforcement’.60 That move of remedies from the back to the fore of antitrust

Italianer, ‘To Commit or Not to Commit’, above n 27. Compare, eg Commission Decision of 19 December 2007 in Case COMP/34.579— MasterCard (infringement decision with fine) and Commission Decision of 8 December 2010 in Case COMP/39.398—Visa MIF (commitment decision). 58 Melamed, ‘The New Regulation’, above n 8, 15. 59 Ibid. 60 Italianer, ‘Legal Certainty’, above n 23. 56 57

Negotiated Remedies in the Modernisation Era 155 enforcement largely mirrors the shift from adversarial to negotiated enforcement. By nature, commitment proceedings focus on devising remedies rather than on establishing an infringement. The definition of remedies necessarily implies the pre-existing determination of anticompetitive concerns, ie a ( prima facie) theory of harm. However, in negotiated procedures, that theory of harm largely emerges from the discussion of possible remedies, as the Commission’s preliminary assessment is typically issued after a first (thorough) discussion of the envisaged commitments and some informal testing with third parties. In turn, focusing on remedies can bias the definition of the possible harm because it may lead to a looser (ie less specific) outcome, because it may be more vulnerable to capture by third parties and because sometimes remedies may not really be ‘negotiated’. In the end, all these factors can contribute to threatening the optimal nature of remedies.

1.2.1 The exposure of negotiated remedies to suboptimal outcomes In negotiated procedures, ‘[r]emedy design is not an after-thought at the end of a process that is abstracted from substance’; rather, ‘[i]t is intimately connected to substantive analysis’.61 Though remedies are never abstracted from substance, discussions on remedies in negotiated procedures actually assist in shaping the substance of the underlying concerns, notably as they contribute to the testing of substantive theories and possibly expose their weaknesses. To play that role, however, discussions on remedies need to be preceded by an agreement on the relevant set of facts, and they need to be conducted in a relatively stable legal environment that allows for open dialectic exchanges between the enforcer and the party or parties subject to the proceedings.62 Moreover, ascertaining the possible remedy and the underlying harm in parallel creates an incentive to settle on some ‘rough’ substantive theory the main merit of which is to match the scope of remedies inasmuch as they are effective, ie ‘simple, workable and easy to implement’.63 That incentive is reinforced by the loss of the possibility to convince the Commission to drop its case altogether once a firm decides to take the commitment route.64 Hence, the risk of a suboptimal outcome arising from the design of negotiated remedies appears heightened by the lack of robust pre-existing theory of harm.

61 Thomas Graf, ‘The Google Commitments—Testing Substantive Theories through Remedy Discussion’, kluwercompetitionlawblog.com, 4 July 2013. Mr Graf is Google’s lead counsel in pending cases COMP/C-3/39.740, COMP/C-3/39.775 and COMP/C-3/39.768. 62 See ECN Recommendation on Commitment Procedures. 63 Italianer, ‘Legal Certainty’, above n 23. 64 Italianer, ‘To Commit or Not to Commit’, above n 27. Interestingly, the C ommission has nonetheless closed proceedings in two cases after a set of commitments was s ubmitted to market testing. See Case COMP/37.749—Austrian Airlines + SAS (file closed on 13 March 2008); Case COMP/37.984—SkyTeam (file closed on 23 January 2012).

156 Damien MB Gerard The design of remedies in general, but even more so in a negotiated context, is also highly dependent on the feedback received in response to the market testing of the remedies in question. As Italianer highlighted, ‘[m]arket testing is a key tool which allows us to tailor the remedies to the competition concerns’.65 Admittedly, seeking the views of third parties is an important step in balancing the information asymmetry between firms and enforcers and, as a result, preventing the capture of the negotiation process. Naturally, third parties investing resources in actively responding to market test exercises are rarely motivated by purely benevolent interests. Likewise, even though a ‘market test is not an opinion poll which determines the fate of the remedies’,66 it still opens up space for building constituencies promoting s pecific business interests.67 The design of negotiated remedies, it is submitted, may be particularly vulnerable to the influence of such vocal interests for at least three reasons. First, as noted, discussions about the nature and scope of remedies do not take place against the background of a robust theory of harm but, rather, against preliminary concerns that are still in a state of flux, which creates a risk of over-reliance on the outcome of the market test, at least if the contributions to the market test are not properly disclosed to the firm proposing commitments. Second, considerations of procedural economy may also result in greater incentives to (push to) accommodate even loose concerns expressed by third parties in the hope that they will refrain from challenging the substance of the decision.68 Third, once constituencies have been created, they can also form powerful obstacles to the adaptation of commitments over time, whereas the possibility to reflect changing market contexts constitutes a commanding reason for favouring negotiated solutions, in particular when ‘concerns about competitive harm are real but inchoate or dependent on conduct and market dynamics’.69 Thus, for these reasons as well, negotiated procedures appear to be particularly exposed to settling on suboptimal remedies.

Italianer, ‘Legal Certainty’, above n 23. Manual of Procedure, above n 44, chapter 16, para 66. The Google case, for example, has given rise to the development of highly sophisticated coalitions such as FairSearch.org, which includes the likes of Microsoft, Oracle, TripAdvisor and Foundem, and ICOMP, which includes a diverse set of companies and organisations involved in internet commerce such as Mediaset, Premier League and the American Society of Media Photographers, but also Microsoft and Foundem. 68 See, eg James Kanter, ‘Europe Warns Google It Could Face Further Concessions’, New York Times, 28 May 2013, in particular: ‘Thomas Vinje, the chief lawyer for FairSearch Europe, a group of Google competitors including Microsoft, Nokia and Oracle, said he would be ‘very surprised’ if some companies did not bring an appeal’. 69 Yane Svetiev, ‘The Tools of Experimentalist Enforcement: Competition Policy as a Learning Platform’, on file with the author, 17. 65 66 67

Negotiated Remedies in the Modernisation Era 157

1.2.2 A biased negotiation The fact that they ‘are offered by undertakings on a voluntary basis’ appears to serve as a justification for all concerns expressed about the conduct and outcome of commitment proceedings.70 However, that alleged ‘voluntary’ character is hardly a guarantee of efficient remedial outcome, notably as the choice to engage in commitment proceedings and possibly to agree on a final set of remedies results from a mixture of factors that are largely detached from optimum considerations.71 Moreover, the scope of the freedom of choice to engage in commitment proceedings is a function of the available alternative(s) which, when it comes to EU antitrust enforcement, is/are highly hazardous. Once that choice is made, the voluntary character of the outcome of the ‘negotiation’ is even more dubious since, as the Commission insists, discussions on remedies ‘are not a bargaining process’ and can be discontinued at any moment.72 Possibly, the ‘voluntary’ nature of commitments allows one, at best, to assume that a firm would not compromise the essential features of its business and of the strategic development of that business, which is far from ensuring the efficiency of the remedies in question. In fact, there is a fundamental ambivalence in the discourse about negotiated procedures. On the one hand, competition authorities emphasise the voluntary nature of the process to justify a departure from established proportionality and due process requirements, while on the other hand, they openly acknowledge that accepting (or not) commitments belongs to their sole discretion and that commitment decisions remain ‘a unilateral act of State as opposed to a contract’.73 As a result, the Commission expressly admits that it may ‘make proposals during [commitment] discussions on how to modify certain elements of the text, and may even provide concrete drafting proposals on specific issues’,74 as it has done on a number of occasions.75 Yet, with

Commission Best Practices, para 117. As Marsden put it: ‘A dynamic exists where the threat of years of investigation with the significant legal and commercial costs, distraction of senior management, ongoing negative publicity, uncertainty, and possibility of huge fines combine to make defendants particularly prone to offer commitments as a practical matter, no matter what the theory of harm may be or allegations they are facing’. Philip Marsden, ‘The Emperor’s Clothes Laid Bare: Commitments Creating the Appearance of Law, While Denying Access to Law’, 10(1) CPI Antitrust Chronicle (October 2013) 1, 3. 72 Italianer, ‘Legal Certainty’, above n 23. 73 See, eg Commission Best Practices, para 115; OFT Enforcement Guidelines, 11; Notice on Competition Commitments issued by the French NCA on 2 March 2009, para 42. 74 Manual of Procedure, above n 44, chapter 16, para 43. 75 In the De Beers/Alrosa case, for example, the Commission candidly acknowledged that it had ‘suggest[ed] amendments to the proposed commitments’ that would have resulted in the termination of all trading relations between Alrosa and De Beers. See De Beers, above n 6, Recital 42. 70 71

158 Damien MB Gerard the discretion to accept commitments reflecting its own requirements,76 it is submitted, comes the responsibility on the part of the Commission to ensure that the remedies made binding ‘unilaterally’ on the firm subject to the proceedings are indeed optimal. As further developed in Section 2 below, reaching that optimal outcome is fundamentally dependent on the design of the negotiation process. As the European Court of Justice crudely presented it in Alrosa, the alternative for firms may well be to either: (i) ‘consciously accept that the concessions they make may go beyond what the Commission could itself impose on them in a decision adopted under Article 7 of the regulation after a thorough examination’; or (ii) ‘a finding of an infringement of competition law and a possible fine’.77 The illusory character of that ‘alternative’ is magnified by the fact that, when the Commission judges that ‘cooperation with the companies is not satisfactory’, it may ‘always revert to the prohibition path’,78 which it is not shy to reassert publicly in relation to specific cases.79 Although that possibility aims to secure the incentive of firms to cooperate, it largely negates the voluntary and consensual nature of the process, especially if it leaves the Commission with the possibility to impose fines, and is therefore no guarantee of optimal remedial outcome. *

*

*

This first section sought to explain how the procedural modernisation process driven by effectiveness considerations contributed to moving remedies to the core of antitrust adjudication in the European Union as a result of a shift towards ‘negotiated’ enforcement largely resulting from the attractiveness of commitment proceedings. However, effectiveness is inapt as such to ensure the design of efficient remedies, it was submitted, as negotiated procedures are particularly vulnerable to suboptimal outcomes. N otably, they are not conducted on the basis of a robust pre-existing theory of harm; they are particularly dependent on third-party comments formulated in response to market tests; and they are de facto not voluntary. Building on these premises, the second section further inquires into the limits of effectiveness for delivering welfare-maximising remedies, and it reflects on ways to overcome these limits with a view to reconciling effectiveness and efficiency considerations in the design of remedial outcomes.

76 See ECJ in Alrosa, above n 6, para 94: ‘It follows from Article 9(1) of Regulation No 1/2003 that the Commission has a wide discretion to make a proposed commitment binding or to reject it’. 77 Ibid, para 48. 78 Almunia, ‘Remedies, Commitments and Settlements’, above n 21. 79 As reported by, eg Kanter, ‘Europe Warns Google’, above n 68.

Negotiated Remedies in the Modernisation Era 159

2. The limits of effectiveness In the modernisation context, as noted, effectiveness can be defined as an attempt to maximise the allocation of enforcement resources with a view to strengthening compliance on the part of economic actors and the societal impact of competition policy. As such, effectiveness has been a main driver of the move towards negotiated enforcement and the increasing reliance in the EU on commitment decisions to resolve antitrust cases. Indeed, commitments have been praised for their ability to bring about a ‘swift resolution of concerns’ and to ‘expedite market changes’, while involving ‘fewer resources’.80 These benefits are real, and so are the advantages that firms perceive by engaging on the negotiated route. Still, while they are not an a priori evil that ought to be repealed at all costs, negotiated procedures have profoundly modified the respective incentives of both enforcers and firms, to the point where they give rise to a ‘culture of consent’ in the EU.81 As in the US, but without the same safeguards built into the overall enforcement framework, that culture has many side effects. Notably, the culture of consent is not naturally geared towards the achievement of optimal solutions.82 This is because, in a nutshell, the maximisation by competition authorities of their own administrative resources by resorting to negotiated outcomes, whether in the selection of cases, or in the conduct of proceedings and the design of remedies, does not square with the maximisation of welfare. In turn, the culture of consent reveals a tension between procedural and substantive modernisation, which needs to be addressed. After elaborating on the consequences induced by the culture of consent on the role and design of remedies, including in terms of legitimacy, this second section explores ways to overcome the tension between procedural and substantive modernisation and to reconcile the maximisation of enforcement resources with the promotion of competition law as a tool of welfare maximisation, ie effectiveness with efficiency. To that end, it revisits the notions

80 Italianer, ‘To Commit or Not to Commit’, above n 27; Commission Staff Working Paper accompanying the Report on the Functioning of Regulation 1/2003 SEC (2009) 574 final, para 102. 81 This expression is borrowed from Ginsburg and Wright, ‘Antitrust Settlements’, above n 20, 56. 82 For a similar concern expressed in relation to commitment proceedings, see, eg F lorian Wagner-von Papp, ‘Critical Considerations on the Commission’s Commitment to the Commitment Procedure’, 3(3) CPI Antitrust Chronicle (March 2013) 1, 5 (‘Just as the negotiations cannot guarantee that the commitments are proportionate, they do not necessarily guarantee that the commitments are adequate. The Commission does not have the benefit of a full investigation into the facts, and may inadvertently even agree to commitments that do themselves have anticompetitive effects. The dynamics of commitment negotiations may make them more focused on achieving an agreement than on safeguarding competition’).

160 Damien MB Gerard of proportionality and due process, which have historically governed the achievement of legitimate enforcement outcomes, and questions their interpretation and relevance in a ‘modernised’ context. In turn, while both proportionality and due process appear appropriate to mediate the effectiveness/ efficiency conundrum, it focuses on due process as a possible procedural proxy for proportionality and puts forward policy proposals to adjust the sequence of commitment proceedings with a view to addressing its current ‘systemic’ shortcomings. Ultimately, reshaping the incentives of enforcers and firms so as to steer negotiated procedures towards the achievement of optimal solutions also requires considering the broader EU antitrust enforcement framework, including the incentives to resort to the normal infringement procedure and the conditions for ensuring that it remains a sustainable alternative to a negotiated procedure.

2.1 Effectiveness and the design of negotiated remedies As noted, effectiveness considerations driving modernisation have led to the development of a negotiated form of enforcement focusing on devising remedies rather than on establishing infringements. This is particularly the case for commitment proceedings, which aim to resolve cases by negotiating remedies to address concerns expressed succinctly by the Commission in a ‘preliminary assessment’. In view of their success, commitments embody a shift in the focus of EU antitrust enforcement from the wrong to the remedy. This section inquires into the significance of that shift for the nature and function of remedies at the EU level and, subsequently, for the legitimacy of EU antitrust law enforcement in general.

2.1.1 From corrective to regulatory remedies Historically, competition law remedies in the EU have been associated with the termination of infringements, ie with the Commission’s power to ‘require the undertakings or association of undertakings concerned to bring such infringement to an end’.83 Thus, as the Court of Justice held in Commercial Solvents, the Commission may, ‘in relation to the infringement which has been established’, order the infringing firm to ‘do certain acts or provide certain advantages which have been wrongfully withheld as well as prohibiting the continuation of certain action, practices or situations which are contrary to

83 Article 3(1) of Regulation 17/62: First Regulation implementing Articles 85 and 86 of the Treaty 1962 OJ 13/204.

Negotiated Remedies in the Modernisation Era 161 the Treaty’.84 Remedies have therefore been essentially conceived as means to ensure corrective justice, ie to allow for the ‘reestablishment of compliance with the rules infringed’85 or, stated otherwise, to ‘re-establish the situation which existed prior to the infringement’.86 On that basis, the EU Courts have sanctioned the imposition of remedies that were found to go beyond the restoration of the status quo ante, notably as they were designed to prevent the possible recurrence of the infringement in the future.87 Interestingly, Regulation 1/2003 follows the same approach by expressly granting the Commission the ‘power to impose any remedy, whether behavioural or structural, which is necessary to bring the infringement effectively to an end’.88 However, modernisation has modified the nature and function of r emedies. Substantive modernisation, first of all, by promoting a more contextual approach to antitrust enforcement driven by efficiency considerations, naturally calls for the design of remedies challenging the prevailing market structure and aiming to minimise the recurrence of the observed anticompetitive conduct.89 Moreover, as Lianos has suggested, in an economically oriented enforcement framework, infringements rely on theories of consumer harm that may ‘not only relate to the structure of the supply side but may also be generated by the specific characteristics of the demand side’,90 thereby requiring remedies that may be less strictly related to the wrongful conduct identified. More fundamentally, procedural modernisation has entailed a profound revamp of the EU approach to remedies because commitment decisions, in essence, do not ‘conclud[e] whether or not there has been or still is an infringement’,91 ie they do not establish a wrong. Rather, they aim at

84 Joined Cases 6 and 7-73 Istituto Chemioterapico Italiano SpA and Commercial Solvents Corporation v Commission [1974] ECR 225, para 45. 85 Joined Cases C-241 and 242/91 P Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission (Magill) [1995] ECR I-808, para 93. For the US equivalent, see, eg Ford Motor Co v United States, 405 US 562, 577 (1972) (‘[a]ntitrust relief should unfetter a market from anticompetitive conduct’). 86 Case T-24/90 Automec Srl v Commission [1992] ECR II‑2223, paras 51–52. 87 See, eg Case T-395/94 Atlantic Container Line AB and Others v Commission [2002] ECR II-875, paras 398 et seq; Case T-310/94 Gruber + Weber GmbH & Co KG v Commission [1998] ECR II-1043, paras 177–178; Case T-7/93 Langnese Iglo GmbH v Commission [1995] ECR II-1533, para 205. 88 Regulation 1/2003, Recital 12 and Article 7. 89 As Mariniello puts it: ‘Despite the criticism of proactive remedies in the legal literature, they might be justifiable on economic grounds’ because proactive remedies may ‘increase competition and therefore potentially lead to higher welfare levels for consumers’. Mario Mariniello, ‘Commitments or Prohibition? The EU Antitrust Dilemma’, Bruegel Policy Brief No 2014/1, January 2014, 6. 90 Ioannis Lianos, ‘Competition Law Remedies in Europe—Which Limits for R emedial Discretion?’, CLES Research Paper Series 2/2013, 64. Published as ‘Competition Law Remedies in Europe: Which Limits for Remedial Discretion?’, in Ioannis Lianos and Damien Geradin, eds, Handbook of EU Competition Law: Enforcement and Procedure, Edward Elgar, 2013, 362 et seq. 91 Regulation 1/2003, Recital 13.

162 Damien MB Gerard addressing concerns and at altering competitive interactions with a view to preventing harm to competition. Hence, the purpose of commitments is less corrective than prescriptive in kind, and is indeed of a ‘prospective nature’.92 As noted, the increasing reliance on consent decrees in the US was also viewed as a move away from a law-enforcement model towards an approach of antitrust enforcement as a means of ‘prospective regulation’, whereby ‘antitrust enforcers no longer confine their inquiry to whether the defendant has violated the law’ and how to redress wrongs.93 Thus, the ‘widespread use of consent decrees’, as Melamed contended, ‘dispenses with the adjudication process and therefore sometimes entails both remedies for conduct that might not be unlawful and remedies that go beyond law enforcement purposes’.94 The surge in commitment decisions entailed in various ways a paradigm shift from a corrective towards a regulatory approach to the design of remedies in the EU, which also appears to extend beyond negotiated procedures.95 A first indication of the transformative nature of commitment decisions lies in the fact that, unconstrained by the limitations set forth by Article 7 of Regulation 1/2003 with respect to infringement decisions,96 they have enabled the Commission to impose structural remedies.97 These structural remedies cases invariably involved the energy sector and are widely perceived as being supported by regulatory motives, namely a willingness to design new equilibriums in the markets in question.98 Commenting on the obligation made binding on RWE to divest its transmission grid and on ENI to dispose of its stake in certain international pipelines, Director-General Italianer openly indicated that these remedies ‘contributed to effectively [opening up] energy markets to competition, in addition to the regulatory provisions fostering liberalisation’, as they ‘ensured that the abuse could never be repeated and created the conditions for undistorted competition downstream’.99

Opinion of Advocate General Kokott in Alrosa, above n 6, para 74. Melamed, ‘The New Regulation’, above n 8, 13. 94 A Douglas Melamed, ‘Antitrust as Law Enforcement’, 27 Antitrust 76, 77 (2012). 95 This is not to say that competition law remedies did not exhibit regulatory features in the past or, in general, to deny the application of competition law as regulation in certain economic contexts. For a compelling discussion not limited to the antitrust context, see Pablo Ibáñez Colomo, ‘On the Application of Competition Law as Regulation: Elements for a Theory’, 29 Yearbook of European Law 261 (2010). 96 Compare Article 7 of Regulation 1/2003, which limits the imposition of structural remedies to situations ‘either where there is no equally effective behavioural remedy or where any equally effective behavioural remedy would be more burden some for the undertaking concerned than the structural remedy’. 97 See, in particular, German Electricity Markets, RWE Gas Foreclosure, ENI and CEZ, all above n 40. 98 For a thorough discussion, see, eg François Marty, ‘Une régulation du secteur de l’énergie au travers des procedures d’engagements? Réflexions sur le contentieux concurrentiel européen’, 26–27 économie publique 93 (2011). 99 Italianer, ‘Legal Certainty’, above n 23. 92 93

Negotiated Remedies in the Modernisation Era 163 Secondly, the Commission has relied on commitments to stretch the boundaries of prevailing antitrust legal standards and, in effect, to tackle practices that could not be comfortably addressed under these standards. Examples include the notoriously complex question of excessive prices, whether in the form of ‘abusive’ royalty rates or ‘unfairly high’ licensing fees for standards or identifiers codes, which commitment decisions endeavoured to set at a c ertain level.100 Similarly, by challenging agency agreements and most favoured nation clauses, which had historically been considered positively under antitrust standards, the Commission sought a ‘competitive reset’ of the launch of e-book retail sales in the European Union.101 The ongoing Google case also challenges the boundaries of antitrust standards, notably with respect to socalled ‘scraping’ practices, ie the ‘use by Google without consent of original content from third party websites in its own vertical Web search services’.102 A willingness to shape the future development of online search interfaces also transpires from the successive rejection of commitments aimed at addressing vertical search concerns;103 Commissioner Almunia subsequently acknowledged that ‘a decision making commitments binding on Google will be similar in effects to a regulation of Google’s activities’.104 All these cases, and others,105 display a tendency to go beyond established antitrust standards and

100 Commission Decision of 9 December 2009 in Case COMP/38.636—Rambus [2010] OJ C30/17; Commission Decision of 15 November 2011 in Case COMP/39.592—Standard & Poor’s [2011] OJ C31/8. 101 Commission Decision of 25 July 2013 in Case AT.39847—E-Books, paras 108 and 117. 102 See Communication from the Commission published pursuant to Article 27(4) of Council Regulation 1/2003 in Case AT.39740—Google [2013] OJ C120/22, para 3. 103 See, eg Joaquín Almunia, ‘The Google Antitrust Case: What is at Stake?’, SPEECH/13/768, Brussels, 1 October 2013: ‘Many respondents during the market test said that in this Google proposal the links to rivals that would be displayed for certain categories of specialised search services were not visible enough. In my opinion, the new proposal makes these links significantly more visible. A larger space of the Google search result page is dedicated to them. Rivals have the possibility to display their logo next to the link, and there will be a dynamic text associated to each rival link to better inform the user of its content.’ 104 Joaquín Almunia, ‘Concurrence et croissance pour l’après-crise’, SPEECH/14/150, 5ème Conférence, New Frontiers of Antitrust, Paris, 21 February 2014 (free translation of ‘une décision avec des engagements contraignants aura des effets similaires à ceux d’une régulation des activités de Google’). 105 Ibáñez Colomo observed similar features in cases such as Premier League (Commission Decision of 22 March 2006 in Case COMP/38.173, [2008] OJ C7/18) and the 2009 Microsoft (Tying) decision (Commission Decision of 16 December 2009 in Case COMP/39.530, [2013] OJ C120/15). In the former, the Commission ‘did not explain why the “single buyer rule” was necessary to bring the joint selling of football rights in line with Article 101 TFEU’ and ‘why the case was different from similar joint selling cases decided in previous years and in which the remedy was not required’. Ibáñez Colomo, ‘Elements for a Theory’, above n 95, 306. With respect to the latter, the corrective measures obtained in 2009 went further than the ones imposed in the 2004 prohibition decision despite the fact that the context appeared less serious. See ibid.

164 Damien MB Gerard an ambition to recast market equilibriums in accordance with certain policy objectives. Thirdly, the regulatory nature of the remedial approach adopted in commitment decisions is further illustrated by the acknowledged convergence with the approach adopted in merger control cases. While merger control is casually referred to as ‘the [closest] a competition law procedure can come to a regulatory law one’,106 the Commission has revealed its practice of applying ‘the same guiding principles’ to the design of remedies in both merger control and commitment cases, the latter being presented as reflective of the Commission’s general practice in the antitrust field.107 Although informative, the assimilation of merger control and antitrust proceedings is controversial, as the nature of what is to be remedied is essentially different. Merger control involves the ex ante assessment of the welfare effects of a concentration, while antitrust enforcement is supposed to prohibit ex post commercial practices qualified as restrictive according to principles derived from the o pen-textured nature of Articles 101 and 102 TFEU. This difference translates into the different nature of these two kinds of proceedings, of the standards applied and of the risks involved. In turn, the stated convergence between the merger control and antitrust areas reveals the emergence of a regulatory approach beyond the design of remedies, in the interpretation of antitrust rules centred on ‘whether the defendant’s conduct maximises consumer welfare or otherwise serves the public interest’.108 The convergence of merger control and commitment proceedings towards a regulatory approach to the design of remedies may also be apparent from the focus on ‘remedies that are simple, workable and easy to implement’,109 ie primarily effective. This is understandable because the credibility of the Commission’s intervention in both types of cases is conditioned on the successful implementation of remedies.110 Yet the increased remedial discretion accompanying that claim for effective remedies

Lianos, ‘Which Limits’, above n 90, 66. Italianer, ‘Legal Certainty’, above n 23. Melamed, ‘The New Regulation’, above n 8, 13. 109 Italianer, ‘Legal Certainty’, above n 23. 110 With respect to commitments, see the Manual of Procedure, above n 44, chapter 16, para 82. See also the €561 million fine imposed on Microsoft for failure to comply with its commitment to give Windows users a choice between several web browsers (Commission Decision of 16 December 2009 in Microsoft (Tying), above n 105), which was justified by Commissioner Almunia by the ‘duty to preserve the integrity and credibility of the system’ (see Joaquín Almunia, ‘Remedies, Commitments and Settlements’, above n 21). For national cases sanctioning the breach of commitments, see: (i) Decision of 23 January 2013 of the Spanish NCA in Case S/0020/07 TRIO PLUS (fine of €188,646 imposed on Prisa Television and Telefonica for failing to respect commitments to terminate joint distribution agreements for pay-TV and electronic communication services); and (ii) Decision No 11-D-10 of 6 July 2011 of the French NCA in Case 08-D-34, Pompes funèbres Marseille (fine of €60,000 imposed on the city of Marseille for breach of a commitment relating to the exchange of sensitive information between funeral service operators). 106 107 108

Negotiated Remedies in the Modernisation Era 165 in commitment proceedings is bound to be more controversial, as commitments imply that ‘even if only on a preliminary basis … there may be or may have been an infringement of EU competition law which should be addressed’ and thus to which remedies must directly relate.111

2.1.2 The effectiveness conundrum and the legitimacy gap The shift from a corrective to a regulatory approach in the design of remedies at the EU level, as induced by the widespread recourse to commitment decisions, has far-reaching consequences for the interpretation of antitrust principles and for the legitimacy of antitrust enforcement. Indeed, while becoming the default mechanism to enforce antitrust principles in the EU, commitment decisions have become a primary source of guidance on the interpretation of these very principles. As noted, however, commitment decisions tend to stretch the boundaries of antitrust legal standards with the paradoxical effect of affecting the overall predictability of the scope of Articles 101 and 102 TFEU. While premised on a search for greater enforcement effectiveness, negotiated procedures therefore also affect the substantive effectiveness of antitrust principles, ie their ability to be intelligently grasped and accurately internalised by firms. In turn, inasmuch as it leads to suboptimal outcomes, that effectiveness conundrum affects the (output) legitimacy of antitrust law as a means geared towards the achievement of efficiency gains and the maximisation of consumer welfare. This section aims to substantiate that conundrum by discussing the precedential value of commitment decisions and then to articulate the paradox arising therefrom, before exploring ways to address the legitimacy gap that it creates. In theory, even though ‘the Commission must have at its disposal sufficient facts to make an informed and sound assessment of the relevant competition concerns’, commitment decisions ‘are not based on full investigations and do not reach definitive conclusions on the facts of a case or the application of the law’.112 Their precedential value is therefore ‘different … c ompared to final decisions under Article 7’ of Regulation 1/2003, ie infringement decisions, and yet they do provide illustrative guidance, as ‘[o]ther market participants can learn from the decision and the commitments what was considered by the Commission sufficient to remove the competition concerns’; in this sense, they ‘serve to clarify the Commission’s competition policy’.113

Manual of Procedure, above n 44, chapter 16, para 18. Ibid, chapter 16, paras 7 and 18. Interestingly, according to Bruegel estimates, ‘[f]or decisions published since May 2004, the average length of commitment decisions is 21 pages compared to 160 for prohibition decisions’. Mariniello, ‘Commitments or Prohibition?’, above n 89, 7. 113 Manual of Procedure, above n 44, paras 6 and 11. 111 112

166 Damien MB Gerard Thus, while not entailing ‘definitive conclusions’ on the application of antitrust principles, commitment decisions at least inform firms of ‘sufficient’, but not necessarily optimal, ways to comply with these principles. In practice, however, the Commission’s staff has publicly acknowledged that a commitment decision can also ‘serve as a model for addressing similar situations’.114 The Distrigaz decision, for example, is said to have ‘set out guidance on the Commission’s approach towards foreclosure by long-term contracts’.115 Moreover, after adopting the Premier League decision, the Commission apparently ‘considered that further action in this field should not be a priority for it as the existing commitment decisions appeared to provide sufficient orientation to operators and national competition authorities to deal with domestic media markets effectively and consistently’.116 This is particularly telling because the Premier League commitments were considered to include more stringent requirements than previous decisions adopted pursuant to Article 101 TFEU on the joint selling of broadcasting rights, notably by providing for a so-called ‘single buyer rule’.117 The precedential value of commitment decisions also extends to proceedings before NCAs; the four commitment decisions adopted in relation to the disclosure of technical information by automobile manufacturers,118 for instance, directly guided the commitments offered by Citroën in a French procedure.119 The precedential value of commitment decisions must also be assessed against the paucity of infringement decisions adopted by the Commission in recent years, irrespective of the fact that ‘prohibition decisions set a stronger precedent for future cases’.120 Commentators have been particularly concerned by the deficit of ‘carefully investigated and reasoned decisions’, in particular in very dynamic sectors of the economy.121 ‘When commitments decisions espouse novel theories of harm in fast-moving markets,’ it has been suggested, ‘they create important precedents, considered relevant by the industry as a whole who otherwise have little direct relevant case law or Commission

114 Commission Staff Working Paper accompanying the Report on the Functioning of Regulation 1/2003 SEC(2009) 574 final, para 109. 115 Ibid. See also Commission Decision of 11 October 2007 in Case COMP/37.966— Distrigaz [2008] OJ C9/8. 116 Commission Staff Working Paper, above n 114, para 109. See also Premier League, above n 105. 117 According to the ‘Single Buyer Rule’, no single bidder can be awarded all live coverage packages on an exclusive basis. 118 See Commission Decisions of 14 September 2007 in Case COMP/39.140— Daimler Chrysler [2007] OJ C317/76; Case COMP/39.141—Fiat [2007] OJ L332/77; Case COMP/39.142—Toyota [2007] OJ L329/52; Case COMP/39.143—Opel [2007] OJ L330/44. 119 See Decision of the Conseil de la concurrence No 07-D-31—Citroën, 9 October 2007. 120 Almunia, ‘Remedies, Commitments and Settlements’, above n 21. 121 Ken Daly, ‘A Plea for Plea Bargaining—Closing the Gaps between the EU’s Leniency, Settlement, and Commitments Procedures’, 3(3) CPI Antitrust Chronicle (March 2013) 1, 6.

Negotiated Remedies in the Modernisation Era 167 guidance.’122 Hence, ‘rules can end up being set for an industry based only on case-specific facts and the interactions of a case team, a defendant, and at most some self-interested third parties’.123 Conversely, others have suggested that the commitment procedure is precisely ‘adapted to situations where there exists some uncertainty about the law or the character of the conduct and its effects’ and therefore about ‘the existence or seriousness of a violation’; by refraining from finding an infringement, the Commission expressly refrains from ‘dressing up a decision with too much certainty’ but, rather, engages in a collaborative learning process designed to minimise competition concerns in the future and allowing for adjustments over time.124 While this is indeed a convincing rationale in favour of commitment proceedings, the overwhelming reliance upon them, including in cases that do not fit that pattern or do not allow for adjustments, results in a deficit of certainty that is only partly compensated for by the multiplication of guidance documents, which typically do not address hard issues. Moreover, commitment decisions are rarely subject to appeal, which means that the decisional practice of the Commission is generally not tested in court anymore. This results in a lack of guidance by the EU Courts both for companies and the Commission (and NCAs).125 Eventually, an effectiveness paradox emerges. The promotion of negotiated procedures as part of a utility-maximising approach to competition law enforcement was designed to increase the effectiveness of enforcement. However, insofar as it leads to negotiated procedures becoming the default enforcement mechanism, that approach has the reverse effect of blurring the contours of the law and reducing the predictability of antitrust principles, thereby leading to a loss in (substantive) effectiveness. The paradox comes full circle once one considers that modernisation as a whole was premised on the stabilisation of competition law principles. So a question of principle emerges: can the (over-)promotion of (enforcement) effectiveness entail a destruction of the law itself ? Conversely, how can one ensure that increased (enforcement) effectiveness is sustainable over time? These questions are all the more acute given that the effectiveness conundrum so identified also raises questions about the (output) legitimacy of antitrust, and specifically about its ability to deliver welfare-maximising outcomes. Indeed, while b lurring the boundaries of antitrust principles, commitment decisions create a p arallel

Philip Marsden, ‘The Emperor’s Clothes’, above n 71, 4. Ibid. 124 Svetiev, above n 69, 5 and 14–17. 125 For a similar concern, see also Daly, ‘A Plea for Plea Bargaining’, above n 121, 6. For Mariniello, the lack of judicial review also results in ‘less of an incentive for accuracy in the [substantive antitrust] assessment’. Mariniello, ‘Commitments or Prohibition?’, above n 89, 4). 122 123

168 Damien MB Gerard ‘suboptimal’ case law126 based on ‘preliminary concerns’ and case-specific ‘sufficient’ remedies, which turns out to be a main source of guidance available to firms (and counsel). Yet the continued acceptance of negotiated outcomes and thus the sustainability of commitments as an effective enforcement mechanism requires the ‘negotiation’ to take place in the shadow of the law, ie of sufficiently established and robust principles. Conversely, closing the legitimacy gap would also address the effectiveness conundrum, it is submitted, because reconciling effectiveness with efficiency would also improve the precedential value of commitment decisions and therefore the predictability of antitrust principles.

2.2 Conditions for legitimate (and efficient) negotiated remedies In the EU, the legitimacy of antitrust enforcement and remedial action has historically been guaranteed by concepts known as proportionality and due process. On the one hand, the principle of proportionality entails that action by the Commission may not go beyond what is appropriate and necessary to achieve the objective sought.127 On the other hand, due process materialises in antitrust proceedings by the recognition and exercise of the right to be heard in response to objections (or concerns) stated in writing by the Commission and by the associated right of access to file in the preparation of that response, as well as of the right to the judicial review by the EU Courts of any adverse decision.128 These two concepts are complementary because due process requirements essentially enable the Commission to identify the relevant issues and to properly tailor its analysis,129 while proportionality ensures that the substance of the adversarial process is translated into the outcome of the case. However, negotiated procedures, and commitment proceedings in particular, entail a relaxation of the substance of both concepts, thereby limiting their ability to ensure the legitimacy of such procedures and to address the effectiveness conundrum identified above. This section discusses the application of the proportionality and due process concepts in commitment

126 In this sense, see also the contributions in Claus-Dieter Ehlermann and Mel Marquis, eds, European Competition Law Annual 2008: Antitrust Settlements, Hart Publishing, 2010. 127 Proportionality is recognised by the EU Courts as a general principle of EU law and applies to the exercise of the Union’s competences pursuant to Article 5 TEU. Generally, Article 49(3) of the EU Charter of Fundamental Rights provides that ‘[t]he severity of penalties must not be disproportionate to the criminal offence’. 128 Due process requirements derive from Article 6 of the European Convention of Human Rights and Fundamental Freedoms and Articles 41(2) and 47 of the EU Charter of Fundamental Rights, as interpreted by the Court of Justice and implemented by the EU legislator in, eg Article 27 of Regulation 1/2003. 129 See, eg Case T-15/02 BASF AG v Commission [2006] ECR II-497, paras 44 et seq.

Negotiated Remedies in the Modernisation Era 169 roceedings and explores ways to address their shortcomings. Specifically, it p suggests that a solution to the current state of affairs lies in the strengthening of the input legitimacy of the commitment procedure and therefore largely depends on a review of the applicable procedural safeguards.

2.2.1 Proportionality inquiry It is settled case law that, in infringement proceedings, the principle of proportionality requires that the burdens [ie remedies] imposed on undertakings in order to bring an infringement to an end do not exceed what is appropriate and necessary to attain the objective sought, namely re-establishment of compliance with the rules infringed.130

Appropriateness requires remedies to be capable of curing the infringement and restoring compliance, while the necessity condition implies that, when facing a choice between several potentially appropriate measures, the Commission must opt for the least onerous one.131 Hence, p roportionality has historically been an important constraint on the Commission’s remedial discretion. As noted, the EU Courts have in the past annulled (part of) remedies that were found to go beyond—ie were not necessary for—the restoration of the status quo ante.132 One should not overstate, though, the level of scrutiny exercised by the EU Courts when reviewing the Commission’s proportionality assessments, notably in view of the applicable judicial review standard.133 Moreover, aside from the fact that proportionality is not easily justiciable in the absence of full appellate jurisdiction on the part of the EU Courts, it is inherently linked to a corrective approach to remedies because it implies the existence of a clear benchmark against which to define whether a particular remedial measure is appropriate and necessary, ie typically an infringement. In contrast, proportionality is less suited to a utility-maximising approach to enforcement and, specifically, to effectiveness-driven negotiated procedures that exclude a finding of infringement and involve instead the remediation of ‘concerns’, most of the time briefly articulated. The application of the proportionality principle to remedies made binding by means of commitment decisions was central to the Alrosa case, which

130 Microsoft, above n 51, para 1276. See also, eg Joined Cases T-25, 26, 30 to 32, 34 to 39, 42 to 46, 48, 50 to 65, 65, 68 to 71, 87, 88, 103 and 104/95, Cimenteries CBR and Others v Commission [2000] ECR II-491, para 4705. 131 RTE and ITP v Commission, above n 85, para 93. 132 See above note 87. 133 The EU Courts exercise a control of legality over Commission antitrust decisions and apply a ‘manifest error’ review standard to so-called ‘complex technical appraisals’. See above note 51.

170 Damien MB Gerard involved the termination of all trading relations—direct and indirect, and for an indefinite duration—between Alrosa and De Beers, the two largest producers of rough diamonds in the world, against concerns that previous supply agreements between the two firms had contributed to entrench De Beers’ dominant position on the rough diamonds market and its ‘marketmaker role’.134 The General Court annulled the Commission Decision because the commitments made binding on De Beers were disproportionate,135 but the Court of Justice reversed that annulment.136 In essence, the General Court stuck to a corrective approach and held that, when making commitments binding on firms, the Commission had to opt for the least onerous appropriate measure known to it and ‘[could] not lawfully propose to the parties that they should offer it commitments which go further than a decision which it could have adopted under Article 7(1) of Regulation No 1/2003’.137 Moreover, by denying the necessity of the remedy, the General Court indirectly questioned the theory of harm put forward by the Commission, as the mere holding of a dominant position does not infringe Article 102 TFEU if there is no abuse.138 The Court of Justice clearly took a different approach, as it validated the Commission’s position and thereby stretched significantly the boundaries of Article 102 TFEU while adopting a regulatory approach to remedies. The starting point of the Court of Justice’s reasoning was that proportionality applies to ‘any act of the institutions of the Union’, including commitment decisions, but that ‘the precise extent and limits of the obligations which flow from the observance of that principle’ vary according to the nature of the proceedings, ie whether in infringement (Article 7) or commitment (Article 9) proceedings.139 In turn, the Court found that Application of the principle of proportionality by the Commission in the context of Article 9 of Regulation No 1/2003 is confined to verifying that the commitments in question address the concerns it expressed to the undertakings concerned and that they have not offered less onerous commitments that also address those concerns adequately.140

As a result, not only is the necessity prong of the proportionality test virtually inapplicable, the control of the appropriateness of the remedies is also reduced

De Beers, above n 6, Recital 28. See the General Court in Alrosa, above n 6. 136 See the ECJ in Alrosa, above n 6. 137 As mentioned earlier (note 75), the Commission acknowledged that it had ‘suggest[ed] amendments to the proposed commitments’ that would have brought all trading relations between Alrosa and De Beers to an end. See De Beers, above n 6, Recital 42. 138 The case should arguably have been dealt with under Article 101 TFEU, but Alrosa was not ready to provide the commitment sought by the Commission. 139 Alrosa, above n 6, paras 36–37. 140 Ibid, para 41. 134 135

Negotiated Remedies in the Modernisation Era 171 to a minimum because, the Court added, ‘[j]udicial review for its part relates solely to whether the Commission’s assessment is manifestly incorrect’.141 In other words, the principle of proportionality would be breached only if ‘the Commission’s conclusion [were] obviously unfounded, having regard to the facts established by it’.142 The justifications for doing away with that key constraint on ‘discretionary remedialism’ are twofold:143 (i) effectiveness, ie the fact that the commitment procedure ‘is based on considerations of procedural economy’, so that,144 as suggested by Advocate General Kokott, ‘the general interest in finding an optimum solution from the point of view of speed and procedural economy justifies restricting the choice of possible measures in the context of Article 9 of Regulation 1/2003’;145 and (ii) the voluntary nature of commitments, which implies that firms ‘consciously accept that the concessions they make may go beyond what the Commission could itself impose on them in a decision adopted under Article 7 of the regulation after a thorough examination’.146 Ultimately, the Court of J ustice upheld the unlimited prohibition of all trading relations between Alrosa and De Beers as an adequate remedy to a situation of an essentially contractual nature which cannot easily be characterised as abusive under Article 102 TFEU. Reducing the necessity prong of the proportionality principle to the least onerous option among the ‘adequate’ ones proposed by a firm is conceptually understandable in view of the fact that commitments are indeed, at least formally, proposed by the firm(s) in question. However, it becomes problematic when considered against the lenient review standard applicable and therefore the wide discretion left to the Commission in determining whether a set of commitments is adequate or not. Moreover, given the particularly unattractive alternative of long and costly infringement proceedings,147 the allegedly voluntary character of commitments is at most a safeguard against the possible ‘obviously unfounded’ nature of the Commission’s concerns. Hence, the reduced version of the proportionality principle applicable in commitment proceedings, as construed by the Court of Justice, incentivises—rather than limits the risk of—firms to settle on some suboptimal remedies, in particular if the deal reached with the Commission involves ancillary sweeteners.148

Ibid, para 42. Ibid, para 63. 143 For a general discussion on the limits to ‘discretionary remedialism’, see Lianos, ‘Which Limits’, above n 90. 144 Alrosa, above n 6, para 35. 145 Opinion of Advocate General Kokott in Alrosa, above n 6, para 60. 146 Alrosa, above n 6, para 49. 147 Interestingly, Commission official Wouter Wils voiced a similar, though softened, concern in ‘Settlements of EU Antitrust Investigations: Commitment Decisions under Article 9 of Regulation No 1/2003’, 29 World Competition 352 (2006). 148 In the Alrosa case, for example, De Beers was also faced with a parallel investigation of a new selective distribution system called ‘Suppliers of Choice’, which was closed a few 141 142

172 Damien MB Gerard In other words, it is unable to reconcile effectiveness and efficiency considerations, and it leaves the effectiveness conundrum unaddressed. Arguably, though, the parallel drawn by the General Court between the infringement and commitment decisions on the basis of the adverse effects that they both entail for firms irrespective of their specific features was unwarranted. Commitment and infringement decisions differ inasmuch as the former do not entail a finding of infringement but aim to address concerns at the end of an ideally collaborative learning process. Even if the commitment procedure requires adjustments, that possibility should be preserved, it is submitted, because it responds to a concrete need to guarantee the effectiveness of antitrust enforcement in highly (or increasingly) dynamic markets. To the extent that due process safeguards are properly implemented, as discussed below, it is therefore not per se unacceptable for the Commission to benefit from reasonable flexibility in the application of the proportionality principle in commitment cases. In the US, as Ginsburg and Wright have observed, consent decrees also allow enforcers to impose ‘conditions that extend beyond what [they] would likely be able to obtain after successful litigation’.149 Likewise, while the judicial review of DOJ consent decrees is mandatory,150 the public interest standard of review applied by US federal courts pursuant the Tunney Act does not fundamentally differ from the ‘manifestly incorrect’ standard set by the EU Court of Justice for the assessment of proportionality in commitment cases,151 notably as it has also historically been deferential in

weeks after the adoption of the commitment decision of 22 February 2006, as revealed by the General Court in a judgment of 11 July 2013 in Joined Cases T-107 and 354/08 Diamanthandel A Spira BVBA v Commission, EU:T:2013:367. See especially para 16: ‘[o]n 29 March 2006, the Commission sent Spira a case-orientation letter informing it of its initial view, namely that there was insufficient Community interest to investigate the complaint further and inviting it to consider withdrawing its complaint’ against the Suppliers of Choice system. Ginsburg and Wright, ‘Antitrust Settlements’, above n 20, 56. The mandatory character of the judicial review of DOJ consent decrees can be viewed as a major difference with the situation at the EU level, where such review is very exceptional. However, as Frankel observes, ‘[b]ecause it would be awkward for settling defendants to object to entry of a decree they have agreed to, rarely is there a challenge alleging that the decree is “too strong” or unnecessary. Instead, challenges typically come from competitors who complain that the remedy does not impose sufficient obligations on the defendants.’ Lawrence Frankel, ‘Rethinking the Tunney Act: a Model for Judicial Review of Antitrust Consent Decrees’, 75 Antitrust Law Journal 549, 609, footnote 225 (2008). Still, ‘[b]y forcing the DOJ to reveal the rationale behind its settlement, and subjecting the settlement to public comment and judicial review, the Act gives the DOJ an incentive to make sure its proposed remedy is sound’. Ibid, 595. 151 The Tunney Act provides that, before entering any consent judgment proposed by the DOJ, the court must consider: (A) the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration of relief sought, anticipated effects of alternative remedies actually considered, whether its terms are ambiguous and any other competitive considerations bearing upon the adequacy of such judgment necessary to a determination of whether the consent judgment is in the public interest; and (B) the impact of entry of such judgment upon competition in 149 150

Negotiated Remedies in the Modernisation Era 173 order to ‘preserve consent decrees as an effective enforcement mechanism’.152 Rather, the main systemic feature that constrains the US authorities’ remedial discretion lies in the fact that they have to take a case through the many hurdles of a trial in order to establish an infringement, ie there is a real alternative to negotiated procedures capable of preserving the consensual character of proposed remedies and of supporting their presumably proportionate nature.153 In contrast, the combination of the Alrosa case law, the absence of mandatory judicial review over the entry of commitment decisions and the lack of a credible alternative to a negotiated procedure has created the wrong set of incentives at the EU level. In the end, compliance with the proportionality principle in the post-Alrosa era has largely become a matter of self-discipline on the part of the Commission, with all the structural limitations that it implies, in spite of some noticeable efforts. Concretely, the Commission’s Manual of Procedure summarises the Alrosa proportionality standard but also underlines that each commitment decision should ‘explain why the commitments resolve the identified competition concerns in a proportionate manner’.154 In effect, the relevant market or markets, upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial (15 USC § 16(e)(1)). In practice, while the review standard applied by district courts has varied, many courts historically approved decrees without much consideration in the understanding that ‘the statute’s requirement that a decree be in the public interest did not mean that the decree had to embody the relief that would serve the public best’. Frankel, ‘Rethinking the T unney Act’, ibid, 556. Further to amendments passed in 2004, Frankel summarises the public interest review carried out under the Tunney Act as follows: ‘(a) whether the consent decree may have resulted from improper influence or other improprieties; (b) whether it is ambiguous, readily enforceable, and not unduly harmful to third parties; and (c) whether it is likely to be effective and adequate’. Ibid, 606. In turn, the efficacy and adequacy test entails that the court ‘needs to review the decree to ensure that the proposed remedy has a logical connection to, and a reasonable probability of resolving, at least some of the alleged harm’. Ibid, 609–610. Hence, ‘[a]lthough a court ought to check that the facts alleged in the complaint are at least plausible and set out a claim that is arguably in violation of the antitrust laws (to, among other things, prevent blatant DOJ overreaching), as long as the claims made in the complaint are not obviously false or illogical, a judge ought not to delve in depth into the veracity of the facts, the illegality of the challenged practice, or the validity of possible defenses, since to do so would lead to the sort of litigation the parties attempted to avoid by settlement’. Ibid, 610, footnote 225. 152 Lloyd Anderson, ‘Mocking the Public Interest: Congress Restores Meaningful Judicial Review of Government Antitrust Consent Decrees’, 31 Vermont Law Review 594 (2007). For Anderson, the proper standard of judicial review under Tunney Act, as amended in 2004, is a ‘within the reaches of the public interest’ standard whereby courts should enter consent decrees only if ‘they are firmly convinced, after serious consideration of the enumerated factors, that they are reasonably calculated to protect competition’. Ibid, 612. 153 As Anderson explains, the Tunney Act was originally introduced to avoid ‘sell-outs and sweetheart deals’ between defendants and the government (ibid, 594, 596 and 614), rather than to constrain the remedial discretion of the DOJ. 154 Manual of Procedure, above n 44, chapter 16, paras 46 and 70. Guidance issued by certain NCAs in relation to commitment proceedings adopts a strict stance on the issue of proportionality. The French NCA, for example, indicates that ‘[t]he Autorité does not

174 Damien MB Gerard all commitment decisions nowadays undertake to justify the nature and scope of the remedies made binding on the firm(s) proposing commitments in light of the proportionality principle,155 and those involving structural remedies do so with particular care. Likewise, former Commissioner Almunia was adamant that the Commission ‘make[s] sure that the commitments are tailored to the competition problem at hand at all times’.156 Remarkably, the Commission has also indicated that it has been guided by proportionality considerations when assessing comments received in response to the market test and submissions filed by complainants, thereby hinting that it resisted requests for more far-reaching remedies on proportionality grounds.157 In the French long-term electricity supply case, for example, the Commission refused to limit the duration of EDF’s new supply contracts to a three-year period as it would have been ‘disproportionate in the context of the proposed commitments’, instead settling in favour of a five-year duration.158 The Commission has also endeavoured to ensure the proportionality of negotiated remedies by limiting commitment decisions in time or by including a review clause in them. While Article 9 of Regulation 1/2003 merely states that commitment decisions ‘may be adopted for a specified period’,159 the Manual of Procedure refers generally to the factoring of duration into the Commission’s proportionality assessment and favours deadlines over review clauses.160 In practice, about two-thirds of all commitment decisions adopted so far have included limitations in time, and that proportion reaches beyond four-fifths if one discounts for those obvious cases where remedies were of a one-off nature, such as structural ones. The duration of commitments has ranged between two years and nine months and 10 years, with an

accept binding commitments going beyond the resolution of competition concerns even though it can, when necessary, acknowledge additional remedies proposed by the undertaking concerned, for example, in order to facilitate the implementation of commitments that have been accepted’. Notice on Competition Commitments of 2 March 2009, above n 73. 155 Decisions typically use the formulation of the proportionality principle that can be found in EU Courts’ precedents involving infringement cases and then include a caveat referring to the Alrosa judgment as guiding the application of proportionality in commitment cases. 156 Almunia, ‘Remedies, Commitments and Settlements’, above n 21. 157 See, eg Microsoft (Tying), above n 105, recital 97; Commission Decision of 17 March 2010 in Case COMP/39.386—Long-term contracts France, paras 54 and 64. 158 Long-term contracts France, ibid, para 80. See also paras 83 and 85 in relation to secondary suppliers. 159 In Alrosa, the General Court refused to consider the indefinite period of time for which the commitments were made binding on De Beers as disproportionate, pointing to the fact that Article 9 of Regulation 1/2003 does not ‘require’ the Commission to limit the duration of commitment decisions, as was allegedly the intention in the original Commission proposal that preceded the adoption of the Regulation. See Alrosa, above n 6, para 91. The Court of Justice affirmed this point. 160 Manual of Procedure, above n 44, chapter 16, paras 51–52.

Negotiated Remedies in the Modernisation Era 175 average of (around) five years.161 Such limitations in time preserve the adjustable character of commitments and their experimental nature, while relieving firms proposing commitments of the need to petition the Commission prior to adapting their conduct to market changes and of the associated risk of (again) having to face constituencies of adverse interests favouring the maintenance of the restrictions in place.162 In theory, limiting commitment decisions in time can usefully contribute to mitigating the effects of suboptimal remedies. In practice, though, much depends on their actual duration, and on whether that duration fits the commercial and technical cycles in the relevant market contexts; commitments made binding for a period of five years, for example, may severely impact firms in many industries. As a result, the negotiation of the duration of commitments can sometimes be highly contentious. *

*

*

Overall, the traditional role of the proportionality principle as a constraint to the Commission’s remedial discretion appears significantly weakened in negotiated procedures. As noted, beyond the inherent limitations to the justiciability of proportionality, compliance with that principle has very much become a matter of self-discipline on the part of the Commission in the aftermath of the Alrosa judgment of the Court of Justice. Hence, proportionality appears to be of limited help in ensuring the lasting legitimacy of antitrust enforcement and remedial action, and in addressing the effectiveness conundrum arising from the move towards a regulatory paradigm. This is notably because the voluntary character of commitments can hardly be construed as a guarantee of proportionality of the proposed remedies, let alone of their optimal character. As a result, it was suggested that a solution to reconcile effectiveness and efficiency is rather to be found in the strengthening of the input legitimacy of the commitment procedure, ie in the other constraint historically put on the Commission’s remedial action, namely due process. This is also because appropriate due process standards can contribute to restoring the voluntary nature of commitment as a proportionality safeguard and therefore can act as a proxy for a proportionality standard compatible with the specific features of negotiated enforcement. In theory, indeed, firms do not have an incentive to consent to remedies that are unrelated to antitrust concerns identified in the course an open dialogical process with the C ommission

161 Although they are said to ‘often last for too long a period’ (Epstein, above n 30, 6), some prominent consent decrees in the US have also speficied an original period of five years. See, eg United States v Microsoft, above n 3. 162 Article 9(2) of Regulation 1/2003 generally allows the Commission to ‘upon request or on its own initiative, reopen the proceedings’, notably ‘where there has been a material change in any of the facts on which the decision was based’.

176 Damien MB Gerard and third parties. However, as explained below, EU-negotiated procedures do not guarantee the openness of that process at this stage, thereby further deepening the legitimacy gap previously identified.

2.2.2 Due process requirements The Court of Justice gradually set due process requirements in infringement proceedings at a time when antitrust enforcement was still governed by Regulation 17/62.163 These requirements mainly entail the exercise of the right to be heard in response to objections stated in writing by the Commission, and the associated right of access to file in the preparation of that response. In addition, the judicial review of adverse decisions has been construed by the Court of Justice as an additional guarantee against the potential arbitrariness of the Commission and, generally, of the legitimacy of the EU antitrust enforcement framework as a whole.164 The procedural safeguards associated with each step in infringement proceedings were then largely codified in Reg ulation 1/2003 and Regulation 773/2004.165 The picture is radically different when it comes to negotiated proceedings, which nowadays form the bulk of antitrust enforcement in the European Union: Regulation 773/2004 does not contain a single reference to commitment proceedings and Regulation 1/2003 only refers to the issuance by the Commission of a preliminary assessment in response to which commitments can be offered (Article 9(1)), and to the obligation to market test commitments before making them binding (Article 27(4)). Hence, irrespective of all its benefits, choosing the commitment route has so far been a leap of faith, as the due process safeguards built into the process are virtually non-existent. Interestingly, the application of due process requirements in commitment proceedings was the second issue at the heart of the Alrosa case, and the General Court and the Court of Justice again differed squarely in their analysis. For the General Court, the right to be heard was a ‘fundamental principle of [EU] law’ that ‘must be guaranteed even in the absence of any rules governing the proceedings in question’ and which requires a right ‘of access to the Commission’s file’ in order to be exercised effectively.166 In the end, it concluded that the Commission had breached the right to be heard by failing to provide

163 Among the most significant cases in that respect, see, eg Case T-30/91 Solvay SA v Commission [1995] ECR II-1775; Case T-36/91 Imperial Chemical Industries plc v Commission [1995] ECR II-1847. 164 See, eg Case T-38/02 Groupe Danone v Commission [2005] ECR II-4407, para 51; Case T-54/03 Lafarge SA v Commission [2008] ECR II-120*, paras 42 et seq. 165 Regulation 773/2004 relating to the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty, [2004] OJ L123/18, in particular chapters V and VI. 166 General Court in Alrosa, above n 6, paras 191 and 197.

Negotiated Remedies in the Modernisation Era 177 Alrosa with a copy of the comments filed by third parties in the framework of the market test of its commitments, whereas The third-party observations were of particular importance in the proceedings, in so far as the Commission took them into account in concluding that the market testing was negative and that only the cessation of all trading relations with effect from 2009 constituted an acceptable solution.167

Moreover, the General Court found that the Commission was under a ‘duty to hear the parties on those observations, and on the other factual elements justifying its new conclusion’.168 The Court of Justice reversed, finding that ‘the proposition that the Commission was obliged to provide Alrosa with a reasoned explanation of why the observations of the third parties had changed its position’ was ‘incorrect’,169 and that Alrosa was not entitled to be heard or to have access to the file in relation to the rejection of its proposed commitments as a result of the market test.170 As construed by the Court of Justice, commitment proceedings are therefore affected by a due process deficit. In effect, while it is bound to formalise its concerns in writing, the Commission is freed from any specific requirements in handling proposed remedies tabled in response to its preliminary assessment. Generally, the Article 9 procedure is not subject to a clear sequence with specific procedural rights associated with each step in the process leading to the adoption of the decision, and with clearly defined implications for the firms making the commitments. Combined with the relaxation of the proportionality principle, the lack of formalisation of the interactions between firms, the Commission and third parties means that no guarantee is built into that process to ensure that remedies found ‘appropriate’ by the Commission to address its concerns are optimal from a welfare point of view. Put otherwise, the increased discretion benefiting the Commission as a result of the relaxation of proportionality requirements appears further widened by the lack of procedural safeguards, thereby creating an asymmetry in the respective incentives of firms and the Commission, which threatens the lasting legitimacy of negotiated enforcement. In the end, doing away with both proportionality and due process requirements allows effectiveness considerations to go unchecked, to the point of possibly affecting the selection and assessment of the evidence, and deprives commitment proceedings of any guarantee as to the (more) efficient character of new market equilibriums sought by the Commission. Thus, beyond concerns about ‘[t]he current lack of adequate

Ibid, para 202. Ibid, para 194. 169 ECJ in Alrosa, above n 6, para 92. 170 Ibid, paras 88–89. Specifically, the Court of Justice held that Alrosa could not ‘claim the procedural rights reserved to the parties to the proceedings’ because, in the end, the decision made binding a (revised) set of commitments offered unilateraly by De Beers. 167 168

178 Damien MB Gerard checks and balances on the commitments procedure’,171 what is at stake is the ability of the Commission to achieve the objectives of substantive modernisation through means other than its own self-discipline. Conscious, no doubt, of the risks inherent in the broad discretion it was given, the Commission endeavoured to frame the exercise of that discretion in three ways. First, it allowed firms proposing commitments to call upon the Hearing Officer at any time during the proceedings in order to facilitate the exercise of their procedural rights.172 That possibility has been available since the very first commitment case, and all subsequent decisions have been accompanied by the publication of a report of the Hearing Officer. Interestingly, while Hearing Officers did, at times, grant the request of firms offering commitments to obtain access to specific documents,173 their reports also revealed the Commission’s early practice of subjecting the adoption of a commitment decision to the signature of a declaration whereby firms acknowledged that they had received sufficient access to the information necessary to propose commitments meeting the Commission’s concerns.174 That practice appears to have been discontinued in late 2010,175 without any clear explanation.176 Secondly, in the Best Practices Notice, the Commission indicated a willingness to ‘take into consideration the interests of third parties’ when carrying out its proportionality assessment and,177 when commitments cannot be implemented without the agreement of third parties, to request evidence of the agreement of the relevant third parties prior to making the commitments binding.178 These guarantees reflect a formal condition imposed by the Court of Justice in light of the principle of proportionality in commitment procedures and at the same time reflect a willingness to prevent a repetition of the Alrosa saga, inasmuch as it was rooted in a decision making binding

Marsden, ‘The Emperor’s Clothes’, above n 71, 5. Manual of Procedure, above n 44, chapter 13, para 68. See also Article 15(1) of Decision 2011/695 of the President of the European Commission of 13 October 2011 on the function and terms of reference of the hearing officer in certain competition proceedings, [2011] OJ L275/29. 173 See, eg Final report of the Hearing Officer in Case COMP/38.636—Rambus [2010] OJ C30/15. 174 See, eg Final report of the Hearing Officer in Case COMP/39.530—Microsoft (Tying) [2010] OJ C36/5. 175 The report of the Hearing Officer in the ENI case appears to be the last one to refer to such a declaration having been filed with the Commission. See Final report of the Hearing Officer in Case COMP/39.315—ENI [2010] OJ C352/6. 176 Note, however, that the discontinuance of that practice follows by a few months the ECJ’s judgment in Alrosa, dated 29 June 2010. 177 Commission notice on best practices for the conduct of proceedings concerning Articles 101 and 102 TFEU, [2011] OJ C308/06, para 115 (Best Practices Notice). 178 Ibid, para 128 and Manual of Procedure, above n 44, chapter 16, para 47. See also the French NCA’s Notice on Competition Commitments of 2 March 2009, above n 73, para 38. 171 172

Negotiated Remedies in the Modernisation Era 179 c ommitments of a contractual nature offered by De Beers unilaterally without the consent of Alrosa.179 Generally, the willingness to give voice to third parties also supplements Article 27(4) of Regulation 1/2003 and confirms the importance of the Commission market testing the proposed commitments ‘with all stakeholders before taking a final decision to make sure that it is a good outcome for the market and that no issue is overlooked’.180 Thirdly, in spite of the lack of obligation in this respect, the Commission has endeavoured to inform firms proposing commitments of the outcome of the market test,181 ie of the observations received in response to the publication of the ‘concise summary of the case and the main content of the commitments’ known as the Article 27(4) notice. However, because of the flexibility allowed by the Alrosa judgment, most of the time the Commission simply ‘inform[s] the parties orally or in writing of the substance of the replies’ by means of a summary of the observations submitted by third parties.182 In at least two cases, though, for reasons that are not public, firms making commitments were ‘provided with non-confidential versions of the responses received in response to the market test’, and not just a summary of them.183 This variety of situations and treatment reveals the unsustainable character of the Court of Justice’s position in Alrosa, the wide discretion of the Commission and the uncertain character of the procedural rights available in commitment proceedings. Overall, these self-limitations do not go far enough, it is submitted, in putting in place the due process requirements necessary to ensure that commitment proceedings allow for an open dialogical exchange capable of reconciling effectiveness and efficiency and of closing the legitimacy gap previously identified. More stable and ambitious steps are thus required to strengthen the input legitimacy of commitment proceedings and turn them into the kind of collaborative learning process capable of achieving optimal remedial outcomes.184 Short of deep institutional transformations that would bring the

179 On the first point, see in particular Alrosa, above n 6, para 41. Of course, the second guarantee sounds like an acknowledgement by the Commission that it mishandled the Alrosa case, even though it managed to escape the censure of the Court of Justice for formalistic reasons. 180 Almunia, ‘Remedies, Commitments and Settlements’, above n 21. 181 See, eg Final report of the Hearing Officer in Case COMP/39.351—Swedish Interconnectors [2010] OJ C142/27; Final report of the Hearing Officer in Case COMP/39.398—VISA MIF [2011] OJ C79/6; or Final report of the Hearing Officer in Case COMP/39.736— Siemens/Areva [2012] OJ C280/7. 182 Best Practices Notice, above n 177, para 132; Manual of Procedure, above n 44, chapter 16, para 64. 183 Final report of the Hearing Officer in Case COMP/B-1/37.966—Distrigaz [2008] OJ C9/6; Final report in Rambus, above n 173. 184 On the importance of ensuring sufficient interactions between firms proposing commitments and the relevant competition authority, see ECN Recommendation on Commitment Procedures, para 10 and recommendation 4.

180 Damien MB Gerard EU antitrust enforcement framework more in line with the US system, these steps should involve, on the one hand, departing from the Alrosa case law with respect to due process requirements and, on the other hand, rebalancing the respective incentives of firms and the Commission. To ensure that they achieve the objective sought, these steps should be clarified in an official communication that creates (enforceable) legitimate expectations. Departing from the Alrosa precedent essentially involves: (i) consistently providing firms proposing commitments with a full non-confidential version of the observations submitted by third parties in response to the market test, which is already the case in certain national systems,185 notably as the Commission frequently requires ‘improvements’ to the commitments as a result of the market test; and (ii) the (even succinct) motivation of the Commission’s decision to reject market-tested commitments, inasmuch as it is liable to fundamentally affect the interests of the undertakings concerned.186 As noted, the Commission has already communicated a non-confidential version of the responses to the market test in some past cases. Moreover, it has developed a practice of sending letters to executives of the firms proposing commitments to explain its assessment of those commitments in light of third parties’ comments.187 Hence, while they would more clearly frame the sequence of commitment proceedings and clarify the procedural rights of firms offering commitments, these steps should not raise serious effectiveness issues. The second set of steps to undertake in order to strengthen the input legitimacy of negotiated enforcement aims to rebalance the incentives to engage in commitment proceedings on the part of the Commission and firms, respectively. The overall objective is to salvage the voluntary character of commitments as a guarantee of proportionality and to turn commitment proceedings into a collaborative process capable of delivering optimal outcomes from both an effectiveness and an efficiency point of view. The first step is simple, radical and consistent with the underlying rationale of Article 9: engaging in commitment proceedings should immunise firms from the risk of fines even

185 See the French NCA’s Notice on Competition Commitments of 2 March 2009, above n 73, para 27: ‘The applicant and the undertaking concerned … have access to the documents used by the R apporteur to establish the preliminary assessment and to those used by the Autorité to decide on the commitments, that is to say at least the preliminary assessment and the third parties’ comments resulting from the market test’. 186 As indicated by the Manual of Procedure, above n 44, ‘[t]he obligation to carry out a market test should not be misunderstood as requiring the approval of the market for the commitments’. Chapter 16, para 66. 187 See, eg Joaquín Almunia, ‘Statement of VP Almunia on the Google Antitrust Investigation’, SPEECH/12/372, Brussels, 21 May 2012; Frances Robinson, ‘EU Almunia Tells Google to Improve Antitrust Search Proposal Offer’, Wall Street Journal, 17 July 2013, http://online.wsj.com/article/BT-CO-20130717-703287.html.

Negotiated Remedies in the Modernisation Era 181 if the Commission ultimately finds an infringement. In essence, that proposition amounts to taking Recital 13 of Regulation 1/2003 seriously, inasmuch as it provides that ‘[c]ommitment decisions are not appropriate in cases where the Commission intends to impose a fine’.188 Practically, the Commission should be deemed to have forfeited the right to impose fines upon the issuance of a ‘preliminary assessment’ within the meaning of Article 9, since the Commission is at that point ‘convinced of the undertakings’ genuine willingness to propose commitments which will effectively address the competition concerns’.189 If a statement of objections has already been issued, the same consequence should attach to the market testing of proposed commitments, ie to the publication of an Article 27(4) notice.190 Abiding by such a principle would radically contribute to closing the legitimacy gap identified e arlier because it would force the Commission to ‘weigh carefully’191 the optimal character of negotiated solutions and would create a more balanced framework for the negotiation of (the final set of) commitments. Interestingly, in the only case so far where the Commission did return to the infringement procedure after an inconclusive market test, it refrained from imposing fines.192 The second step is more systemic in nature and aims to restore infringement proceedings as a credible alternative to the negotiated route for firms willing to litigate the Commission’s concerns or objections, and as a source of law capable of providing stable guidance. In turn, it should also contribute to restoring the voluntary nature of the choice to engage in commitments proceedings and ensure that the negotiated procedure takes place in the shadow of the law. In the US, the fact that antitrust enforcement authorities have to take a case through the many hurdles of a trial in order to establish an

188 The same principle was repeated in the Commission’s Best Practices Notice, above n 177, para 116. It contrasts, however, with the ECN Recommendation on Commitment Procedures, which states that ‘[a]n Authority can at any stage continue proceedings with a view to adopting a prohibition decision to bring to an end an agreement or conduct that is found to infringe the competition rules and may provide for the imposition of remedies and/or fines’ (para 4). 189 Commission Notice on best practices for the conduct of proceedings concerning Articles 101 and 102 TFEU, [2011] OJ C308/06, para 116; Manual of Procedure, above n 44, chapter 16, para 23. In an Article 9 procedure, the Commission is also supposed to have positively ‘ascertain[ed] the willingness of the parties to settle … and that the commitments appear sufficiently likely to resolve the identified competition problems’. Manual of Procedure, chapter 16, para 10. 190 As the Commission acknowledges, ‘[i]n cases, in which the Commission sent a Statement of Objections announcing its intention to impose a fine it would be preferable for the commitment decision to explain why a fine was no longer necessary’. Manual of Procedure, chapter 16, para 14. In addition, the Commission would have already informally ‘market tested’ or discussed the offered commitments with specific third parties prior to the publication of the Article 27(4) notice. See Manual of Procedure, chapter 16, para 54. 191 According to the Manual of Procedure, ‘[t]he advantages and disadvantages of a commitment decision have to be weighed carefully in each individual case’. Chapter 16, para 5. 192 Commission Decision of 16 July 2008 in Case COMP/C2/38.698—CISAC.

182 Damien MB Gerard infringement means that there is a real alternative to the consent decree procedure capable of preserving the consensual character of negotiated remedies and of supporting their presumably proportionate nature. The EU antitrust enforcement context is different, and deep institutional transformations bringing it more in line with the US system are unlikely to take place in the near future. Similarly, introducing a systematic public interest review of proposed commitment decisions would not fit well into the EU framework and, judging by the limitations of that review in the US, it would be unlikely to deliver the expected result. Rather, a more promising approach to rebalancing the EU antitrust enforcement framework lies, it is submitted, in strengthening the role of the EU Courts in adjudicating appeals brought against the Commission’s infringement decisions.193 Indeed, empowering the EU Courts to operate as courts of full appellate jurisdiction, at least when reviewing ‘[antitrust] decisions whereby the C ommission has fixed a fine or periodic penalty payment’,194 would likely change the dynamics of the EU antitrust enforcement system because it would force the Commission to conduct proceedings in the shadow of full review. Hence, it carries the potential of freeing up space for more open interactions over the substance of cases, thereby strengthening infringement proceedings as a more effective alternative to negotiated solutions. Moreover, such an evolution would not require any major structural changes to the EU competition enforcement and institutional framework but could be directly implemented by the EU Courts on the basis of Article 31 of Regulation 1/2003. In fact, it would also bring the EU model closer to that of certain Member States, as the decisions of many national competition authorities are already subject to full appellate jurisdiction today. *

*

*

Reconciling effectiveness and efficiency in the design of negotiated remedies requires strengthening the input legitimacy of commitment proceedings. This, in turn, requires a strengthening of the other constraint historically imposed on the Commission’s remedial action, namely due process. This is notably because appropriate due process standards can contribute to restoring the voluntary nature of commitments as a proportionality safeguard and therefore act as a proxy for a proportionality standard reflecting the specific features of negotiated enforcement, including effectiveness concerns. However, in the post-Alrosa era, commitment proceedings are blemished

193 For an in-depth discussion of that proposition, see Damien MB Gerard, ‘Breaking the EU Antitrust Enforcement Deadlock: Re-empowering the Courts?’, 36 European Law Review 457 (2011). 194 Article 31 of Regulation 1/2003.

Negotiated Remedies in the Modernisation Era 183 by a clear due process deficit, as they are not subject to a clear sequence articulating identifiable procedural rights. Moreover, the self-limitations with which the Commission has endeavoured to comply are insufficient to turn commitment proceedings into a collaborative learning experience. This chapter therefore proposed to depart from the Alrosa precedent by systematically providing firms proposing commitments with a non-confidential version of the observations submitted by third parties in response to the market test and, as the case may be, by giving them a reasoned statement explaining why the scope of the proposed commitments is deemed insufficient. In addition, it was submitted that, in order to rebalance the respective incentives of firms and the Commission in the design of negotiated remedies and to address the shortcomings associated with the current situation, it is necessary to immunise firms engaging in commitment proceedings from the risk of fines and to empower the EU Courts to operate as courts of full appellate jurisdiction in reviewing infringement decisions, thus restoring infringement proceedings as a credible alternative to the negotiated route.

3. Conclusion Over the past 10 years, the nature, scope and design of remedies have grown in importance in the enforcement of competition law in the European Union. That evolution can be viewed as one of the many consequences of the process known as the modernisation of EU competition law, understood as a comprehensive attempt to experiment with a utility-maximising approach to the regulation of economic competition, with substantive, procedural and institutional dimensions. In effect, modernisation has notably entailed a revamp of enforcement strategies driven by effectiveness considerations. In turn, that effectiveness paradigm has led to a shift towards a ‘negotiated’ form of enforcement by means of tools such as leniency, settlements and commitment proceedings. Commitments, in particular, have developed into the default mechanism for enforcing the antitrust provisions of the EU Treaties outside the field of cartels, where the two other instruments are steadily relied upon. The shift towards negotiated enforcement has moved remedies to the core of antitrust adjudication. However, the effectiveness rationality driving negotiated procedures is as such inapt to ensure the design of efficient remedies, it was submitted, ie effectiveness has limits when it comes to defining optimal remedies, which in turn affects the legitimacy of those negotiated remedies. In the EU context, these limits are magnified by the relaxation in commitment proceedings of the safeguards that have historically limited the Commission’s remedial discretion, as captured by the concepts of proportionality and due process. While there is a case for relaxing proportionality

184 Damien MB Gerard requirements in commitment cases, doing away with both concepts creates a gap that threatens the legitimacy of competition law itself. In turn, filling that gap requires a review of the sequencing of commitment proceedings and associated procedural rights, as well as the (re)development of a credible alternative to those proceedings, in order to salvage the voluntary character of commitments as a guarantee of proportionality and to turn commitment proceedings into a collaborative process capable of delivering optimal outcomes both from an effectiveness and an efficiency point of view.

Giorgio Monti * Behavioural Remedies for Antitrust Infringements—Opportunities and Limitations

1. Introduction In this chapter the focus is on the approach of the European Commission and the EU Courts in imposing remedies for infringements of Articles 101 and 102 on the basis of Article 7(1) of Regulation 1/2003. This provides that, when the Commission finds an infringement, it ‘may by decision require the undertakings and associations of undertakings concerned to bring such infringement to an end’.1 The Court of Justice has expanded on this phrase, indicating that it allows the Commission to prohibit ‘the continuation of certain action, practices or situations which are contrary to the Treaty’.2 However, the Court has also recalled that remedies must satisfy the requirement of proportionality: they may ‘not exceed what is appropriate and necessary to attain the objective sought, namely re-establishment of compliance with the rules infringed’.3 These judge-made limitations made in cases pursuant to Regulation 17/62 have now been codified in Article 7 of Regulation 1/2003, which provides that the remedies selected must be ‘proportionate to the infringement committed and necessary to bring the infringement effectively to an end’. There is nothing in the wording of Regulation 1/2003 that indicates that the role of commitments accepted by the Commission should be any different: pursuant to Article 9, commitment decisions may be issued when the Commission ‘intends to adopt a decision requiring that an infringement be brought to an end’, meaning that the commitments offered by the parties must serve the same functions as the remedies that would have been imposed

Professor of Law, European University Institute, Florence 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, [2004] OJ L1/1. This power was already provided for in Article 3(1) of Regulation 17/62, First Regulation Implementing Articles 85 and 86 of the Treaty. OJ, English special edition: Series I Chapter 1959–1962, 87. 2 Joined Cases 6 and 7-73 Istituto Chemioterapico Italiano SpA and Commercial Solvents Corp v Commission [1974] ECR 223, para 45. 3 Joined Cases C-241 and 242/91 P Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission (Magill) [1995] ECR I-743, para 93. * 1

186 Giorgio Monti by the Commission. However, commentators have suggested that remedies in Article 9 proceedings have gone further than this.4 Indeed, that this may be so is acknowledged by the ECJ in the Alrosa judgment, where it suggested that parties may be tempted to offer far-reaching commitments in exchange for a quicker and less formal resolution that avoids fines.5 As commitment decisions have been the subject of ample commentary, they are outside the scope of this chapter, which focuses on remedies imposed in infringement decisions. A further delimitation of this chapter is that it focuses on remedies, and not sanctions. This division is also found in Regulation 1/2003: Article 7 empowers the Commission to impose remedies, while Article 23 provides that fines may be imposed by the Commission in cases of infringement. Moreover, the chapter excludes claims for damages and/or injunctive relief by persons harmed by wrongful conduct, even if, in some legal traditions, these too count as remedies, and, in some, these ‘remedies’ may be awarded by administrative agencies.6 Only behavioural remedies have been imposed under Article 7, and while these remedies may at times have structural effects, the Commission has not yet used its powers to impose a structural remedy in an infringement decision at the time of writing. Remedies have seldom received attention, yet they can be a useful, and sometimes essential, mechanism by which to secure compliance.7 While, in cases of price-fixing cartels, the undertakings will generally have been aware of what they have done to infringe Article 101 and so are able to self-assess how to avoid a subsequent finding and are also able to cease the infringement unaided, in instances where the scope of the antitrust infringement is less clear it may be beneficial for the undertaking to be instructed as to how to behave to avoid further penalties. Likewise, the competition authority can specify how best to comply so as to ensure that the infringement really ceases. Accordingly, deployment of remedies can be an enforcement strategy that might be seen as a complement (or an alternative) to the more conventional deterrence-based approach based on fines or incarceration.8 Instead of 4 See, eg Malgorzata Sadowska, ‘Energy Liberalization in an Antitrust Straitjacket: A Plant Too Far?’ (2011) 34 World Competition 449; Yves Botteman and Agapi Patsa, ‘Towards a More Sustainable Use of Commitment Decisions in Article 102 TFEU Cases’, 1 Journal of Antitrust Enforcement 347 (2013). 5 Case C-441/07 P Commission v Alrosa Company Ltd [2010] ECR I-5949, para 48. 6 Bernard Schwartz, Administrative Law, 2nd ed, Little, Brown & Co, 1984, 74–89. More generally, and providing a critique of terminologies, see Ioannis Lianos, ‘Competition Law Remedies in Europe: Which Limits for Remedial Discretion?’, in Ioannis Lianos and Damien Geradin, eds, Handbook of EU Competition Law: Enforcement and Procedure, Edward Elgar, 2013, 362 et seq. 7 An important exception is the study by Per Hellström, Frank Maier-Rigaud and Friedrich Wenzel Bulst, ‘Remedies in European Antitrust Law’, 76 Antitrust Law Journal 43 (2009). 8 For a helpful discussion of the differences between these two types of enforcement models, see Daniel Crane, The Institutional Structure of Antitrust Enforcement, Oxford University Press, 2011, 103–107.

Behavioural Remedies for Antitrust Infringements 187 a ssuming compliance by increasing the level of the penalties or the probabilities of getting caught, remedies serve to direct the firm to act in a manner that can remove the harmful effects in the future. Indeed, given some criticisms that the deterrence model may fail to secure compliance completely, having an alternative enforcement tool that is well defined and functional helps strengthen the authority’s tasks.9 While remedies are useful, it is also imperative to bear in mind certain limitations that exist. This chapter considers two aspects: first, Section 2 looks at the role remedies might play and how this role has been shaped by the Commission and the Courts. Then Section 3 examines certain procedural issues pertaining to the imposition of remedies. In this discussion, I use examples from Commission practice to show the variety of remedies that have been selected. The chapter closes with an assessment of the role of r emedies in EU competition law in light of the issues considered here.

2. The purposes of remedies I start from the premise that remedies are effective if they serve the three functions identified in the withdrawn US Department of Justice Report on unilateral conduct: to terminate the defendant’s wrongful conduct, to prevent its recurrence and to re-establish the opportunity for competition in the market.10 The General Court has also suggested that bringing the infringement to an end also includes bringing to an end the effects of the anticompetitive conduct.11 I first consider termination and prevention, and then explore the policy of re-establishing (the opportunities for) competition.

9 For discussion of the deterrent effect of fines, see, eg Cento Veljanovski, ‘Cartel Fines in Europe: Law, Practice and Deterrence’, 29 World Competition 1 (2007); Mario M ariniello, ‘Do European Union Fines Deter Price-Fixing?’, Bruegel Policy Brief No 2013/4, May 2013. 10 US Department of Justice ‘Competition and Monopoly: Single Firm Conduct under Section 2 of the Sherman Act’ (2008), chapter 9, http://www.justice.gov/sites/default/files/atr/ legacy/2009/05/11/236681.pdf. While the report was later withdrawn by the DOJ, it remains one of the few comprehensive surveys of the role of remedies by an antitrust authority. The same goals were identified for the European Commission. See Philip Lowe and Frank Maier-Rigaud, ‘Quo Vadis Antitrust Remedies’, in Barry Hawk, ed, International Law & Policy: Fordham Competition Law Institute 2007, Juris Publishing, 2008, chapter 20, 599. 11 Case C-119/97 P Union française de l’express (Ufex), formerly Syndicat français de l’express international (SFEI), DHL International and Service CRIE v Commission [1999] ECR I-1341, paras 93–94. Here the Court speaks of the power to ‘eliminate or neutralise’ anticompetitive effects.

188 Giorgio Monti

2.1 Termination and prevention The first two functions are closely related. In principle, it is possible to design a remedy that terminates the conduct and prevents its recurrence. A representative example is the remedy imposed in the Water Management Products decision. Article 1 details the nature of the infringement (a continuing agreement and/or concerted practice in the sector for water management services). Article 3 then provides that the undertakings shall bring the infringement to an end and ‘shall refrain from repeating any act or conduct described in Article 1, and from any act or conduct having the same or similar object or effect’.12 One might perhaps query whether the quoted passage is sufficiently precise, not least because, pursuant to Article 24 of Regulation 1/2003, fines may be applied for failure to bring the infringement to an end. However, in a case with broadly the same remedy, the General Court has taken the view that the undertaking should be able to understand what is p rohibited by reference to the decision.13 In some cases, the Commission is more prescriptive—here a valuable illustration is the order in Hilti, which guides the firm not only in explaining what kinds of discounts are forbidden, but also under which circumstances the dominant player may offer discounts.14 However, being too prescriptive may lead to the remedy being quashed. In Cartonboard, the Commission foresaw that the parties to this cartel would continue to exchange information, so it specified the kinds of information that may be exchanged and those that may not. It noted that the parties had already begun to modify their scheme for information exchanges and the Commission took steps to request further delimitations on the kinds of communication that might be passed among the undertakings.15 However, on appeal, some of the requirements established by the Commission were disallowed. The General Court noted that the Commission sought to prohibit the exchange of certain aggregated statistical data, and it took the view that this was not necessary to bring the infringement to an end because it

12 Article 3, Commission Decision of 27 June 2012 in Case COMP/39611—Water Management Products. This was a cartel settlement decision, but rightly the same remedy as in ordinary decisions was issued. For ordinary decisions see, eg Article 3, Commission Decision of 17 February 1992 in Cases IV/31.370 and 31.446—UK Agricultural Tractor Registration Exchange [1992] OJ L68/19: ‘The AEA and the eight members of the Exchange shall immediately put an end to the infringement established in Article 1, in so far as they have not already ended the infringement, and shall in future refrain from entering into any agreement or concerted practice that may have an identical or similar object or effect’. 13 Case T-34/92 Fiatagri UK Ltd and New Holland Ford Ltd v Commission [1994] ECR II-905, para 39; appeal dismissed: Case C-8/95 P, [1998] ECR I-3175. 14 Commission Decision of 22 December 1987 in Cases IV/30.787 and 31.488— Eurofix-Bauco v Hilti [1988] OJ L65/19, Annex, para 1(b). 15 Commission Decision of 13 July 1994 in Case IV/C/33.833—Cartonboard [1994] OJ L243/1, paras 165–166 and Article 2.

Behavioural Remedies for Antitrust Infringements 189 was not information that could be used for anticompetitive purposes. If the Commission wished to prohibit the exchange of such information, it would have to explain how these anticompetitive effects might materialise.16 These examples suggest that there are two policies at play that may conflict: on the one hand, the Commission may guide the undertakings to redesign their commercial conduct, and the undertakings may wish to secure this guidance to avoid fines for non-compliance. On the other hand, the Commission cannot overplay this role by seeking to eliminate anticompetitive effects that may arise in ways not specifically foreseen and condemned by the decision itself. To take a very simple but illustrative example: if what is penalised is cooperation among competitors, the decision cannot forbid the undertakings from entering into vertical agreements with distributors that may facilitate tacit collusion among those competitors. There are two legal principles that underpin this limitation: the first is that an extensive remedy infringes the rights of the defence—in Cartonboard, therefore, unless the Commission in the decision were to explain how it considered the exchange of aggregated statistical data as facilitating collusion, the parties would have no means of responding to this. The second is that there must be a link between the remedy and the violation: according to consistent case law, it is the infringement, not the anticompetitive effects, that has to be tamed.17 It follows from the above that when one speaks of remedies being preventative, this should be read to mean that they prevent the specific antitrust offence that has been discovered from recurring; they do not n ecessarily prevent the anticompetitive effect if the parties can find different ways of behaving that have not been forbidden but lead to similar anticompetitive effects. In this sense, the preventative effect of a behavioural remedy is different from that of antitrust fines. The Commission’s fining policy allows a 100 per cent increase in the fine for recidivism even in situations where the undertaking has committed the same or a similar infringement.18 Accordingly, if a party continues to cause anticompetitive effects by means not specifically prohibited by the first decision, it will draw little comfort that it is not in breach of the obligations in that decision, for its penalty will be much more severe for its choice to circumvent the original decision. By contrast, in a behavioural remedy, the Commission may only prohibit the undertaking from continuing the specific infringement. Nevertheless, preventing a recurrence of the infringement is valuable because the case law shows that the undertaking will normally wish to

16 Case T-310/94 Gruber + Weber GmbH & Co KG v Commission [1998] ECR II-1043, paras 177–178. 17 See the cases cited in nn 2 and 3 above. 18 Commission Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation 1/2003, [2006] OJ C210/2, para 28(a).

190 Giorgio Monti c ontinue the kind of behaviour it has engaged in, so establishing parameters for legality is essential. This also justifies the Commission imposing a fine and a remedy at the same time: the two elements provide for different goals. The fine is designed to provide for general deterrence, meaning that it acts as a signal to everyone that a competition infringement does not pay, so the fine is not part of the toolbox that brings the infringement to an end.19 However, a counter-argument might be that the fine is also designed to achieve specific deterrence. The Guidelines on fines indicate that the size of the penalty should deliver specific and general deterrence,20 but if the remedy under Article 7 (recalling that breach of the remedy makes the undertaking liable to pay periodic penalties) delivers specific deterrence, then one might legitimately ask for the decision-maker to deduct from the fine any amount which is covered, as it were, by the behavioural remedy. A reply to this might be that the Commission will already take this into consideration as a mitigating factor when it considers that the undertaking has ceased the infringement and is cooperating with the Commission21—one aspect of such cooperation may be in aiding the Commission in designing an appropriate remedy. A good example of this is the approach taken in Hilti: after the Commission secured an interim injunction, the dominant firm undertook to cease the practices the Commission objected to and agreed a certain mode of conduct to be followed pending the final decision, and this modality of behaviour was then restated as the remedy in that case. The result of this cooperation was a reduction in the fine.22 This approach justifies mixing the deterrence-based approach with a more prescriptive enforcement style from a legal perspective. Mixing up these two enforcement styles is also explained by the limited scope of the behavioural remedy—it merely seeks to avoid continuation of the infringement, and nothing more.

2.2 Re-establishing competition The third objective of remedies is a little vague, so an example will help elucidate it. Suppose you sanction a cartel and impose the sort of cease-and-desist orders described above: is the opportunity for competition re-established?

Hellström et al, ‘Remedies’, above n 7, 45. Fining Guidelines, above n 18, para 4. Ibid, para 29. 22 See Eurofix-Bauco v Hilti, above n 14, Recital 103; affirmed: Case T-30/89 Hilti AG v Commission [1991] ECR II-1439; Case C-53/92 P Hilti AG v Commission [1994] ECR I-667. The remedy was not challenged on appeal; the fine was upheld. In Case T-83/91 Tetra Pak International SA v Commission [1994] ECR II-755, para 222, the General Court stated that cooperation in designing remedies during the administrative procedure may lead to a reduction in fines. 19 20 21

Behavioural Remedies for Antitrust Infringements 191 On the one hand, the answer is yes, because henceforth the parties will compete and not collude. On the other hand, the parties’ financial position, their market shares and the rate of innovation may all have been altered by the cartel, so the conditions of competition are not precisely the same as they were before the cartel. Accordingly, it is unlikely that any remedy will re-establish competition completely, so it is better to speak of a remedy as restoring the possibility for competition. In instances where the conduct is exclusionary, the interest to restore competition more radically has led to some more aggressive remedies. In a situation where a dominant firm acts to exclude its major competitor, it is understandable that the Commission will seek to protect that one firm, since it is unlikely that there will be further new entrants to challenge the dominant company. This worry is particularly prominent in the IMS Health case: The Commission considers that it is justified to make an order which will as far as possible ensure that the applicant is not put out of business, and that no intolerable damage to the public interest occurs, pending the final outcome of the administrative procedure by means of which the applicant complains. In the present case the most urgent need is to maintain the status quo by permitting the other undertakings which, according to the Commission’s investigation, are currently present in the relevant market to continue to compete on this market.23

The decision was quashed, but it is illustrative of the Commission’s policy of protecting the nearest competitors from the suspected infringement. Here again, however, what gets restored is the capacity of the competitors to compete with the dominant firm, and some of the advantages the dominant undertaking obtained during the period of the abuse are not removed by the remedy. For this, the best one can do is seek damages afterwards for loss sustained during the period of the abuse. Similar protective considerations may have played a hand in the r emedies imposed in Commercial Solvents (a case concerning a dominant player’s refusal to continue to supply its rival), where the dominant firm was requested to continue to deal with its only rival (Zoja) and the Commission set out the quantities of chemicals that should be delivered to the rival firm. The A dvocate General had not been convinced by the quantities that the Commission had asked the dominant player to supply. He noted that Zoja exported a number of products outside the then EEC, so that by supplying so many the C ommission was possibly going beyond what was necessary to bring the infringement, the effects of which were felt in the EEC, to an end. However, the ECJ accepted the choice made by the Commission, deeming that it was reasonable for it to

23 Commission Decision of 3 July 2001 in Case COMP D3/38.044—NDC Health/IMS Health: Interim measures, [2002] OJ L59/18, Recital 214; decision subsequently suspended: Case T-184/01 R IMS Health v Commission [2001] ECR II-3193.

192 Giorgio Monti consider that maintaining Zoja’s sales worldwide was necessary to ensure it remained a viable competitor.24 The lesson here is that, at least in the early days, the Court deferred to the Commission in its design of remedies. In more recent case law, the Court may be seen to be somewhat more circumspect with the remedies imposed. This occurred, for example, when the Court reviewed the remedies the Commission imposed in ECS/AKZO (a predatory pricing case where the dominant firm used unfair pricing tactics to take away some of its rival’s customers), where the Court was wise to restrict their impact. The Commission’s decision framed the remedy (in part) in these terms: that AKZO shall refrain from offering or applying prices or other conditions of sale for flour additives in the EEC which would result in customers in respect of whose business it competes with ECS paying to AKZO Chemie BV prices which are dissimilar from those being offered by AKZO Chemie BV to comparable customers.25

AKZO complained that this went too far because it appeared to forbid it from any sort of price differentiation—after all, ECS could contact any of AKZO’s clients. The Court softened this remedy by insisting that it was merely meant to afford the option for ECS to regain its customers, and it did not affect AKZO’s policy vis-à-vis other clients: In that regard it must be pointed out that the measure in question is intended to prevent repetition of the infringement and to eliminate its consequences. That is the light in which that provision must be seen. Firstly, it prohibits AKZO from approaching ECS’s customers again by quoting to them advantageous prices without extending those prices to its own customers. Secondly, if ECS endeavours to win back from them the customers whom it has taken from ECS unlawfully, it prevents AKZO from aligning itself on ECS’s prices without giving its customers the benefit of this adjustment. On the other hand, the situation evoked by AKZO in support of its allegation is not covered by that provision. In fact, the provision does not prohibit them from making defensive adjustments, even aligning itself on ECS’s prices, in order to keep the customers which were originally its own.26

This approach sits well with the role that the rights of the defence and proportionality play in setting the limits on remedies: the Commission cannot do more than address the specific abuse that was committed; it cannot guide the dominant firm’s pricing policy more generally. At the same time, what the

24 Commercial Solvents, above n 2, para 48. See also the discussion in Lianos, ‘Which Limits?’, above n 6, 6–7. 25 Commission Decision of 14 December 1985 in Case IV/30.698—ECS/AKZO [1985] OJ L374/1, Article 3. 26 Case C-62/86 AKZO Chemie BV v Commission [1991] ECR I-3359, paras 155–156.

Behavioural Remedies for Antitrust Infringements 193 remedy seeks to achieve here is to allow ECS to try to regain those customers that had been taken away from it by AKZO. The impact on the rival here is the same as in Commercial Solvents: in both of these cases the remedy tries to put the competitor in the same place, economically, as before the infringement.27 This narrow function of remedies and the Court’s close scrutiny is confirmed by the approach the General Court took in the Transatlantic Agreement (TAA) case. In its decision, the Commission had imposed an obligation whereby the undertakings who had infringed Article 101 must inform customers with whom they have concluded service contracts and other contractual relations in the context of the TAA that such customers are entitled, if they so wish, to renegotiate the terms of those contracts or to terminate them forthwith.28

These contracts were not in themselves contrary to Article 101, but the concern was that the cartel had affected the terms of these contracts, so renegotiation would indeed serve to restore the status quo ante. The G eneral Court ruled that as this remedy was not normally imposed, a detailed explanation had to be given by the Commission; moreover, in determining the proportionality of this remedy, the Court intimated that account should be taken of the private law rights resulting from an infringement of Article 101. As a result, the remedy was quashed for failure to state reasons.29 Conversely, the General Court noted that in the one decision where a similar remedy had been set (Astra I ) the Commission had given more explanation. However, this seems to give too much credit to what was said in that case and too little to what was said in TAA. In Astra I, the Commission merely noted that the illegal joint venture necessarily had an effect on the terms of the downstream contracts, so that ‘the restrictive effects which these contracts perpetuate can only be eliminated when the customers have been given the right of r eadjustment’.30 However, in TAA, the Commission had also noted, when gauging the effect of the illegal cartel, that it had an effect on downstream contracts.31 The depth of reasoning in the two instances does not differ greatly. This suggests that the General Court is trying to raise the bar for the Commission with a view to ensuring that the rights of the defence are safeguarded when prescriptive

27 It is thus not surprising that some US commentators believe that the Europeans protect competitors and not competition. However, what this line of critique seem to miss is that in these two instances there was only one competitor, and if it had not been saved the dominant firm would likely have succeeded in eliminating competition completely. 28 Case T-395/94 Atlantic Container Line AB and Others v Commission [2002] ECR II-875, para 414. 29 Ibid, paras 412–416. 30 Commission Decision of 23 December 1992 in Case IV/32.745—Astra [1993] OJ L20/23, Recital 33. 31 Commission Decision of 19 October 1994 in Case IV/34.446—Trans-Atlantic Agreement [1994] OJ L376/1, paras 289 et seq.

194 Giorgio Monti remedies are imposed that try to regulate contracts that are not in themselves in breach of Article 101. The General Court was also concerned about the proper role of public and private enforcement, considering that it would be for private parties to safeguard their rights under EU law in national courts— a matter discussed below. The instances I have identified so far, and the Court’s evolving jurisprudence, suggest that when remedies try to restore competition, they do so within a narrow compass: in Commercial Solvents and AKZO the Commission could just rescue the firm that was being eliminated, which was necessary to afford the possibility of some competition against the incumbent, and in TAA the Court denied a wider reading of the scope of remedies that might correct market failures that are more remote than that. A situation which perhaps goes a little further is found in the Microsoft decision. Here, in the context of Microsoft’s refusal to supply, the remedy imposed was for the dominant firm to release information to ‘any undertaking having an interest in developing and distributing work group server operating system products’.32 The difference with the other cases is that the beneficiary was not a named competitor (although the identity of some of the beneficiaries was probably known) but rather any person wishing to enter the relevant market. Is this a remedy that goes too far? Suppose a dominant player has afforded access to five others, so that now the downstream market is workably competitive. Can the dominant player refuse to supply a sixth entrant? From an economic perspective, the answer might be yes: if competition is workable, the infringement has by now been put to an end, so there is no need for more remedies because the opportunities for competition are now established. Obviously the sixth could be that brilliant new entrant whose market presence revolutionises the downstream market. But competition law is not about regulating markets to optimise welfare, but removing a market failure caused by the dominant player. However, this consideration does not have much bite. In Magill, for example, the Commission took the view that simply requiring the three broadcasters to supply TV listings inter se, and thus allowing for three comprehensive TV guides, would not do: the three dominant undertakings would also have to supply Magill. But the reasoning has nothing to do with considering if this remedy would ensure the availability of competitively priced guides; rather, it considered that this would discriminate against third parties in a manner incompatible with Article 102.33 Likewise, in

32 Commission Decision of 24 March 2004 in Case COMP/C-3/37.792—Microsoft, Article 5(a), http://ec.europa.eu/competition/antitrust/cases/dec_docs/37792/37792_4177_1. pdf. 33 Commission Decision of 21 December 1988 of Case IV/31.851—Magill TV Guide/ ITP, BBC and RTE [1989] OJ L78/43, para 27 and Article 2.

Behavioural Remedies for Antitrust Infringements 195 Microsoft the Commission insisted on the need to provide the relevant information to everyone because, if access were to be granted on a discriminatory basis, this would lead to other restrictions of competition.34 Accordingly, the wide access rights provided in Microsoft fit within the legal framework for remedies. One might argue that there is a tension between the principle of proportionality (making sure the anticompetitive effects are removed) and the principle of equal treatment (giving anyone access on equal terms). However, in the Court’s view, granting access to some but not others would in itself be an abuse of dominance.35 Some authors would like there to be a wider role for remedies, such that in appropriate cases remedies could tackle the anticompetitive effects and restore competition to what it would have been like but for the infringement.36 For example, it was suggested that in a case of illegal tying the dominant player should take steps to assist competitors who had been excluded unlawfully to gain a foothold in the market (eg by imposing an advertising ban on the dominant player or even requesting that it actively promote the goods of the victims of its abuse). The authors obviously had in mind the Microsoft commitment decision, where it was felt that the undertaking had tied the web browser to the operating system illegally. The commitments here were designed to ensure that Microsoft facilitated the entry of alternative browsers by both ‘untying’ the products in question, thereby allowing original equipment manufacturers (OEMs) not to install Internet Explorer, and not retaliating against any OEM making this choice (which would apply to new buyers), and also by offering existing users of Windows OS the option to choose an alternative browser (via a ‘choice screen’).37 Some might well quibble with this example in that proportionality has quite a different sound when it is performed under Article 9 as opposed to Article 7.38 In fact, this remedy was not imposed by the Commission, but offered by Microsoft. Moreover, what we do not see in the Commission’s assessment of proportionality is a reason why protecting both new and old users is necessary: would a mere prospective commitment to unbundle henceforth not suffice? In the decision fining Microsoft for failing to implement the ‘choice screen’ commitment fully, it was estimated that this had affected around 15 million users.39 This sounds

Commission Decision in Microsoft, above n 32, para 1006. When the dominant player is active both upstream and downstream, then secondaryline injury is a credible antitrust problem. See, eg William Baumol and Daniel Swanson, ‘The New Economy and Ubiquitous Competitive Price Discrimination: Identifying Defensible Criteria of Market Power’, 70 Antitrust Law Journal 661 (2003). 36 This suggestion is found in Hellström et al, above n 7, especially at 58. 37 Commission Decision of 16 December 2009 in Case COMP/39.530—Microsoft (Tying). 38 See Alrosa, above n 5. 39 Commission Decision of 6 March 2013 in Case AT.39530—Microsoft—Tying, para 46 (down from the Commission’s original estimate of 30 million users). 34 35

196 Giorgio Monti impressively high, but, absent any knowledge of how other browser suppliers had fared notwithstanding this infringement, we remain none the wiser as to the necessity to protect established users. This is particularly so because the theory of harm in the decision is foreclosure of rivals, not harm to c onsumers. Nowhere is there a clear statement that an as-efficient competitor would not have managed to enter the market successfully with a lesser commitment. Accordingly, this wide remedy would likely not have survived judicial scrutiny had it been imposed under Article 7. At the same time, one can see the policy attraction for widening the role of remedies in this manner: rather than just prohibiting a specific form of conduct, or protecting a discrete market player, it would be desirable for a competition authority to use remedies to stimulate the market players to act in a manner that maximises welfare. However, as the law stands, this kind of enforcement strategy seems one reserved for commitment decisions under Article 9, not for formal decisions under Article 7. This might explain the surge in the use of commitment decisions: after all, if the deterrent effect of fines is poor, and extensive behavioural commitments can serve to restore competition in the affected market more effectively, then the attraction of using formal decisions is reduced, since the scope for remedies is much less, having regard to the limiting principles set out by the case law.40

3. Practical considerations 3.1 The procedure by which remedies are designed As noted above, the remedies prescribed can be fairly detailed because the Commission seeks to guide the undertaking.41 This makes the following statement by the General Court in Microsoft somewhat unhelpful: When the Commission finds in a decision that an undertaking has infringed Article 82 EC, that undertaking is required to take, without delay, all the measures

40 Query whether, for example, this was a consideration in going for a commitment decision in the E-Books case (Commission Decision of 25 July 2013 in Case AT.39847— E-Books [2013] OJ C378/25), where fines were likely the appropriate remedy but where the Commission might have considered that it enjoyed more latitude in imposing a remedy with a commitment decision. The US Department of Justice, it will be recalled, prosecuted the same infringement, securing settlements from the publisher. The US Court of Appeals for the Second Circuit endorsed this approach. See United States v Apple Inc, No 13-3741 (2d Cir 2015). 41 See also, for example, Article 4 in the Microsoft decision of 24 March 2004, above n 32. The first paragraph of Article 4 of the contested decision provides that Microsoft is to bring to an end the abusive conduct established in Article 2, in accordance with the procedures

Behavioural Remedies for Antitrust Infringements 197 necessary to comply with that provision, even in the absence of specific measures prescribed by the Commission in that decision.42

This statement is the mirror image of the well-known ‘special responsibility’ that dominant players have not to infringe Article 102. Knowing this, however, does not necessarily help one in working out how to act in all circumstances. This is why sometimes the most effective remedy to prevent the reoccurrence of the anticompetitive effects is to guide the parties.43 Securing guidance requires some cooperation between the undertaking and the Commission. In commitment decisions, the procedure by which this takes place is well settled, in that one can see the toing and froing between the parties and the Commission, and the analysis of the market test. The process is set out in DG Competition’s Antitrust Manual of Procedure,44 even if we should not be surprised if in these decisions the Commission probably leans on the parties somewhat.45 What is the corresponding procedure when remedies are imposed in formal decisions? In Commercial Solvents, the ECJ had ruled that the Commission has the power to ‘require the undertaking concerned to submit to it proposals with a view to bringing the situation in conformity with the requirements of the Treaty’.46 This passage is unsurprising when we refer to Article 3(3) of Regulation 17/62, which made express provision for the Commission, prior to making a remedies decision, to address to the undertaking recommendations for termination of the infringement. However, Article 7 of Regulation 1/2003 no longer includes this power. Irrespective of this, as Advocate G eneral Warner noted in Commercial Solvents, the absence of specific guidance would (given periodic penalty payments for non-compliance) place the undertaking in an ‘intolerable position’.47 Procedurally, therefore, there should be a place

laid down in Articles 5 and 6 of that decision. Microsoft is also required to refrain from repeating any act or conduct having the same or equivalent object or effect as that abusive conduct (second paragraph of Article 4). Case T-201/04 Microsoft Corp v Commission [2007] ECR II-3601, para 1256. Indeed, it may even be necessary. There is a tension between the sweeping statement in the Microsoft judgment and the position taken by the same court in Case T-128/98 Aéroports de Paris v Commission [2000] ECR II-3929, paras 81–83, where the applicant complained that the Commission decision did not indicate what was required to comply, and the General Court considered whether this was true and found that a clear obligation had been put in place. This suggests that designing the right form of words for the remedy is vital. 44 See chapter 16. The Manual of Procedure is available at http://ec.europa.eu/ competition/antitrust/antitrust_manproc_3_2012_en.pdf. 45 See the Opinion of Advocate General Capotorti in Case 730/79 Philip Morris Holland BV v Commission [1980] ECR 2671 in the context of settlement procedures under the old regime prior to Regulation 1/2003. 46 Commercial Solvents, above n 2, para 45. 47 Opinion of Advocate General Warner in Commercial Solvents, above n 2, 272. 42 43

198 Giorgio Monti for discussion between the parties and the Commission on how best to design the remedy. Indeed, it is normally the case that the statement of objections also describes possible remedies to counter the anticompetitive conduct. From what I can gather in the reported materials, discussions on remedies are carried out in parallel with the infringement procedure. This is reported to have taken place in Deutsche Post II, where the dominant firm was found to have abused its dominant position, inter alia, by imposing unlawful surcharges, and during the course of the proceedings Deutsche Post had given an undertaking that it would no longer impose surcharges, once three months passed from the issuing of the decision.48 This means that, from the time the Statement of Objections is issued, the defendants are pursuing parallel agendas: one is trying to convince the Commission that the infringement has not taken place, while the other is exploring how the remedy should be designed, should the Commission conclude that there is an infringement. In other words, there is an adversarial stage and a more conciliatory stage that take place simultaneously.49 Sometimes compliance with the remedy may be discussed even after the decision. An example is the Pierre Fabre decision, where the French NCA instructed the undertaking to submit to it its revised contracts to test if they complied with the prohibition.50 In some cases the parties are given time after the decision in order to decide how to comply—so, for example, in Magill the parties had two months to submit proposals of the terms they would introduce to comply—which the Commission would then approve.51 However, even in these cases, the gist of the remedy had been determined at the time of the decision. Sometimes negotiations take place in a different setting from the d ecision: for instance, in the Michelin II rebates decision of 2001, there had been meetings and correspondence between Michelin and the Commission as early as 1998 discussing what commitments the former ‘might enter into in order

48 Commission Decision of 25 July 2001 in Case COMP/36.915—Deutsche Post AG (Deutsche Post II—Interception of cross-border mail) [2001] OJ L331/40, para 78. It appears that these satisfied the Commission, although there is no discussion in the decision save the obvious finding that the abuse was ongoing at the time of the decision (see para 188)— clearly so, since the parties undertook to implement the relevant measures after the decision. 49 This can lead to some awkwardness, as the undertaking may not wish to be seen to admit liability merely by agreeing remedies. See the apparent dilemma faced by Tetra Pak in Commission Decision of 24 July 1991 in Case IV/31043—Tetra Pak II [1992] OJ L72/1, Recitals 178–180, where the firm at times appeared to agree to the Commission’s approach and at others contested it. 50 All the documents relating to this case may be obtained at http://www.autoritedela concurrence.fr/user/avisdec.php?numero=08-D-25. 51 Magill TV Guide, above n 33, Recital 27.

Behavioural Remedies for Antitrust Infringements 199 to bring the infringement to an end’. And by 4 February 1999, Michelin had submitted agreements which in its view would bring the abuse to an end.52 One striking consideration is how relatively more transparent Article 9 procedures are in this phase of proceedings. One might wonder whether initiatives like market tests could also be beneficial in Article 7 decisions, and whether it would not serve some purpose for the final commitments to be made public. This would be particularly important if, as shown above, the remedies may become more wide ranging.53 Regulation 1/2003 does provide that the complainant and those able to show a sufficient interest may have a role in the procedure, but one may query whether the kind of transparency afforded in market tests under Article 9 might be imported.54

3.2 Ex post monitoring In the first Microsoft decision (2004), the remedy included a system for monitoring the firm’s compliance, which was in part annulled by the General Court on two grounds, both of which weaken the Commission’s ability to ensure that there is compliance with Article 7. First, the Commission had delegated too much power to the trustee (he could intervene on the basis of third party complaints and had access to a lot of information held by Microsoft) and the Court considered that these powers could only be exercised by the Commission and not delegated; second, the undertaking should not have to pay for the monitoring mechanism.55 It is unfortunate that this remedy was disallowed, because the monitoring trustees had actually found a violation for which Microsoft was sanctioned.56 This monitoring scheme was substituted by the appointment of technical consultants and by reliance on private parties who could exercise their rights in national courts. It is ‘explained’ in part by the changed nature of the market which made the original set-up unnecessary, but it seems it entails the loss of a major procedural device for checking compliance. Absent this, the Commission may only rely on its investigations or third party complaints to address any non-compliance. One way of facilitating monitoring is to impose a remedy by which the undertaking reveals to its

52 Commission Decision of 31 May 2002 in Case COMP/36.041/PO—Michelin [2002] OJ L143/1, Recital 350. 53 For discussion of the need to tailor procedures in public law in instances where the decision-maker is doing more than imposing liability, see Susan Strum, ‘A Normative Theory of Public Law Remedies’, 79 Georgetown Law Journal 1355 (1991). 54 As noted above (n 44), commitment decisions and the relevant procedure are discussed in chapter 16 of the Antitrust Manual of Procedure. 55 Microsoft, above n 42, paras 1251–1279. 56 See http://ec.europa.eu/competition/sectors/ICT/microsoft/implementation.html.

200 Giorgio Monti c lients that their contracts may now be revised as a result of the Commission’s decision. In JCB, for example, the parties had to inform their distributors that they were free to make passive sales and amend contracts accordingly, but importantly also had to send the Commission copies of these revised agreements.57 A similar approach was taken in Hasselblad, another case dealing with vertical restraints. Here, however, the Commission required that the dealers should be informed using a form of words that the Commission would approve beforehand. In addition to dealers, the undertaking also had to inform the public that aftercare services would be available to all products and not only those purchased in the Member State.58 This kind of approach shifts the implementation costs to the parties, and ensures the effectiveness of the remedy: if the contracts are approved by the Commission, the parties can rely on them in national courts; conversely, if the Commission considers the contracts inadequate to bring the infringement to an end, revisions may be secured. Perhaps even more intrusively, in Tetra Pak II, in addition to listing the practices that the dominant firm must cease and the kinds of conduct that is allowed, the Commission also requested that: [d]uring the period of five years beginning 1 January 1992, Tetra Pak shall, within the first six months of each year, give the Commission a report allowing it to establish if the actions taken by Tetra Pak pursuant to this Decision have indeed brought the infringements detailed in Article 1 to an end.59

This requirement was probably imposed because the Commission considered the abuse particularly egregious. What stands out is that the remedy is time-limited, which is unusual when compared to other cases; that there is no real consequence spelled out explicitly, so its sole purpose seems to be as a monitoring device to ensure compliance with the decision set; and it is not a reporting obligation that may afford the Commission the option of imposing additional remedies if they consider that compliance has not yielded the results sought for. This leads one to consider how far remedies must be final or may be revised.

3.3 Trial-and-error remedies As is well known, damages for a tort are generally awarded once and for all. If the victim needs more or less later, no adjustment is allowed. It seems that

57 Commission Decision of 21 December 2000 in Case COMP/35.918—JCB [2002] OJ L69/1, Article 3. 58 Commission Decision of 2 December 1981 in Case IV/25.757—Hasselblad [1981] OJ L161/18, Article 6. 59 Commission, Tetra Pak II, above n 49, Article 4.

Behavioural Remedies for Antitrust Infringements 201 this is also the case for antitrust remedies imposed under Article 7. The fi nality of the remedy is the reason why a premium is placed on getting the theory of harm right, so that at least Type 1 and 2 errors are avoided at the stage where liability is assessed, even if they are likely inevitable at the remedy stage. In contrast, trial and error might be attempted in commitment decisions, and Microsoft (2009) again furnishes an example: the commitment is to last for five years, but any time after the second year Microsoft or the C ommission may request a review either because market conditions have changed or because the choice screen remedy has not functioned.60 It is obvious that in this review clause the dice are loaded in favour of the review asking for more commitments, not less. It is not easy to see why an authority would be relatively happy to be given the option to change commitments in case of a Type 1 error. This leads one to question whether an undertaking might demand a review of its commitments. First, must the review be expressly provided for in the decision? And second, what grounds might be pleaded? The answer to the first question is that Article 9(2) provides for a set of grounds upon which a decision may be reopened; for current purposes, the relevant one is that there has been a material change in the facts on which the decision was based.61 (Incidentally, this makes the first ground for review in the Microsoft decision above unnecessary.) Whether a more specific review clause is required depends upon the breadth of the express provision in Article 9(2). Obviously if the market conditions change so that the theory of harm is no longer viable, so that the Commission’s concerns do not exist, this is a material change. What if the change is in the costs to the undertaking? Consider a situation like that in Commercial Solvents, where the dominant firm was asked to supply specific numbers of medicines: what if, sometime after the decision, the cost of supplying these medicines increases? Is a greater economic burden on the dominant firm a good ground for seeking a review of the commitment? It seems not, because the proportionality self-assessment carried out by the Commission does not include the burden on the undertaking making the commitment. This suggests that a review clause protecting the undertaking might be warranted. This review clause becomes even more important in Article 7 remedies because there is no statutory review clause in Regulation 1/2003. Not all decisions contain this clause and some harmonisation may be desirable. In Hilti, for example, it was decided that the remedy would last until the undertaking ceased to hold a dominant position and that Hilti would inform the Commission when it proposed to cease abiding by the remedy set.62

Microsoft (Tying), above n 37, Annex I, paras 20–21. Article 9(2)(a) of Regulation 1/2003. 62 Eurofix-Bauco v Hilti, above n 14, Annex, para 3. 60 61

202 Giorgio Monti In contrast, there is no duration in Microsoft, although it would be obvious that if technology changes, the duty to continue to supply would lapse.

3.4 The relationship between remedies and private enforcement In a good number of the remedies discussed above, contracts are rewritten or new contractual relations are formed. This raises the question as to the appropriate relationship between Article 7 and private enforcement. The issue has not been discussed much in the case law. For instance, once exceptional circumstances are identified that make a refusal to supply an abuse, the remedy imposing a duty to deal is imposed as a matter of course: in Microsoft, the Commission said that this would be the ‘natural remedy’.63 In both Commercial Solvents and Magill, the parties with whom the dominant players had to deal were identified and contractual relations were entered into under a Commission order. It is also notable that the duty to supply in some cases (eg Microsoft) is set in terms such that anyone with an interest in developing software may have access to it, even if they are not identified in the decision. However, when it comes to mandatory injunctions under Article 101, the dominant view is different. This view is expressed clearly by Richard Whish: an undertaking infringing Article 101 cannot be ordered to supply a distributor or a customer.64 However, the General Court’s judgment that is said to stand for this proposition, Automec II, is slightly more circumspect. The question had arisen in the context of a complaint by a dealer whose contract to distribute BWM cars had been terminated. One of the arguments made by the Commission to decline the case was that it was not empowered to impose the remedy sought by the complainant. The Court agreed, and explored the nature of the Commission’s remedial powers under Article 101, finding that the Commission did not have the power to order a party to enter into contracts because it must respect freedom of contract; the best it may do is to find that an infringement exists and to order the parties concerned to bring it to an end, but it is not for the Commission to impose upon the parties its own choice from

Microsoft, above n 32, para 998. See Richard Whish and David Bailey, Competition Law, 7th edn, Oxford University Press, 2012, 253. Ivo van Bael took a view closer to that adopted here in the text. Ivo Van Bael, Due Process in EU Competition Proceedings, Wolters Kluwer 2011, 209. Recall that the Automec judgment (Case T-24/90 Automec Srl v Commission (Automec II) [1992] ECR II-2223) was principally about setting out a standard by which to judge whether the Commission had rightly refused to follow up a complaint, and the court explained that the Commission could prioritise cases—it follows that it is free to prioritise an Article 101 case in situations where it wishes to issue a remedy akin to a mandatory injunction. 63 64

Behavioural Remedies for Antitrust Infringements 203 among all the various potential courses of action which are in conformity with the Treaty.65

However, while the Court appears quite categorical in this passage, in the one immediately following it seems to leave the door open for positive remedies in other types of case.66 In sum, the judgment is quite equivocal: some passages suggest the remedy is unavailable for Article 101 infringements, while others suggest it is available but only in certain, undefined, circumstances. The better view is the latter: there may be instances where the Commission may consider it appropriate to require the infringer to deal. The remedy prescribed in Eco System/Peugeot comes near to this: Eco System served as an intermediary for customers based in France who wished to buy a Peugeot car from abroad (where prices are lower). Peugeot sent a circular to three of its dealers not to handle orders from Eco System. On a complaint by the latter, the Commission issued interim measures, followed by a final decision requiring that Peugeot rescind the circular and that ‘the dealers must in future refrain from any behaviour that would perpetuate the effects of the circular complained of’.67 The impact of this remedy was to afford Eco System the possibility of placing orders and continue its business. Obviously, the specifics of the contracts are not supervised by the Commission, but its orders may require contracts to be negotiated in conformity with the antitrust rules. Therefore, it seems that the Commission has the power to impose behavioural remedies by which the infringer confers a benefit on its victims for infringements of both Articles 101 and 102. However, given that these victims would be able to launch follow-on actions to safeguard their position, is the imposition of remedies that benefit specific individuals unnecessary, and so disproportionate? It may be argued that it is more economical for the competition authority to provide private-law-type remedies than to have the entire issue re-litigated. In the UK, the Macrory Report on regulatory sanctions indicated that it may be appropriate to subsume compensation under the heading of sanctions available to regulators, which blurs the elegant line that some like to draw between remedies and sanctions but which appears too formalistic, while a

Automec, ibid, para 52. Ibid, para 53: ‘Accordingly, in the circumstances of the case, it must be held that the Commission was not empowered to issue specific orders requiring BMW to supply the applicant and to allow it to use BMW trademarks’ (emphasis added). 67 Commission Decision of 4 December 1991 in Case IV/33.157—Eco System/Peugeot [1992] OJ L66/1, Article 2; affirmed: Case T-9/92 Automobiles Peugeot SA v Commission [1993] ECR II-493 and Case C-322/93 P Automobiles Peugeot v Commission [1994] ECR I-2727. See also the discussion in Antoine Winckler, ‘Remedies Available in French Law in the Application of EC Competition Rules’, in Claus-Dieter Ehlermann and Isabela Atanasiu, eds, European Competition Law Annual 2001: Effective Private Enforcement of EC Competition Law, Hart Publishing, 2003, 119 et seq (discussing the follow-on claim brought in the French courts). 65 66

204 Giorgio Monti focus on effective enforcement in general is more desirable as a platform for discussing the remedial powers to be handed to competition authorities.68 Furthermore, in the context of many of the cases discussed above, the victims might favour aggressive behavioural commitments to damages, and it may also be the case that national courts would not award the sort of injunctive relief that the Commission was able to extract.69 For example, the British courts stipulate that specific performance in breach of contract cases would only be awarded if no less onerous remedy is available.70 One should add to this the time lapse between the Commission decision and the initiation of procedures at national level, which might be fatal to a plaintiff. For these reasons, it seems appropriate for the Commission to take steps to protect individuals directly through its decisions. Accordingly, there may be good reasons to support the Commission’s use of remedies that confer benefits on given market players.

4. Conclusion As I have noted above, behavioural remedies make infringement decisions a somewhat hybrid affair: they are neither solely premised upon deterrence nor are they solely concerned with resolving competition concerns. Accordingly, they belong to neither the ‘crime/tort model’ of antitrust enforcement nor the ‘administration model’ of enforcement, but fit partly into both sets of enforcement styles.71 Moreover, while they are remedies based in ‘public law’, they can have important effects in safeguarding individual victims of anticompetitive conduct, thus blurring the line between public and private enforcement as well. This chapter has revealed that the scope of behavioural remedies under Article 7 is quite narrow. There are four legal principles that guide the Commission. The first is that the remedy must be directly linked to the infringement: the remedy prevents the recurrence of the infringement, not necessarily of the anticompetitive effects. This is bolstered by a second legal principle, the right of the defence: for the Commission to impose a remedy, it must first build a theory of harm in the infringement decision to explain

68 Richard Macrory, ‘Regulatory Justice: Making Sanctions Effective’ (November 2006), available at http://webarchive.nationalarchives.gov.uk/20090609003228/http://www.berr. gov.uk/files/file44593.pdf. 69 This hints at the restorative justice potential of agreed remedies. See Christine Parker, ‘Restorative Justice in Business Regulation? The Australian Competition and Consumer Commission’s Use of Enforceable Undertakings’, 67 Modern Law Review 209 (2004). 70 Co-operative Insurance Society Ltd v Argyll Stores Ltd [1998] AC 1. The test is also strict for securing interim injunctions. See American Cyanamid v Ethicon [1975] 2 WLR 316. 71 This is the distinction made in Crane, Institutional Structure, above n 8.

Behavioural Remedies for Antitrust Infringements 205 how the remedy cures an infringement. If the Commission fails to do so, no remedy may be imposed for possible, hypothetical violations or for conduct that might have similar anticompetitive effects that have not yet been identified. Thirdly, proportionality also ensures that the remedy does not go beyond what is needed to restore the possibility for competition. A fourth legal principle, that of equal treatment, might at times afford a more intrusive role for remedies: as discussed in the context of the Microsoft case, it may be that the duty to deal with several rivals is more than what is required to restore competition. However, as I have suggested, the role that equal treatment plays in the context of refusals to deal is to avoid secondary line injury. These four principles serve to remove any risk of ‘discretionary remedialism’:72 that is, of the Commission using its power to impose aggressive remedies. They also allow the parties to be clear as to their obligations in the aftermath of an infringement decision. A consequence of these principles is that the Commission may prefer using Article 9 in situations where the competition concerns may require more wide-ranging remedies. Conversely, it may be argued that similar limiting principles could be deployed in curbing the current approach in commitment decisions. Procedurally, remedies are discussed between the Commission and the parties at the same time that the two are also contesting the anticompetitive practice. This might be queried as setting wrong incentives—a party scared of losing may opt for a cooperative attitude in the hope of securing a reduction in the fine, but may then end up with a more intrusive remedy than is needed. This mixing up of the prosecutorial and conciliatory roles of the Commission seems to be a weakness which is remedied by increasingly careful judicial review of the remedies imposed. Nevertheless, one wonders if remedies might be best discussed in separate procedures, which are also more transparent and afford wider participation, as well as market tests. However, this would increase the costs and the duration of procedures, which are already lengthy. The Commission may not pass the monitoring burden entirely away from itself, but in its decisions it has utilised a number of techniques to create incentives for third parties to report infringements as well as requiring the firms themselves to report to the Commission. What might be improved in the context of the remedy order is a clear stipulation as to the duration of the injunctive relief, and it may also be desirable to include review clauses to check if more or less aggressive remedies are required. However, this would add a further layer of costs onto the Commission, which might find it preferable to invest its limited resources elsewhere. Given the hybrid nature of infringement decisions where behavioural remedies are imposed, their close link to the infringement proceedings and

72 This concern animates the paper by Lianos, above n 6, which considers all sorts of remedies.

206 Giorgio Monti the procedural framework within which these remedies are fixed, it seems appropriate not to expand the role of remedies in ways that might allow the Commission to redesign the market to optimise performance. Remedies at best can restore the opportunity for competition by guiding undertakings to avoid conduct that repeats the antitrust offence. While this might appear to be a relatively modest role for remedies in Article 7, this is their scope as explained by the European Courts; and as the examples in this chapter have shown, the Commission has used this power well to try to secure compliance.

Frank P Maier-Rigaud * Behavioural versus Structural Remedies in EU Competition Law

… and it will fall out as in a complication of diseases, that by applying a remedy to one sore, you will provoke another; and that which removes the one ill symptom produces others … (Thomas More, Utopia, p 40)

1. Introduction The effectiveness of competition law in general and any competition authorities’ enforcement efforts in particular depends as much on the actual implementation of the adopted decisions via remedies as on the investigation of the infringement and the finding of liability. The purpose of this chapter is to discuss the role of structural remedies in EU competition law in a non-merger context. The focus is on the distinction between behavioural and structural remedies, the general role of structural remedies and the scope for implementing structural remedies from a legal and economic perspective.1 The motivation for this discussion stems from the curious asymmetry between the relatively frequent use of structural remedies in merger cases on the one hand and their sparse use in antitrust and in particular abuse of dominance cases on the other hand.

* Director and Head of NERA’s European Competition Economics Group; Professor, Department of Economics and Quantitative Methods at the IÉSEG School of Management Paris and the Université Catholique de Lille. The author would like to thank Marc Pirrung and Lars Kjølbye for highly instructive discussions on the topic of remedies throughout the years. Sources referenced in the text and in the following footnotes are listed in full at the end of this chapter. 1 General introductions to remedies under Article 101 and 102 TFEU can be found in Lowe and Maier-Rigaud (2008) as well as Hellström et al (2009). For the merger context, some of the relevant papers are the ex post evaluation exercise carried out by DG COMP (European Commission, 2005) and summarised in Kopke (2005) and the notice on merger remedies (European Commission, 2008). See also Lévêque and Shelanski (2003) and Davies and Lyons (2007). There seems to be a trend towards behavioural remedies also in merger control, at least in the US. See Kwoka and Moss (2011).

208 Frank P Maier-Rigaud This asymmetry seems mainly due to the legal perception that there exists a ‘strong presumption that structural remedies are disproportionate’2 in a nonmerger context and that in implicit recognition of their highly intrusive nature, Article 7(1) of Regulation 1/2003 makes clear that structural remedies are only to be employed in exceptional circumstances … From this, it follows that three cumulative conditions must be satisfied before structural remedies may be imposed …: (1) structural remedies are a remedy of last resort, ie behavioural remedies would be insufficient; (2) structural remedies must be effective; and (3) structural remedies must be proportionate.3

As stated by Wind (2005: 659), ‘Priority is given to behavioural remedies, as structural remedies are used only if it is not possible to use the first’. As will be argued below, this legal interpretation is doubtful, but from a narrow economic point of view it is surprising to find that a suspected (!) substantial lessening of competition that may not even amount to dominance is presumably treated ‘more fiercely’ and ‘rigorously’ than the abuse of an already existing dominant position. As long as the abuse of a dominant position has a more significant anticompetitive impact than the projected lessening of competition of a therefore prohibited merger (or the avoided effects due to a partial divestiture in the context of an approval), such an asymmetry may be incompatible with an economic effects-based approach to competition policy. As a result, it would seem reasonable to make use of the full spectrum of remedies available to the Commission in resolving competition problems in antitrust cases which may benefit not only the consumers and companies harmed by these infringements but ultimately even the perpetrators. This chapter sets out to contribute to the clarification of the role of structural remedies from a competition policy perspective, but also from the perspective of the concerned companies on which such measures would be made binding. In addition to the economic arguments that would speak in favour of rehabilitating structural remedies in dominance cases, it is argued that the Commission clearly has the legal means of following such a more economic approach in the choice of remedies to be imposed. By clarifying this latter point, the chapter contributes to lifting the myth of a primacy of behavioural over structural remedies that does not withstand scrutiny of a detailed analysis of the relevant wording of Regulation 1/2003.4

O’Donoghue and Padilla (2006: 683) and identically in (2013: 887). O’Donoghue and Padilla (2006: 735). The test proposed on these and earlier pages has already been criticised in Adam and Maier-Rigaud (2009: 142f). Unfortunately, these parts have not been updated and are reprinted identically in O’Donoghue and Padilla (2013: 946). 4 See Maier-Rigaud (2012), where some of the key arguments made here were already presented. 2 3

Behavioural versus Structural Remedies in EU Competition Law 209

2. Behavioural versus structural remedies There is no generally accepted definition of structural remedies in the literature, and the discussion of structural remedies has typically focused only on a subset of cases where such remedies could be imposed, namely in merger control. Davies and Lyons (2007) propose a ‘clean break principle’ in order to distinguish between structural and non-structural remedies. According to their definition, a structural remedy is one that neither requires ongoing monitoring by the enforcement authority nor establishes ongoing links between firms. A structural remedy is thus characterised as a one-off measure, as opposed to a measure creating an ongoing relationship between a firm and a regulator or with other firms. This follows the ICN Merger Remedies Review Project Group (ICN, 2005) that characterises structural remedies as ‘one-off remedies that intend to restore the competitive structure of the market’. Another approach, focussing on property rights, is formulated by Motta et al (2003). The approach is based on the notion that ‘structural remedies modify the allocation of property rights and create new firms: they include divestiture of an entire ongoing business, or partial divestiture’.5 This is contrasted to non-structural remedies, which set constraints on the merged firms’ property rights: they might consist of engagements by the merging parties not to abuse of certain assets available to them. They might also consist of contractual arrangements such as compulsory licensing or access to intellectual property.6

Lévêque (2000) finally considers the dichotomy of structural versus behavioural remedies as ‘over-simplifying and confusing’, and proposes instead to characterise remedies along two different dimensions: first, as to their target, such as a firm’s environment, output or property rights; and second, as to whether they change the incentives of the addressee to behave in a certain way or whether they prescribe certain behaviour. In his terminology, economic instruments lead to a change in incentives that make an infringement of antitrust rules a non-profitable strategy, whereas regulatory instruments do not change these incentives and therefore need monitoring and enforcement (command-and-control regime). Council Regulation 1/2003 proposes the terms ‘structural’ and ‘behavioural’ remedy without clear definition. In the present context, a structural remedy is defined as a measure that effectively changes the structure of the firm by a transfer of property rights regarding tangible or intangible assets, including the transfer of an entire business unit, that does not lead to any ongoing

Motta et al (2003: 108). Ibid.

5 6

210 Frank P Maier-Rigaud r elationships between the former and the future owner. After its implementation, a structural remedy does not require any further monitoring. This definition implies that a structural remedy removes the incentive or the means of a firm to repeat the infringement of the antitrust laws that was at the source of the administrative procedure.7 One of the reasons why there is a need for monitoring behavioural remedies stems precisely from the fact that a company may still be facing incentives to circumvent or simply not implement the behavioural remedy. In other words, absent monitoring and enforcement, firm compliance is a dominated strategy. Although a structural remedy also needs some monitoring and—where necessary—enforcement until a divestiture is completed, this concerns only a limited amount of time (usually several months). After implementation, the firm no longer has an incentive to infringe competition law and no further monitoring or enforcement is necessary.8 As stated by the OECD (2001), behavioural policies, unlike structural policies, do not eliminate the incentive of the regulated firm to restrict competition … despite the best efforts of regulators, regulatory controls of a behavioural nature, which are intended to control the ability of an integrated regulated firm to restrict competition, may result in less competition than would be the case if the regulated firm did not have the incentive to restrict competition.9

A behavioural remedy, on the other hand, requires permanent monitoring and enforcement.10 The incentive to circumvent a behavioural remedy also has implications at the design stage. Requiring certain behaviour with respect to one dimension of the strategy space (quantity, price, quality, choice of contractual partners, etc) can easily lead to circumvention by changing the behaviour with respect to another dimension. As a result, behavioural remedies that are designed to prevent circumvention tend to be very detailed and complex. As a consequence, such remedies resemble firm-specific regulation that removes a lot of the flexibility that firms need in order to operate

7 A mandatory, exclusive and non-limited as well as irrevocable licence that is paid up front is in effect equivalent to a structural remedy. 8 There exist structural remedies that may require a behavioural flanking in form of a line-of-business restriction. Without such a restriction, divestitures may only lead to temporary relief if the divested business can easily be replicated or repurchased in the future. 9 See also OECD (2011a: 9, 119), reviewing the OECD Council Recommendation on Structural Separation in Regulated Industries. 10 Given the similarities between behavioural remedies and regulation, the scope of structural remedies extends to situations where competition problems persist despite sector-specific regulation. For an example of structural remedies in a regulated sector see, eg Maier-Rigaud et al (2011), discussing the ENI case, or Hellström et al (2009), discussing, among other aspects, the E.ON case. Noteworthy is also the recent Article 9 decision in Case AT.39727—CEZ on capacity hoarding. On the friction between the US notion of a regulated conduct defence and the approach in the EU, see OECD (2011b), and in particular the contribution by Richard Brunell therein.

Behavioural versus Structural Remedies in EU Competition Law 211 efficiently and compete effectively in a changing environment.11 In such an environment, behavioural remedies usually require ongoing revision and adaptation in order to avoid becoming ineffective and/or detrimental to the competitive process.12 The inflexibility in responding to future dynamic market developments, which cannot be properly antedated either by competition authorities or by market participants, is the key weakness of behavioural remedies.13 Structural remedies, on the other hand, are within the logic of the market system and allow an efficient adaptation to changing market conditions. They are directly compatible with and have a direct bearing on the incentive structure of market participants. Structural remedies do not affect the flexibility of management to make appropriate business decisions on a lasting basis.14 A fundamental property of structural remedies is that, from a spectator point of view, they cannot be distinguished from the usual workings of a market system in which mergers and divestitures are a characteristic feature of normal market developments. In that sense, they take full advantage of market allocation dynamics in resolving the competition problem in an efficient way and allow the concerned businesses to move on. While it is possible to look at remedies from a property rights perspective, ie expropriation versus restriction of use, and therefore consider a divestiture as a harsher remedy than a behavioural one, one may well come to a different conclusion when considering the underlying economics. The primary goal of competition policy is to guarantee the proper and efficient functioning of markets in order to achieve the highest possible degree of welfare for society.15 Structural remedies make use of the dynamics of markets in removing the incentives for committing similar infringements in the future, thereby eliminating competition problems. Behavioural remedies, on the other hand, do not make use of market dynamics but constrain market forces based on some strategy dimension of the firm,16 thereby distorting market

11 Only from a static point of view is the loss in flexibility the deliberate means to remedy the infringement. 12 Besides the necessity to monitor compliance continuously, the market development has to be monitored to ensure the continued appropriateness of the remedy itself, ie to ensure that the remedy is neither creating advantages nor becoming too restrictive for the firm. The same obviously applies with respect to the impact of the remedy on other m arket players, requiring a corresponding impact assessment and potential adjustments to the remedy. 13 The fundamental uncertainty about the future is the main reason for market-based allocation protected by competition policy to begin with and should not be confused with the rather static notion of asymmetric information that an antitrust authority may additionally face. 14 See Levinson et al (2000). 15 For present purposes, the question whether total or consumer welfare is the right measure is secondary. 16 In fact, behavioural remedies typically try to simulate the outcome that would be produced by markets in the absence of an infringement by either imposing such an outcome directly (so-called performance or outcome remedies) or by imposing constraints on the

212 Frank P Maier-Rigaud allocation. As a result, behavioural remedies have a more significant social cost than a property rights approach would suggest. Whenever the underlying competition problem is structural, behavioural remedies will hardly be ‘selfexecuting’. Of course, structural remedies are not self-executing either, since they are not in the interests of the company concerned.17 The major difference is that (appropriately designed) structural remedies do not require ongoing monitoring after their implementation. Finally, as structural remedies generate revenue from the sale of the relevant asset at current market value, a structural remedy is different from expropriation as the firm is remunerated.18 The restriction of the decisional scope of the firm under a behavioural remedy in turn is not compensated as it is considered to be exclusively related to the infringement. This may or may not already be the case at the time the behavioural remedy is imposed, and even behavioural remedies that are successful in a static sense are likely to restrain the firm beyond what is necessary once market conditions have changed. As a result, firms will often prefer to avoid restrictions on their business conduct, as behavioural remedies often come with additional trustee costs and ongoing supervision that bears the risk of detracting attention from the firm’s core business. A structural remedy therefore has the added advantage of allowing the firm to move on.

3. Conditions under Regulation 1/2003 Leaving mergers aside, structural remedies in European competition law occur either in the context of an infringement decision under Article 7 or in the context of a commitment decision under Article 9 of Regulation 1/2003. Under Article 7, an infringement is identified by decision and is terminated with remedies, whereas Article 9 renders commitments offered by the parties

behaviour of the firm in order to achieve this outcome indirectly (so-called process or conduct remedies). The presumption that market outcomes in a dynamic context can be rationally anticipated is the key weakness of behavioural remedies. From that perspective, it is surprising to see how widespread behavioural measures are in a competition law context as they are fundamentally at odds with the idea that a decentralised competitive process (constrained by competition law) alone allows the efficient allocation of resources and the highest welfare. 17 If the concept is taken literally, antitrust remedies are by definition never selfexecuting. Antitrust remedies are designed and adopted in order to end an infringement that occurred precisely because of existing incentives pushing the firm towards infringing competition law. 18 Of course, the strategic value of the asset, enabling the firm to partake in anticompetitive conduct with abnormal returns, is not priced-in. Problems may also arise if the number of buyers is low or if the market is already heavily concentrated—rendering the asset uninteresting for new entrants, for example.

Behavioural versus Structural Remedies in EU Competition Law 213 binding if those address and eliminate the competition concerns voiced by the Commission without formal finding of an abuse.19 The distinction between Article 7 and Article 9 would once not have been considered important for the purposes of a discussion of behavioural versus structural remedies, with the CFI20 arguing that the treatment under Article 7 is also the benchmark for Article 9 cases. This has, however, partially been reversed by the ECJ,21 which stated that, under Article 9, the Commission’s obligation in relation to the principle of proportionality ‘is confined to verifying that the commitments in question address the concerns it expressed to the undertakings concerned and that they have not offered less onerous commitments that also address those concerns adequately’.22 As a result, the proportionality requirements under Article 7 are stricter than those under Article 9, so that focusing on Article 7 is appropriate in exploring the possibilities for imposing structural remedies. Article 7(1) of Regulation 1/2003 provides the legal basis for finding and terminating an infringement of EU competition law. This provision, with emphasis added, reads as follows: Article 7(1) Finding and termination of infringement 1. Where the Commission, acting on a complaint or on its own initiative, finds that there is an infringement of Article 81 [101] or of Article 82 [102] of the Treaty, it may by decision require the undertakings and associations of undertakings concerned to bring such infringement to an end. 2. For this purpose, it may impose on them any behavioural or structural remedies which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end. 3. Structural remedies can only be imposed either where there is no equally effective behavioural remedy or where any equally effective behavioural remedy would be more burdensome for the undertaking concerned than the structural remedy. 4. If the Commission has a legitimate interest in doing so, it may also find that an infringement has been committed in the past.

It is preceded by Recital 12, which largely reiterates the Article in stating: This Regulation should make explicit provision for the Commission’s power to impose any remedy, whether behavioural or structural, which is necessary to bring the infringement effectively to an end, having regard to the principle of proportionality. Structural remedies should only be imposed either where there is no equally effective behavioural remedy or where any equally effective behavioural remedy would be more burdensome for the undertaking concerned than the structural

19 A general introduction to remedies under EU law including a discussion of Articles 7, 8 and 9 can be found in Lowe and Maier-Rigaud (2008). 20 See Case T-170/06 Alrosa Company Ltd v Commission [2007] ECR II-2601, para 101. 21 See Case C-441/07 P Commission v Alrosa Company Ltd [2010] ECR I-5949, para 45. 22 Ibid, para 41.

214 Frank P Maier-Rigaud r emedy. Changes to the structure of an undertaking as it existed before the infringement was committed would only be proportionate where there is a substantial risk of a lasting or repeated infringement that derives from the very structure of the undertaking.

As will be discussed later, the last sentence is merely an example of conditions that need to be met under the proportionality screen, ie that structural remedies may not be proportionate where they would alter the structure of the undertaking as it existed prior to the infringement (in contrast, for example, to vertical agreements, where the infringement modifies the structure) unless there is a risk of a lasting or repeated infringement in the future. In the following, the meaning of the first three sentences that make up Article 7(1) will be analysed in turn to provide an economically sound interpretation of Article 7(1) that, as will be subsequently argued, is also in line with the original intent of the drafters of these provisions.

3.1 Article 7(1)—the first sentence Article 7(1)1 is an introduction to the Commission’s powers of requiring offenders to put an end to antitrust infringements. It specifies the domain of application and authorises the Commission (‘the Commission may’) to force the undertakings or associations of undertakings to put an end to the competition infringement identified. To ‘bring such an infringement to an end’ must, however, be interpreted broadly, as it is perfectly conceivable to envision (in particular, behavioural) measures that ‘bring the infringement to an end’ in the short run but cannot guarantee that effect in the longer term. Such a situation may in particular arise if incentives remain to commit competition law violations in the future.23 As a result, and as is further specified in Article 7(1)2, what must be chosen is not any possible measure that brings the infringement to an end, but only those that effectively end the infringement. This emerges further from

23 The importance of incentives in the context of structural remedies has in particular been recognised in energy cases. See, eg Maier-Rigaud et al (2011) for a description of the ENI case. The fact that incentives for infringing competition law need to be removed to effectively bring an infringement to an end is, for instance, also acknowledged by Kjølbye and Gauer (2014: 1631f) in their discussion of the RWE and ENI cases: ‘In these cases the infringement stemmed from the very structure of the undertaking, namely the vertical integration. The undertakings had an incentive to maximize the profit of the group as a whole and to leverage their control of the network to their benefit on the downstream market. Any remedy that would not have removed this incentive would not have been equally efficient.’

Behavioural versus Structural Remedies in EU Competition Law 215 Recital 12 of Regulation 1/2003, which emphasises the risk of a lasting or repeated infringement in its final sentence: Changes to the structure of an undertaking as it existed before the infringement was committed would only be proportionate where there is a substantial risk of a lasting or repeated infringement that derives from the very structure of the undertaking.

In addition, the Ufex case law has been interpreted as suggesting that ‘bringing an infringement effectively to an end’ is not only a matter of effectively ending the conduct, but also requires ending its effects, ie its repercussions on the market.24 Based on Ufex, ‘bringing an infringement effectively to an end’ therefore encompasses terminating the consequences and repercussions (ongoing effects) of the infringing conduct that may continue completely decoupled from the fact that the conduct that originally caused the effects has ceased.25 It is not the subject of this chapter to discuss the inherent risks associated with any approach that would aim to eliminate all consequences and repercussions of an infringement in the name of putting ‘an infringement effectively to an end’. Suffice it to say that this aspect is not evidently grounded in Regulation 1/2003 and that it opens up the major difficulty of establishing the status quo ante, a process that may (positively and negatively) affect a range of economic actors and consumers that were neither part of the infringement nor aware of its existence.26 Irrespective of whether one would like to follow this interpretation of Ufex or not, the question of the role of structural versus behavioural remedies remains irrespective of whether eliminating the effects caused by the infringement is considered a legitimate policy goal.

24 See Case C-119/97 P Union française de l’express (Ufex), formerly Syndicat français de l’express international (SFEI), DHL International and Service CRIE v Commission [1999] ECR I-1341, paras 93 et seq. 25 ‘If anti-competitive effects continue after the practices which caused them have ceased, the Commission thus remains competent’ (Ufex, para 94); ‘the Commission therefore cannot rely solely on the fact that practices alleged to be contrary to the Treaty have ceased, without having ascertained that anti-competitive effects no longer continue’ (Ufex, para 95). On Ufex, see Hellström et al (2009: 45f) or Dalheimer et al (2005: 56). See also the CEZ commitment decision (Commission Decision of 10 April 2013 in Case AT.39727— CEZ), in which it is succinctly stated in para 79 that ‘Given that the conduct which gave rise to the Commission’s concerns consisted of pre-emptive booking of transmission capacity which in turn effectively prevented new entry into the Czech electricity market, transfer of some of ČEZ’s generation capacity to a competitor represents a clear-cut solution to the identified competition concerns. Transfer of generation capacity is necessary in this case as no other type of remedy can address the effects of ČEZ’s conduct.’ This seems to be an example of structural remedies following the Ufex logic. It would have been preferable if the remedies in ČEZ had been motivated by the continuing incentive of ČEZ to engage in pre-emptive booking. The commitment of transferring generation capacity could thus have been motivated as a remedy eliminating the incentive to overbook in the future (thereby effectively ending the infringement), as opposed to a way of addressing the persisting effects of the conduct in an effort to turn back the clock. 26 As an indication of the difficulties involved, see the discussions of damages claims in the context of Article 102 TFEU cases in Maier-Rigaud and Schwalbe (2013a, 2013b).

216 Frank P Maier-Rigaud

3.2 Article 7(1)—the second sentence Article 7(1)2 explains in more detail what is meant under Article 7(1)1 and that the Commission does not have to stop at a cease-and-desist order but that positive remedies may be imposed. For the purpose of bringing antitrust infringements to an end, any necessary remedy that is proportionate to the infringement can be employed, ie any type of remedy, behavioural or structural, can be imposed if the general filters of proportionality and necessity are fulfilled.27 As this sentence does not yet differentiate between behavioural and structural remedies, the main qualification concerns measures that go beyond a simple cease-and-desist and the general filters. Proportionality is typically not an ultimate selection criterion for remedies, and the same applies to necessity. Necessity is a general filter that determines whether the remedy is generally capable of bringing the infringement to an end, does not go beyond this goal and does not concern aspects that are not part of the procedure. In contrast to German law, the European concept of proportionality says nothing about effectiveness, just as effectiveness says nothing about proportionality. A more effective remedy is therefore not automatically a less proportionate one in the sense of a milder means.28

3.3 Article 7(1)—the third sentence As already suggested above, the infringement not only needs to be brought to an end, but needs to be brought effectively to an end, possibly requiring the use of remedies that go beyond a cease-and-desist order. What does the deliberate qualification of ‘effectively’ in Article 7(1)2 or the use of ‘equally effective’, as employed in Article 7(1)3, suggest? If it is possible to bring an infringement effectively to an end, it must also be possible, as discussed above, that an infringement is brought to an end but that this is not effective, ie that it does not last and that the infringement, albeit brought to an end temporarily, is ineffectively brought to an end, for instance, from a more dynamic, longer term perspective. This may arise, for example, in the case of a cease-and-desist order or a behavioural remedy that does not effectively eliminate the underlying incentives to commit competition law violations.29

27 Supposedly the same criteria would apply concerning remedies aimed at restoring the status quo ante. 28 On the issue of structural versus behavioural remedies in general and the specifics of the proportionality test under German law in particular, see Maier-Rigaud (2012). 29 It has been argued that it is sufficient for conduct to cease as it is the role of fines to ensure deterrence. From an economic perspective, however, it may be preferable to e liminate

Behavioural versus Structural Remedies in EU Competition Law 217 The reference to ‘equally effective’ remedies suggests that effectiveness is a gradual concept, that it can be measured ranging, for example, from noneffective to less effective to highly effective. If that were not the case, the requirement in Article 7(1)3 would only be ‘effective’ in order to contrast it to a situation where the comparison is made between an effective and an ineffective remedy in a binary interpretation of the concept of effectiveness. The argument becomes clearer when considering the French version of the relevant sentences: A cette fin, elle peut leur imposer toute mesure corrective de nature structurelle ou comportementale, qui soit proportionnée à l’infraction commise et nécessaire pour faire cesser effectivement [in the sense of ‘to actually terminate’] l’infraction. Une mesure structurelle ne peut être imposée que s’il n’existe pas de mesure comportementale qui soit aussi efficace [in the sense of reaching the goal] ou si, à efficacité égale, cette dernière s’avérait plus contraignante pour l’entreprise concernée que la mesure structurelle.

Whether one considers the use of the term ‘effectively’ in sentence 2 to be different from the use of the term ‘equally effective’ in sentence 3, as suggested in the French version, is not that important. What the French version renders clear, however, is that the effectiveness of a remedy is not a binary measure according to which a whole range of measures may be classified as either effective or not effective, but a gradual concept. If that were not the case and the term ‘equally’ were intended to mean ‘as well’, all three official language versions could dispense with the qualifier, ie the ‘equally’ in front of ‘effective’, the ‘aussi’ in front of ‘efficace’ and the ‘gleicher’ in front of ‘Wirksamkeit’, as, indeed, it would only be a question of ‘effective’ or ‘ineffective’ where the latter remedies would automatically be disqualified. Additional support for this interpretation is found in De Smijter and K jølbye (2007: 120), who were both directly involved in the negotiations c oncerning Regulation 1/2003: ‘If one proportionate remedy is more effective than other available remedies, the Commission can impose the most effective one’.30 If the gradual nature of the concept of ‘effectiveness’ is accepted, it raises the obvious question of which remedy is to be considered the most effective.

the business rationale for committing infringements directly instead of putting the pressure on fines to achieve the same effect indirectly. While this paper is not about the appropriateness of fines in general or specific levels of fines, it is clear that the approach to remedies foreseen under Article 7 generates less pressure on fines. This may be relevant in the context of the current debate on fines as, clearly, every time a fine is paid, deterrence has failed. 30 In addition to clarifying the gradual nature of effectiveness, De Smijter and K jølbye (2007) also clarify that the effectiveness of the remedy relates not only to the capacity of the remedy to address a competition problem, but also to its enforceability. This is an important aspect, as the authors clearly point to the higher burden on the competition authority in the monitoring of behavioural remedies. They write: ‘For a remedy to be e ffective it must be

218 Frank P Maier-Rigaud

3.4 The test: how to choose among proportionate and necessary remedies Having discussed the individual sentences of Article 7(1) above, it is now possible to put the different elements together in order to reconstruct the implicit test that Regulation 1/2003 prescribes and that the Commission is applying. To determine the remedy to be imposed out of a large set of potential candidates, one can think of Article 7(1) as a filtering process, as depicted in Figure 1. Pool of all potential remedies necessity filter

Pool of necessary remedies proportionality filter

Pool of necessary and proportionate remedies

A. Only one remedy passes both filters

effectiveness filter

No distinction between structural and behavioural remedies

Pool of necessary, proportionate and equally effective remedies

B. Only one remedy passes all filters

Pool of homogenously structural or homogenously behavioural remedies

Pool of mixed behavioural/structural remedies

C. Firm is allowed to choose the remedy

D. Least burdensome remedy has to be chosen

No distinction between structural and behavioural remedies

Figure 1: The Filters of Article 7

Behavioural versus Structural Remedies in EU Competition Law 219 The first filter foreseen is the one of Article 7(1)2 that specifies that any measure that is necessary to bring an infringement to an end and that is proportionate to the infringement can be imposed. Necessity and proportionality are criteria that any remedy, irrespective of whether it is a structural or a behavioural remedy, needs to fulfil.31 This filter implies that, among all necessary and proportionate remedies, the most effective one is to be chosen conditional on Article 7(1) sentence 3,32 which specifies that: Structural remedies can only be imposed either where there is no equally effective behavioural remedy or where any equally effective behavioural remedy would be more burdensome for the undertaking concerned than the structural remedy.

Article 7(1)3 allows for exactly four possibilities. Either there is only a single remedy that is both proportionate and necessary (Outcome A in Figure 1)

possible to monitor compliance. Complex behavioural remedies are often ineffective. As the complexity of a remedy increases, the less likely it is that it will address the competition problem effectively. Behavioural remedies often suffer from a high degree of complexity relative to structural remedies.’ That the problem of complexity is not only one concerning the monitoring of the competition authority but can also negatively affect firms will be discussed below. Similarly, Kjølbye and Gauer (2014: 1631) state, in the context of their discussion of the incentives faced by RWE and ENI as vertically integrated companies, that ‘Any remedy that would not have removed this incentive would not have been equally efficient. In addition, the difficulties inherent in monitoring any conceivable behavioural remedy (eg, a commitment to market all unused capacity or to avoid a margin squeeze) would arguably have rendered it ineffective.’ 31 The last sentence of Recital 12 discusses proportionality of structural remedies, istinguishing the case where the infringement is based on conduct from the case where the d structure of the undertaking—as, for example, in the case of a joint venture agreement—is itself the infringement. It only specifies explicitly what would follow anyhow from the proportionality test, namely that a structural remedy modifying the structure of the undertaking as it existed prior to the infringement can only be considered proportional if there is ‘a substantial risk of a lasting or repeated infringement’. Recital 12 therefore only clarifies that structural remedies are an obvious remedy for example in vertical agreements, where the ‘structural agreement’ is the infringement, but also remain proportional in cases where the structure of the undertaking is driving the infringing conduct so that a structural remedy is required in order to eliminate the incentives to infringe competition law in the future. As long as the infringement directly derives from the structure of the undertaking, either as it was created by the infringement or as it existed prior to the infringement, and as long as the incentives provided by that structure continue to push for a repetition of the infringement unhampered, structural remedies will be proportionate. In that sense, Recital 12 does not add anything to the test except maybe to clarify Magill on the question of effectiveness and proportionality (see paras 89–92 in Joined Cases C-241/91 and 242/91 P Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission (Magill) [1995] ECR I-743). It should be noted that Kjølbye and Gauer (2014: 1634), in their discussion of the CEZ case, interpret Recital 12 more narrowly as describing a situation of vertical break-up. They argue that ‘Recital 12 cannot be understood as limiting the imposition of any type of structural remedy to infringements deriving from the very structure of the undertakings’, drawing a line between the divestiture of some of the company’s assets and full vertical separation. Their interpretation is not identical to the one proposed here, but entails the same consequences. 32 Recital 12, second sentence is identical down to one word: the word ‘can’ is replaced by ‘should’.

220 Frank P Maier-Rigaud or there are many remedies that are proportionate and necessary but only a single of these remedies can be considered the most effective one (Outcome B in Figure 1). If either of these two cases arises, the third sentence is irrelevant and the distinction between structural and behavioural remedies is super fluous in terms of the test. If, however, there are several remedies that are all tied on first place in terms of effectiveness, two more situations can be distinguished (Outcomes C and D in Figure 1). If all tied remedies are either uniformly behavioural or uniformly structural, the concerned undertaking should be allowed to choose (Outcome C in Figure 1).33 If the tied remedies include both behavioural and structural measures, then the remedy that has to be chosen is the one that is the least burdensome for the undertaking (Outcome D in Figure 1). In either of these two additional cases, the behavioural or structural nature of the remedy plays only an indirect role in the sense that the composition of the pool of remaining remedies determines whether the concerned undertaking chooses the remedy or whether the least burdensome remedy is imposed. It is often assumed that this will typically be the behavioural remedy. This is, however, neither conclusive nor empirically to be expected.34 As a result, and despite a largely contrary literature, Council Regulation 1/2003 does not imply a preference for behavioural remedies (nor the subsidiarity of structural remedies). On the contrary, the structural or behavioural nature of a remedy is immaterial as long as such remedies are not equally effective (Outcomes A and B in Figure 1). Only in the highly theoretical case of when they cannot be distinguished by the very criteria set forth in Article 7 (Outcomes C and D in Figure 1) does Article 7 suggest drawing on the distinction between behavioural and structural remedies to determine whether the concerned undertaking should choose (Outcome C in Figure 1) or the least burdensome measure has to be adopted (Outcome D in Figure 1). Arguably, even that is not a real distinction, as the least burdensome measure is not unlikely to be the one that the concerned undertaking would be choosing.

33 This can be derived from the case law. See, eg Case T-24/90 Automec Srl v Commission [1992] ECR II-2223, paras 51 et seq. 34 In the E.ON case (Commission Decisions of 26 November 2008 in Case COMP/39.388—German Electricity Wholesale Market and Case COMP/39.389—German Electricity Balancing Market), this question was explicitly dealt with. After stating that there was no equally effective behavioural alternative, the question of whether a hypothetical equally effective behavioural remedy would have implied a lower burden for the firm is discussed. That is later found not to be the case, and not only because E.ON never proposed such a behavioural remedy. In any case, this is an empirical question and not one of legal interpretation. On the E.ON cases, see Chauve et al (2009) or Hellström et al (2009) for a discussion of the remedies.

Behavioural versus Structural Remedies in EU Competition Law 221

4. Conclusion In its proposal for what later became Council Regulation 1/2003,35 the Commission suggested the following wording for Article 7: Article 7(1) Finding and termination of infringement Where the Commission, acting on a complaint or on its own initiative, finds that there is an infringement of Article 81 or of Article 82 of the Treaty, it may by decision require the undertakings and associations of undertakings concerned to bring such infringement to an end. For this purpose, it may impose on them any obligations necessary, including remedies of a structural nature. If it has a legitimate interest in doing so, it may also find that an infringement has been committed in the past.

The proposal also contains a justification for that wording: Secondly, the Commission is empowered to impose all remedies necessary to bring the infringement to an end, including structural remedies. Structural remedies can be necessary in order to bring an infringement effectively to an end. 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.

Even if this wording appears to be different from Article 7 as well as Recital 12 of Council Regulation 1/2003, the Commission, albeit at the price of an interpretable formulation, seems to have asserted itself despite the intense and controversial debates at the time. This becomes apparent if one changes the sentence structure of Article 7 slightly and thereby visibly turns the (wrong) impression that one may get from the current formulation on its head. The following content preserving reformulation of Article 7(1)3 demonstrates how misleading the current formulation is and that this ultimately contributed to the myth of a subsidiarity of structural measures. A logically equivalent formulation of the third sentence of Article 7(1), ie a formulation that prompts the same action as the original, assuming a non-binary interpretation of effectiveness, is the following sentence. In contrast to the original version, the wording now rather suggests (with emphasis added) a subsidiarity of behavioural measures: Behavioural remedies can only be imposed either where there is no more effective structural remedy or where any equally effective structural remedy would be equally or more burdensome for the undertaking concerned than the behavioural remedy.

35 See Proposal for a Council Regulation on the implementation of the rules on c ompetition laid down in Articles 81 and 82 of the Treaty …, COM(2000) 582 final of 27 September 2000, http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2000:0 582:FIN:EN:PDF.

222 Frank P Maier-Rigaud Even if this wording no longer suggests a priority for behavioural remedies, the (exclusively empirical) question of the relative effectiveness of necessary and proportionate structural and behavioural remedies remains. An additional indication that speaks against a priority of behavioural over structural remedies consists in Council Regulation 17/62. In the context of the negotiations of Council Regulation 1/2003, which were overshadowed by the discussions of structural remedies in the Microsoft case, Council Regulation 17/62 represented the status quo and therefore the fall-back position of the European Commission. As the Commission already had the powers to terminate an infringement with structural remedies prior to Council Regulation 1/2003, the Commission would have likely preferred to forgo any mention of structural remedies instead of implementing categorical limitations of its powers.36 The fact that the Commission did not simply drop the structural remedies from Article 7 reverting to the old formulation but ultimately accepted the version of Article 7 that appears in Regulation 1/2003 today can, from a negotiation point of view, only easily be reconciled with the interpretation offered here. Finally, the finding that there is an important role for structural remedies in competition law is hardly surprising. Efficiency considerations should of course also play a role in the remedy design stage. This follows directly from the justification for competition law enforcement, which has emphasised the role of efficiencies at least since the introduction of Regulation 1/2003. If, however, one of the reasons for having competition law enforcement to begin with is its efficiency increasing impact on the economy overall, it would be inconsistent to restrict such consideration to the identification of competition law violations and generally exclude efficiency considerations at the remedial stage, even if a trade-off between efficiency and increased interference with (fundamental) property rights is perceived. The fact that the European Commission clearly has the legal means to follow a more economic approach also in this often neglected but absolutely central part of competition law enforcement is reassuring, and will typically not be detrimental even to those firms subjected to structural remedies.

36 The thesis that Regulation 17/62 did not foresee structural remedies has often been repeated. While Regulation 17/62 did not mention structural remedies explicitly, the Commission had already imposed such remedies prior to Regulation 1/2003 outside the realm of the Merger Regulation, including, in particular, in the Continental Can and Magill cases. See, eg Gauer et al (2003) or Riley (2003: 607). Even in the hypothetical absence of structural remedies and these court cases, the absence of any explicit reference to structural remedies in Regulation 17/62 can clearly not be interpreted as implying that such measures could not have been imposed. To take another example from competition law, only the eighth version of the German GWB started to mention structural remedies explicitly, but such measures were already permitted prior to the changes in 2013.

Behavioural versus Structural Remedies in EU Competition Law 223

Bibliography Adam, Michael and Frank Maier-Rigaud (2009) ‘The Law and Economics of Article 82 EC and the Commission Guidance Paper on Exclusionary Conduct’ 1 Journal of Competition Law (Zeitschrift für Wettbewerbsrecht) 131. Chauve, Philippe; Godfried, Martin; Kovács, Kristoff; Langus, G; Nagy, Károly and Stefan Siebert (2009) ‘The E.ON electricity cases: an antitrust decision with structural remedies’, EU Competition Policy Newsletter 1, 51–54, http://ec.europa. eu/competition/publications/cpn/2009_1_13.pdf. Dalheimer, Dorothe; Feddersen, Christoph and Gerald Miersch (2005) EU-Kartellverfahrensordnung—Kommentar zu VO 1/2003 (CH Beck). Davies, Stephen and Bruce Lyons (2007) Mergers and Merger Remedies in the EU: Assessing the Consequences for Competition (Edward Elgar). De Smijter, Eddy and Lars Kjølbye (2007) ‘The Enforcement System Under Regulation 1/2003’, in J Faull and A Nikpay (eds), The EC Law of Competition, 2nd edn (Oxford University Press) 87 et seq. European Commission (2005) Merger Remedies Study, http://ec.europa.eu/ competition/mergers/legislation/remedies_study.pdf. European Commission (2008) Commission Notice on remedies acceptable under the Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004, [2008] C267/1. Gauer, Céline; Dalheimer, Dorothe; Kjølbye, Lars and Eddy de Smijter (2003) ‘Regulation 1/2003: A Modernised Application of EC Competition Rules’, EC Competition Policy Newsletter 1, 3–8, http://ec.europa.eu/competition/publications/ cpn/2003_1_3.pdf. Hellström, Per; Maier-Rigaud, Frank and Friedrich Wenzel Bulst (2009) ‘Remedies in European Antitrust Law’ 76 Antitrust Law Journal 43. ICN (2005) Merger Remedies Review Project, International Competition Network Merger Working Group: Analytical Framework Subgroup, Bonn, June, http://www. internationalcompetitionnetwork.org/uploads/library/doc323.pdf. Kjølbye, Lars and Celine Gauer (2014) ‘Energy’, in J Faull and A Nikpay (eds), The EU Law of Competition, 3rd edn (Oxford University Press) ch 12. Koch, Oliver; Nagy, Károly; Pucinskaite-Kubik, Ingrida and Walter Tretton (2009) ‘The RWE Gas Foreclosure Case: Another Energy Network Divestiture to Address Foreclosure Concerns’, EC Competition Policy Newsletter 2, 32–34. Kopke, Alexander (2005) ‘Merger Remedies Study’, EU Competition Policy Newsletter 3, 3–5. Kwoka, John and Diana Moss (2011) ‘Behavioral Merger Remedies: Evaluation and Implications for Antitrust Enforcement’, working paper, http://ssrn.com/ abstract=1959588. Lévêque, François (2000) ‘The Conduct vs Structural Remedies Controversy: An Irrelevant Dichotomy of Antitrust Policy Instruments’, CERNA, Ecole Nationale Supérieure des Mines de Paris working paper, http://www.cerna.ensmp.fr/ Documents/FL-MSMay00.pdf. Lévêque, François and Howard Shelanski (eds) (2003) Merger Remedies in American and European Union Competition Law (Edward Elgar).

224 Frank P Maier-Rigaud Levinson, Robert; Romaine, Craig and Steven Salop (2000) ‘The Flawed Fragmentation Critique of Structural Remedies in the Microsoft Case’, Georgetown University Law Center, Business, Economics, Regulatory Law Working Paper No 204874. Lowe, Philip and Frank Maier-Rigaud (2008) ‘Quo Vadis Antitrust Remedies’, in Barry Hawk (ed), International Antitrust Law & Policy: Fordham Competition Law 2007 (Juris Publishing) ch 20, 597–611. Maier-Rigaud, Frank (2012) ‘Zur Idee der Subsidiarität struktureller Maßnahmen im europäischen Wettbewerbsrecht’ 5 Journal of German and European Competition Law (Wirtschaft und Wettbewerb) 487, http://ssrn.com/abstract=1906335. Maier-Rigaud, Frank and Ulrich Schwalbe (2013a) ‘Quantification of Antitrust Damages’, in David Ashton and David Henry (eds), Competition Damages Actions in the EU: Law and Practice (Edward Elgar), http://ssrn.com/abstract=2227627. Maier-Rigaud, Frank and Ulrich Schwalbe (2013b) ‘Private Enforcement under EU Law: Abuse of Dominance and the Quantification of Lucrum Cessans’ 11(2) CPI Antitrust Chronicle 1, http://ssrn.com/abstract=2359327. Maier-Rigaud, Frank; Manca, Federica and Ulrich von Koppenfels (2011) ‘Strategic Underinvestment and Gas Network Foreclosure—the ENI Case’, EC Competition Policy Newsletter 1, 18–23, http://ssrn.com/abstract=1903788. Motta, Massimo; Polo, Michele and Helder Vasconcelos (2003) ‘Merger Remedies in the European Union: An Overview’, in François Lévêque and Howard Shelanski (eds), Merger Remedies in American and European Union Competition Law (Edward Elgar). O’Donoghue, Robert and Jorge Padilla (2006) The Law and Economics of Article 82 EC (Hart Publishing). O’Donoghue, Robert and Jorge Padilla (2013) The Law and Economics of Article 102 TFEU, 2nd edn (Hart Publishing). OECD (2001) Recommendation of the Council on Structural Separation in Regulated Industries, http://www.oecd.org/dataoecd/24/49/25315195.pdf. OECD (2011a) Recent Experiences with Structural Separation: A Report to the Council on Implementation of the 2001 Recommendation Concerning Structural Separation in Regulated Industries, DAF/COMP(2011)12, http://www.oecd.org/ daf/competition/50056685.pdf. OECD (2011b) Regulated Conduct Defence, OECD Policy Roundtable, http://www. oecd.org/regreform/sectors/48606639.pdf. Riley, Alan (2003) ‘EC Antitrust Modernisation: The Commission Does Very Nicely— Thank You! Part One: Regulation 1 and the Notification Burden’ 24 European Competition Law Review 604. Wang, Wei (2011) ‘Structural Remedies in EU Antitrust and Merger Control’ 34 World Competition 571. Wind, Elena (2005) ‘Remedies and Sanctions in Article 82 of the EC Treaty’ 26 European Competition Law Review 659.

3 AGENCIES AS AMICI CURIAE Chair: Giorgio Monti Speaker: Stephen Calkins Calkins: The first point is that amicus participation in the US is really an amazingly big part of the US legal system. In the Supreme Court this last term there were 77 cases decided, 1046 amicus briefs for an average of thirteen and a half per case, with the leading cases attracting 97, 92, 82 and 80 amicus briefs.1 The leading competition case there, which was a straight antitrust case, was FTC v Actavis, with 27 amicus briefs.2 It’s a big part of what the agencies do: if you go to the FTC it has an amicus website, and if you go back to 1998 you’ll get around 90 FTC amicus briefs; and if you go to the Justice Department, its similar website reports filings of 70 amicus briefs. But do all these briefs make a difference? The answer is that there are lots of different ways that people look at things, and generally all perspectives give a sense that amicus participation makes a difference both in deciding what cases the US Supreme Court takes on board and then to some extent deciding the merits of different cases. There are a number of different things that people look at to draw those conclusions, and I am not going into that now. There are wonderful examples of cases where you can see that an amicus participation may have made a difference, the caveat being that you can never know for sure; all judges and justices could have done everything without any advice or suggestions from anybody, so you never know for sure. You do get surveys of former law clerks and interviews with judges that suggest that amicus briefs really do make a difference, but again you can never be sure. There DD

1 American Bar Association Preview of Supreme Court Cases, http://www.americanbar. org/publications/preview_home/alphabetical.html. The breakdown is as follows: 97 briefs in Hollingsworth v Perry, No 12-144; 92 briefs in Fisher v University of Texas at Austin, No 11-345; 82 briefs in Kiobel v Royal Dutch Petroleum, No 10-1491; and 80 briefs in United States v Windsor, No 12-307. 2 FTC v Actavis, Inc, No 12-416.

226 Part I: Effective Enforcement of Competition Law are a couple of cases I would highlight—one is Phoebe Putney.3 This is a state action case worth talking about. The issue arose because the defendant in a hospital merger case was basically trying to say that a rather general authorisation from the state showed that the state had contemplated anticompetitive behaviour, so therefore the merger should be immune to antitrust attack. The problem with this argument was in part revealed when Justice Kagan in oral argument said to him: You are arguing that these general prohibitions show a contemplation of anticompetitive behavior but I have here a brief from 20 states pleading with us not to agree with you or else they’ll be royally in trouble every time such legislation comes along.4

This reminded me of one of the wonderful amicus cases back in the Kodak tying case, when the defendants to this one were arguing that there’s no problem in linking a product to an aftermarket product in services and such because the purchasers can engage in life cycle costing, and therefore there will be immediate punishment for anybody trying to overcharge. In that case there was a wonderfully engaging amicus brief from a group of states that said: Trust us, your Honours, we are utterly incompetent to do life cycle costing. The people that buy the main product are in one building, the people that buy the after-market product are in another building, they hate each other, don’t talk to each other, and can’t possibly do this kind of math. So please don’t even think about going there.5 Another famous case was the Leegin case; this was the resale price maintenance case where five to four Justices of the Supreme Court embraced a rule of reason.6 The Court, in its majority opinion, specifically points out that both the Justice Department Antitrust Division and the Federal Trade Commission, the primary enforcers, were both in favour of a rule of reason approach. Both the majority opinion and the dissent each cite amicus briefs 10 times. The majority relies, interestingly enough, on a brief by one private company,

FTC v Phoebe Putney Health System, Inc, 568 US ___ (2013). See Transcript at 26–27: ‘JUSTICE KAGAN: Mr Waxman, we do have a brief from quite a number of states, and the brief basically says: We do this all the time; we set up these local authorities, and then we give them powers because they have to act in the world. We give them normal powers, like the ability to make contracts and the ability to buy property.’ ‘And when we do that, we don’t mean that they can do anything they want notwithstanding the antitrust laws. And to construe these very normal powers that we would give to a state entity in order to allow it to operate as a permission to violate the antitrust laws is not at all consistent with our own intentions.’ 5 Amicus briefs in Eastman Kodak Co v Image Technical Servs, Inc, 504 US 451 (1992); Texas Indus Inc v Radcliff Materials, Inc, 451 US 176 (1980); Monsanto Co v Spray-Rite Serv Corp, 465 US 752 (1984); Brown v Pro-Football, Inc, 518 US 231 (1996); Hartford Fire Ins Co v California, 509 US 764 (1993); Texaco Inc v Hasbrouck, 496 US 543 (1990). 6 Leegin Creative Leather Products, Inc v PSKS, Inc, 551 US 877 (2007). 3 4

Part I: Effective Enforcement of Competition Law 227 Ping, a high-end golf club company, as evidence that the way of doing business, the alternative of using so-called Colgate rights (ie taking advantage of broad rights to choose customers and refuse to deal with discounters), was inefficient and costly—and that was cited by the majority as an important part of their decision.7 Meanwhile, the amicus briefs on both sides were relied on by the authors of those opinions as warfare among economists as to what the majority view was. Briefs from economists were cited by both sides, and during oral argument Justice Breyer said: ‘So we’re supposed to count economists, is that how we decide?’ So amicus briefs clearly were an important part of the litigation. Finally, there is another case, linkLine Communications,8 which Josh Wright referenced. This was interesting in part because we only have a decision here because of an amicus. The plaintiff in that case abandoned its argument before the Supreme Court proceeded to hear the case and said: ‘We give up, we’re not going to pursue our argument anymore’, at which point one might thought the thing for the Court to do was to dismiss the case, and indeed that’s what four Justices thought the Court should’ve done, but the majority said wait, we have two amicus briefs that are still making the argument, so we’re going to appoint to one of them to make the argument orally, and that’s good enough for us to hear the case. So in linkLine we wouldn’t have a decision at all if it hadn’t been for the amicus participation. That was, interestingly enough, the participation of the American Antitrust Institute, a pro-enforcement institute which I’ve had some connection with and which has filed more than 60 amicus briefs in court cases, generally on the pro-enforcement side. And, indeed, you can find a couple of cases where they’ve made a difference.9 So, in the US, amicus briefs and amicus participation really are a big part of the competition law system. In Europe—it’s just not as big a deal here. There are many reasons for this. First, there is an Advocate General, so the role played by the Solicitor General in the US, who participates as an amicus, isn’t as necessary for getting a fair and impartial perspective. Another is that the system is set up more for participating as an intervener rather than as amicus curiae. But that has consequences, because intervention gives you more rights than you would have as an amicus, which means that the courts have to limit the number of interveners. It’s not physically possible to have 90 interveners; that just wouldn’t work. So you’ve got a difference there. You’ve got more courts with a sense that a real amicus ought to be neutral, whereas US courts never really believed that

551 US at 903 (citing Brief of PING, Inc as Amicus Curiae in Support of Petitioner). Cited above n 22. 9 See http://www.antitrustinstitute.org/content/activities-amicus-program. 7 8

228 Part I: Effective Enforcement of Competition Law and abandoned that idea several decades ago. So it’s much less common in Europe to have an amicus-like intervention, if you will, than in the US. It does happen, though, and certainly the Commission does this in a very important way pursuant to Regulation 1/2003, recognising that if Member State courts are going to be enforcing the competition rules of the Treaty there has to be a way for the Commission to be involved.10 Indeed, the Commission has made cooperation with national courts a priority.11 Its website reports 11 opinions responding to court requests for information or an opinion, where the national court gave permission for publication.12 That site also reports 10 ‘written observations’ made to national courts (again limited to where the court approved of publication).13 The Commission’s ‘observations’ have met with considerable success. So, as I wrap up a little, I can confidently predict that, in Europe, interventions and amicus work will increase. I have complete confidence in that because private enforcement is increasing, and private enforcement goes hand in hand with the interest of government regulators getting more involved—and that would apply to national enforcers as much as it does to the Commission. Realistically, the American Antitrust Institute would not exist—I’m not speaking for them, but they would not exist—if there were no vigorous private enforcement system, which creates among other things a group of lawyers that tend to be on the side of the plaintiff and who can help to write the briefs and help to do the funding in order to make it all work. With private enforcement comes more scope for amicus intervention work in Europe. Folks will be looking across the ocean and think about the US and draw some lessons, and there are lots of wonderful things about amicus work in the US. There are some concerns, burden does get to be a concern at some point: you know, 90 briefs is an awful lot for a law clerk to read. The people with more resources can do more to generate the briefs from third parties; we have a lot of briefs in the US now from scholars, almost always written by a lawyer who is a friend of the parties or who has done business with one of the parties. Not always, but I’m not saying it’s done nefariously—it’s usually done pro bono, for good purposes—but the people with more resources can coordinate it b etter and

10 See Emil Paulis, ‘Coherent Application of EC Competition Law in a System of arallel Competences’, in Claus-Dieter Ehlermann and Isabela Atanasiu, eds, European P Competition Law Annual 2000: The Modernization of EC Antitrust Policy, Hart Publishing, 2001. More recently, see Kathryn Wright, ‘European Commission Interventions as Amicus Curiae in National Competition Cases: The Preliminary Reference in X BV’, 30 European Competition Law Review 309 (2009). 11 See Commission Notice on the co-operation between the Commission and the courts of the EU Member States in the application of Articles 81 and 82 EC, [2004] OJ C101/54. 12 See http://ec.europa.eu/competition/court/antitrust_requests.html. As of 2015, 23 opinions had been made available. 13 See http://ec.europa.eu/competition/court/antitrust_amicus_curiae.html. As of 2015, 14 ‘written observations’ documents were available.

Part I: Effective Enforcement of Competition Law 229 do it on time, and so you have to worry about that a little bit. You worry about the courts over-relying on this to do their research. You go back to the Supreme Court and ask: is it the best way to decide things to look at Ping’s filings? To close, there are lots of good things about it and I just can’t resist mentioning that one of the amicus highlights this last year came on the question of whether isolated DNA should be patentable. The Supreme Court decided it should not, thereby agreeing with an amicus brief filed by James D Watson, Nobel Laureate and co-discoverer of the double helix.

Stephen Calkins* The Antitrust Conversation (Continued)

JUSTICE BREYER: … I have 32 briefs here that explain very clearly what you said [at length] in a sentence … And then I have some very nice dark green briefs that clearly say … there could be offsetting justifications.1

Although Justice Breyer exaggerated for effect (only 27 amicus curiae briefs were filed), he rhetorically used the outpouring of argument to make his point: applying the antitrust laws is not so challenging as to require creation of a new presumption. And he could do this because (a) all those briefs were filed, and (b) everyone involved in the argument knew that they had been filed. Those briefs were part of the conversation. Active participation by amici is the norm in US Supreme Court litigation, including antitrust litigation, and increasingly in lower court litigation as well. Amicus participation has soared in recent decades, stimulating a small industry of commentary on whether this is a blessing or a curse and whether it makes a difference and, if so, when and why. As a modest contributor to that commentary2 who now resides in Ireland, it seemed appropriate to revisit the subject from a foreign perspective. This paper comments on recent amici efforts in the US, first in general and then specifically in antitrust cases. It then briefly reviews the important but much more limited amicus activity outside the US. Assuming the efforts to stimulate private competition enforcement in Europe continue to succeed, there will be both more need and more potential for amicus activity on this side of the Atlantic.

* Professor of Law, Wayne State University Law School (on leave); Member and Director, Mergers Division, The Competition Authority of Ireland; and Adjunct Professor, University College Dublin. This chapter is written in a personal capacity and does not represent the views of the Competition Authority. The author thanks numerous friends for suggestions and observations, and Joan Wadsworth for research assistance. The usual disclaimer applies. 1 Transcript of oral argument, FTC v Actavis, Inc, No 12-416 (25 March 2013), 16. Briefs with dark green covers are amicus briefs supporting respondents (here the defendants). 2 See Stephen Calkins, ‘The Antitrust Conversation’, 68 Antitrust Law Journal 625 (2001).

232 Stephen Calkins

1. Introduction The US Supreme Court heard argument in 77 cases during 2012–13.3 It received 1046 merits amicus briefs for those cases—an average of 13.58 briefs per case, with a median of seven.4 Numbers ranged from zero briefs (two cases)5 to highs of 80,6 82,7 928 and 979 briefs in high-profile cases involving gay marriage (two cases), affirmative action in higher education and potential corporate tort immunity for violations of the law of nations (such as torture). By any measure, the 2012–13 term saw a remarkable number of amicus briefs. Fifteen cases had 20 or more merits amicus briefs: 97 briefs: Hollingsworth v Perry, No 12-144 92 briefs: Fisher v University of Texas at Austin, No 11-345 82 briefs: Kiobel v Royal Dutch Petroleum, No 10-149110 80 briefs: United States v Windsor, No 12-307 49 briefs: Association for Molecular Pathology v Myriad Genetics, Inc, No 12-398 48 briefs: Shelby County, Alabama v Holder, No 12-96 33 briefs: Adoptive Couple v Baby Girl, No 12-399 27 briefs: FTC v Actavis, Inc, No 12-416 24 briefs: Decker v Northwest Environmental Defense Center, No 11-338 24 briefs: Kirtsaeng v John Wiley & Sons, Inc, No 11-697 23 briefs: Bowman v Monsanto Co, No 11-796 23 briefs: Maryland v King, No 12-207 22 briefs: Los Angeles County Flood Control District v Natural Resources Defense Council, Inc, No 11-460 21 briefs: Arizona v Inter Tribal Council of Arizona, Inc, No 12-71 20 briefs: American Express Co v Italian Colors Restaurant, No 12-133 Yet the truly remarkable thing is that this was not an aberration, but part of a pattern.

3 American Bar Association Preview of Supreme Court Cases, http://www.americanbar. org/publications/preview_home/alphabetical.html. 4 Calculated from the Preview, ibid, adjusted by consulting Westlaw, where ‘Preview’ indicated its results were incomplete. 5 United States v Bormes, No 11-192; Kloeckner v Solis, No 11-184. 6 United States v Windsor, No 12-307 (defense of marriage act). 7 Kiobel v Royal Dutch Petroleum, No 10-1491 (potential corporate tort liability for violations of the law of nations). The number was inflated in that 21 of the briefs were supplemental briefs, filed because the case was scheduled for reargument this term. 8 Fisher v University of Texas at Austin, No 11-345 (affirmative action in higher education). 9 Hollingsworth v Perry, No 12-144 (California’s limiting marriage to a man and a woman). 10 As noted in n 7 above, 21 of the briefs were supplemental briefs.

The Antitrust Conversation (Continued) 233

2. US amicus practice in general Picture a scene—as in an old movie—with lawyers arguing before a judge off in some remote village. The judge is stumped by an obscure legal point. He notices a leading member of the bar watching the proceedings, and calls on him to share his view. This was the original American amicus curiae.11 This was the repeating of a scene familiar in common law history: ‘The function of the amicus curiae at common law was one of oral “Shepardizing,” the bringing up of cases not known to the judge’.12 Although the concept of amicus curiae had its origins in Roman law, it has been associated with common law legal systems and is a regular part of common law legal systems. It has achieved particular prominence in the US legal system. The original and most common American amici, typified by the scene portrayed above, were neutrals—genuine friends of the Court.13 Partisans were never wholly missing, however, and starting in the 1830s, with the shift to a more paper-oriented process of litigation, they came to represent the norm. Amici participation in Supreme Court proceedings had become a regular feature by the late 1960s, and in 1971 they appeared in a majority of cases.14 At the start of the Burger Court (1969–85), amici appeared in fewer than 40 per cent of Supreme Court cases; by the end of that Court, the number was 70 per cent; the Rehnquist Court (1986–2003) peaked in 2001, with participation in nearly 95 per cent of cases.15 The Court received more than 800 per cent more amicus briefs in the decade 1986–95 (when 85 per cent had briefs, with an average of 4.23 briefs per case) than the decade 1946–55 (when 23 per cent of argued cases had briefs, an average of 0.5 briefs per case).16 In the 1995 term, 76.9 per cent of all cases disposed of by the Court had amicus participation—92.1 per cent of cases disposed of with oral argument.17

11 Samuel Krislov, ‘The Amicus Curiae Brief: From Friendship to Advocacy’, 72 Yale Law Journal 694, 694 (1963). 12 Krislov, above n 11, 695. 13 Stuart Banner, ‘The Myth of the Neutral Amicus: American Courts and their Friends, 1790–1890’, 20 Constitutional Commentary 111, 113 (2003). 14 Ryan Owens and Lee Epstein, ‘Amici Curiae during the Rehnquist Years’, 89 Judicature 127, 128 (2005). 15 Ibid. 16 Joseph Kearney and Thomas Merrill, ‘The Influence of Amicus Curiae Briefs on the Supreme Court’, 148 University of Pennsylvania Law Review 743, 752 (2000). 17 Paul Collins and Lisa Solowiej, ‘Interest Group Participation, Competition, and Conflict in the US Supreme Court’, 32 Law and Social Inquiry 955, Table 1 (2007).

234 Stephen Calkins Another way to appreciate the change is to realize that landmark cases such as Brown v Board of Education18 and Baker v Carr19 had only six and seven amicus briefs, respectively.20 All of the cases that have attracted 20 or more briefs have apparently come since 1970.21 The change in frequency of filing is not explained by rule changes, since the relevant rules have remained relatively unchanged.22 What changed was the Court’s attitude. In the 1940s and early 1950s, the Court was not receptive to amicus briefs and regularly denied permission to file where the parties did not consent.23 This changed over time, such that in recent decades there has been no meaningful limitation on amicus participation. Amicus briefs are filed in lower court cases, but much less frequently. During the first part of the 1990s, they were filed in only 8 per cent of court of appeals cases.24 And while the total number of court of appeals cases with an amicus filing increased by 14.6 per cent between 1992 and 2002, the number of cases increased at a greater rate.25 Amicus filings in state courts have also increased, but from a low base.26

2.1 Influence of amici Does amicus participation make a difference? Proving influence is inevitably a challenge: who can say whether a litigant would have prevailed without good lawyering by retained counsel or amici? And how can one prove that Justices would not have found the same approach, uncovered the same facts or appreciated some special issue on their own? Commentators have examined citations and quotations, surveyed judges and their law clerks, performed statistical analyses and conducted in depth reviews of particular cases. The uniform answer is that amicus participation can make a difference. Amicus participation appears particularly likely to make a difference at the petition for certiorari stage, when the Court (including its law clerks) is sifting

347 US 483 (1954) (separate schools for minorities unconstitutional). 369 US 186 (1962) (one person, one vote). Kearney and Merrill, above n 16, footnote 28. 21 Ibid, 754–755. 22 Ibid, 761. 23 Ibid, 763. 24 Paul Collins and Wendy Martinek, ‘Who Participates as Amici Curiae in the US Courts of Appeals’, 94 Judicature 128, 130 (2010). 25 John Harrington, ‘Amici in the Federal Courts of Appeals: How Friendly Are They?’, 55 Case Western Reserve Law Review 667, 680 (2005’). 26 Matthew Laroche, ‘High Court Studies: Is the New York State Court of Appeals Still “Friendless?” An Empirical Study of Amicus Curiae Participation’, 72 Albany Law Review 701, 708–709 (2009). 18 19 20

The Antitrust Conversation (Continued) 235 through 10,000 petitions to choose the privileged 75–80 cases it will hear.27 Causation is hard to prove, but powerful amicus briefs, most especially by the Solicitor General (SG), seem to be important in helping a petition stand out.28 Perhaps not surprisingly, as this understanding has become more commonly shared, the number of amicus briefs at the petition stage has shot up, doubling between 1970 and 2010,29 and increasing by 35 per cent in the past five years.30 (On the other hand, with the increasing number of amicus briefs there has been a decline in the strength of association of grants of c ertiorari and a single amicus brief, or even two or three.)31 On the merits, too, amicus participation makes a difference, although not in a mindless number-counting way.32 The two most common theories explaining influence are the ‘affected groups’ theory (the very fact of filing shows that various groups care) and the ‘information’ theory (it is the content that matters), with the ‘information’ theory drawing much the greater support.33 The most prominent examples are provided by headline cases. In the University of Michigan affirmative action case, a then-record 107 amicus briefs were filed, and the brief filed by retired military leaders must have been influential because it was discussed during oral argument and then cited by Justice O’Connor in both her opinion for the Court and her verbal summary thereof.34 Some of the 33 amicus briefs in the Texas sodomy case

27 See Supreme Court of the United States, Frequently Asked Questions, http://www. supremecourt.gov/faq.aspx#faqgi9. 28 Timothy Bishop, ‘Opposing Certiorari in the US Supreme Court’, http://www.appellate. net/articles/oppcertinsc.asp; Ryan Black and Ryan Owens, ‘Agenda Setting in the Supreme Court: The Collision of Policy and Jurisprudence’, 71 Journal of Politics 1062 (2009); Gregory Caldeira and John Wright, ‘Organized Interests and Agenda Setting in the US Supreme Court’, 82 American Political Science Review 1109 (1988); Stephen Shapiro, ‘Certiorari Practice: The Supreme Court’s Shrinking Docket’ (‘Multiple amicus curiae briefs can reinforce the impression that the case is exceptionally important, especially when they come from different sectors of the public’), http://www.appellate.net/articles/ certpractice.asp. 29 Gregory Caldeira, John Wright and Christopher Zorn, ‘Organized Interests and Agenda Setting in the US Supreme Court Revisited’, version 1.1 (15 July 2012) (cited with permission). 30 Adam Chandler, ‘Cert-Stage Amicus “All Stars”: Where Are They Now?’, http://www. scotusblog.com/2013/04/cert-stage-amicus-all-stars-where-are-they-now/. 31 Caldeira et al, above n 29. 32 Kearney and Merrill, above n 16, 749 (finding ‘that small disparities of one or two briefs for one side with no briefs on the other side may translate into higher success rates but larger disparities do not’); Linda Sandstrom Simard, ‘An Empirical Study of Amici Curiae in Federal Court: A Fine Balance of Access, Efficiency, and Adversarialism’, 27 Review of Litigation 669, 689 (2008) (‘The Supreme Court respondents unanimously indicated that the number of amicus briefs filed tends to have zero influence on their considerations of the case’). 33 Laroche, above n 26, 704; Simard, ibid, 681. 34 Kelly Lynch, ‘Best Friends?: Supreme Court Law Clerks on Effective Amicus Curiae Briefs’, 20 Journal of Law and Politics 33, 34 (2004). See also Simard, above n 32, 696–697 (Justice Ginsburg said that this brief, and that of business professionals who valued diversity, were particularly helpful).

236 Stephen Calkins were widely credited with teaching the Court a different version of history than it had understood only 17 years earlier.35 There is other evidence as well. A survey of former Supreme Court law clerks shows that almost every amicus brief is at least skimmed.36 Amicus participation was seen as most helpful with respect to technical and specialized areas and in complex regulatory cases.37 A survey of judges similarly finds that amicus participation can be helpful, whether to make legal arguments otherwise missing, to focus attention beyond the immediate dispute, to help a party not adequately represented, to emphasize points needing greater attention or (although this is more controversial) to offer relevant factually information.38 Particularly revealing examples can result from the making public of a Justice’s private papers (the seminal antitrust decision Continental TV, Inc v GTE Sylvania Inc39 is noteworthy in this respect).40 One metric is whether the Court cites amicus briefs. Citation does not prove influence, but it would be surprising if amicus briefs had influence yet were never cited. The record shows that amicus briefs are cited, and at increasing rates. In 1946–55, 18 per cent of cases with one or more amicus briefs resulted in an opinion (of any kind) citing one or more briefs; by 1986–95 that number had increased to just under 37 per cent.41 The Solicitor General has been increasingly likely to be cited, with the rate rising from 26.47 per cent of cases in which the SG filed a brief in 1946–55 to 46.97 per cent in 1986–95.42 And during the 1994–2003 terms, the Court’s majority opinions cited an amicus in 38 per cent of the cases in which an amicus was filed.43

35 Rick Perlstein, ‘What Gay Studies Taught the Court’, Washington Post, 13 July 2003, http://www.glapn.org/sodomylaws/usa/usnews089.htm. 36 Lynch, above n 34. 37 Ibid. 38 Simard, above n 32. 39 433 US 36 (1977). 40 A review of the opinion and the record suggests that the amicus brief filed by the Motor Vehicle Manufacturers Association (MVMA) was particularly influential. See Calkins, ‘Antitrust Conversation’, above n 2, 640–641. We now know that Justice Powell, who authored the opinion, wrote a laudatory comment about the brief to his law clerk: ‘My recollection is that the [MVMA] brief … is the single most helpful brief in this case. No doubt you have drawn on it heavily. If not, I commend it to you’). Andrew Gavil, ‘A First Look at the Powell Papers: Sylvania and the Process of Change in the Supreme Court’, Antitrust, Fall 2002, 9, text at note 12 (Gavil observed that ‘[t]he amicus brief thus proved to be influential, perhaps owing to the fact that it was so well done, but perhaps also because, as was true of the relevant Chicago School commentary, it advocated an analytical framework that was consistent with Powell’s views and facilitated their expression’). 41 Kearney and Merrill, above n 16, 757. 42 Ibid, note 49. 43 Owens and Epstein, above n 14, 130.

The Antitrust Conversation (Continued) 237

2.2 For good or for ill? If amicus activity has increased, and if it has an influence, is that a good or a bad thing? Although there are concerns and views are not unanimous (see below), the consensus view supports amicus participation in adjudication.44 In part, this stems from the special role of the Solicitor General, whose participation is seen as singularly helpful and influential.45 The US legal system does not have an advocate general, so the SG is the most neutral and authoritative voice available to the Court. Filings by states are also given careful attention in the Supreme Court, here because of states’ role in the US system of government.46 Even apart from government participation, moreover, there is general support for amicus activity. Linda Simard’s survey of judges found widespread judicial agreement ‘that there is no need to clamp down on amicus activity’.47 Presumably the judges who participated in leading cases that relied on amicus participation believe that the participation was beneficial. The same reasons that amicus activity can be influential—by making legal arguments that are otherwise missing, by focusing attention beyond the immediate dispute, by helping a party that is not adequately represented, and by emphasizing points needing greater attention—are reasons why amicus activity can be beneficial. There is also a sense that amicus participation can help confer legitimacy.48 There are noteworthy examples of courts affirmatively encouraging amicus activity, either as a general matter or in a particular case.49 Judge Judith Kaye of the New York Court of Appeals once lamented that the court was relatively ‘friendless’, and elaborated on why this was a concern: Amici—because they have a wider perspective, or simply a different perspective— can be of inestimable value to courts in discharging their responsibility that extends beyond the litigants. An amicus can alert the court, as the parties perhaps cannot or would not wish to, that a large issue lurks in an appeal; that a case of seeming insignificance has potentially wide ramifications and will likely have major impact when a ruling is applied in other factual settings; or that a case of obvious major significance could conceivably have wholly unanticipated effects. Amici can sensitize

Kearney and Merrill, above n 16, 745. Lynch, above n 34, 46 (Supreme Court clerks ‘reported that amicus briefs from the Office of the Solicitor General were given a higher level of consideration than those of any other advocate’). 46 Ibid, 48–49. 47 Simard, above n 32, 700. 48 Omari Scott Simmons, ‘Picking Friends from the Crowd: Amicus Participation as Political Symbolism’, 42 Connecticut Law Review 185, 209 (2009). 49 Laroche, above n 26, 754 (‘the Court of Appeals has encouraged amicus filings in court opinions, official documents distributed by the court, and publications by the judges themselves’). 44 45

238 Stephen Calkins the court—when it may be irrelevant to the litigants, whose objective is to win—to the appropriateness of narrowing or limiting a holding, and with other factual situations in mind they can suggest alternate rationales for achieving results urged by the parties.50

Only this June, the New York Court of Appeals (New York’s highest court) publicly invited ‘amicus participation from those qualified and interested’ in helping the Court decide a commercial law question (whether a bank and its customer could agree to shorten the period for reporting a forged signature from the statutory one year to 14 days).51 Commentators also express the view that amicus participation may be of value not just to courts and the adjudicatory process, but also to the participating amici and democratic values of participation.52 Are there concerns about amicus activity? Of course. Common concerns include burden, abuse, and issues of reliability and tensions with the adjudicatory process.

2.3 Burden As is common, Judge Posner is the author of the most striking language complaining about burden: ‘The vast majority of amicus curiae briefs are filed by allies of litigants and duplicate the arguments made in the litigants’ briefs, in effect merely extending the length of the litigant’s brief. Such amicus briefs should not be allowed’.53 Judge Posner explained his concerns as follows: [J]udges have heavy caseloads and therefore need to minimize extraneous reading; amicus briefs, often solicited by parties, may be used to make an end run around court-imposed limitations on the length of parties’ briefs; the time and other resources required for the preparation and study of, and response to, amicus briefs drive up the cost of litigation; and the filing of an amicus brief is often an attempt to inject interest group politics into the federal appeals process.54

50 Judith Kaye, ‘One Judge’s View of “Friends of the Court”’, New York State Bar Journal, April 1989, 8, 13, quoted in Laroche, above n 26, 701. 51 New York Court of Appeals, Notice to the Bar: Amicus Curiae Participation (5 June 2013) (concerning Clemente Bros Contracting Corp v Hafner-Milazzo), http://www.courts. state.ny.us/CTAPPS/news/nottobar/Nottobar060513.pdf. 52 Simmons, above n 48, 205–207; Reuben Garcia, ‘A Democratic Theory of Amicus Advocacy’, 35 Florida State University Law Review 315 (2008). 53 Ryan v Commodity Futures Trading Commission, 125 F3d 1062, 1063 (7th Cir 1997) (Posner, J) (denying motion for leave to file brief) (‘After 16 years of reading amicus curiae briefs the vast majority of which have not assisted the judges, I have decided that it would be good to scrutinize these motions in a more careful, indeed a fish-eyed, fashion’). 54 Voices for Choices v Illinois Bell Telephone Co, 339 F3d 542, 544 (7th Cir 2003) (motions for leave to file amicus briefs denied).

The Antitrust Conversation (Continued) 239 Posner explained that briefs are most likely to be appropriate: in a case in which a party is inadequately represented; or in which the would-be amicus has a direct interest in another case that may be materially affected by a decision in this case; or in which the amicus has a unique perspective or specific information that can assist the court beyond what the parties can provide.55

Judge Posner’s view was rejected by Judge Alito, who adhered to an open door approach,56 and it is the Alito view that has generally prevailed. That said, concerns about burden are not limited to Judge Posner. Supreme Court law clerks, in a survey, ‘repeatedly emphasized that most amicus briefs filed with the Court are not helpful and tend to be duplicative, poorly written, or merely lobbying documents not grounded in sound argument’.57 More over, amicus participation continues to increase, apparently in all US courts. This last term alone saw 16 Supreme Court cases with a large number (19 or more) of amicus briefs, and six with more than 45. There is a sense in which amicus briefs tend to encourage more amicus briefs, with the burden steadily increasing.

2.4 Abuse? In the view quoted above, Judge Posner noted that amicus briefs are often solicited by parties, and of course this is true. Soliciting amici support is part of what Supreme Court practitioners do. Concern about abuse resulted in the Supreme Court revising the applicable rule in 1997, and Rule 37.6 now provides as follows for briefs from private amici: a brief filed under this Rule shall indicate whether counsel for a party authored the brief in whole or in part and whether such counsel or a party made a monetary contribution intended to fund the preparation or submission of the brief, and shall identify every person other than the amicus curiae, its members, or its counsel, who made such a monetary contribution.

But Supreme Court practitioners do not read this rule to bar ‘coordination or discussion between petitioner’s counsel and amicus counsel’, the circulation of draft submissions or a party’s counsel’s reviewing a draft amicus brief ‘in order to identify inaccuracies or avoid repetition’ and then offering advice ‘to correct, delete, or add limited explanation or clarification’.58 The Court is

Ibid, 545. Neonatology Associates, A v Commissioner of Internal Revenue, 293 F3d 128 (3d Cir 2002) (Alito, J). 57 Lynch, above n 34, 45. 58 Shapiro, above n 28 (‘The common sense of the new rule is that while general comment and correction are permitted, ghostwriting in any form is forbidden, without disclosure’). 55 56

240 Stephen Calkins forced to rely on the integrity of practitioners to draw lines fairly and then to adhere to them. One trend has been an increase in briefs by academics. It is now commonplace that antitrust cases stimulate briefs by academics, sometimes law professors, sometimes economists, sometimes both, and often conflicting. Richard Fallon has observed that the academic amicus brief is now commonplace— and he is uneasy about it. His experience is that such briefs are usually written not by an academic, but by a practicing lawyer, who circulates them close to the filing deadline and drums up as much support as possible on short notice.59 He worries that professors may affix their names too casually, exhibiting much less rigor than they would in academic work.60 Both liberals and conservatives have grumbled about the make-up of the community of amici. Justice Scalia has noted that briefs tend to come only from well-organized interest groups.61 One leading Supreme Court practitioner based in a multinational law firm wrote in 1999 that only certain types of associations appear very often as friends of the court. Business groups, for example, file fewer amicus briefs than the issues warrant … For decades, public interest groups, usually of a liberal political outlook, have made their views known to the Court through amicus briefs.62

On the other hand, data analysis shows that conservative, anti-regulatory interests now dominate the lists of amici supporting petitions for certiorari, with the Chamber of Commerce leading the way with 54 briefs in a little over three years and a remarkable 32 per cent success rate (second to the conservative Mountain States Legal Foundation’s astonishing 50 per cent success rate in 10 cases).63 Conservative groups have dramatically increased their amicus filing in support of certiorari. As Adam Chandler observes, ‘It is difficult to explain the dramatic boosts in several organizations’ tallies (e.g., Cato, the Center for Constitutional Jurisprudence, DRI) without imagining that, at some point in the last five years, they fundamentally reassessed how they could most effectively influence the Court’.64 Of course, participation—even carefully coordinated participation—is not abuse, but it is important to remember that repeat participants can be expected to behave strategically.

59 Richard Fallon Jr, ‘Scholars’ Briefs and the Vocation of a Law Professor’, 4 Journal of Legal Analysis 223, 230 (2012). 60 At the conference, Daniel Crane observed that a larger question is posed by the way that parties to long-term or ongoing litigation can see it as in their self-interest to sponsor research and writing that they hope will benefit their cause(s). 61 Jaffee v Redmond, 518 US 1, 35–36 (1996) (Scalia, J, dissenting). 62 Shapiro, above n 28. 63 Chandler, above n 30. Of course, amicus activity on the prevailing side may say more about correlation between the general views of the current Court majority and the amicus institution than about causation. 64 Ibid.

The Antitrust Conversation (Continued) 241

2.5 Reliability One somewhat controversial way that amicus participation can influence outcomes is by introducing factual information not otherwise before the Court—meaning not in the record.65 By definition, all of this information escapes the reliability tests that are built into a judicial fact-finding process. Experts testifying at trial need to prove their expertise and subject themselves to the discovery process; experts communicating through an amicus brief need only submit the brief. Especially, but not exclusively, when it is social science that is being submitted, there are concerns about lax quality controls.66 We will see that many of the same issues have played out in US antitrust cases.

3. American antitrust amici: an update A little over a decade ago, I wrote a review of and commentary on antitrust and trade regulation amicus efforts—an essay that ‘unabashedly celebrate[d]’ them.67 In particular, the article commented on ways that briefs had stood out and possibly made a difference: (i) because a repeat player such as the government took a position against interest or that was otherwise surprising; (ii) through providing legal research; (iii) by highlighting egregious errors; (iv) by supplying special emphasis; or (v) through setting out important analytical constructs. Some of those patterns have continued, but there have been some noteworthy changes. At a basic level, amicus briefs continue to be commonly filed in US competition cases. The FTC has an amicus brief web page with links to the 91 briefs files from 1998 to 2013.68 In the same period, the Justice Department’s Antitrust Division filed 70 amicus briefs.69 (Many of the briefs are jointly filed.) This is now a key part of the agencies’ missions.

Simard, above n 32, 695, 704–706. Andrew Morriss, ‘Private Amici Curiae and the Supreme Court’s 1997–1998 Term Employment Law Jurisprudence’, 7 William & Mary Bill of Rights Journal 823 (1999); Michael Rustad and Thomas Koenig, ‘The Supreme Court and Junk Social Science: Selective Distortion in Amicus Briefs’, 72 North Carolina Law Review 91 (1993). See also William Katt, ‘Roper and the Scientific Amicus’, 49 Jurimetrics Journal 253 (2009) (‘science brief’ stretched the studies on which it relied and miscolored the truth). 67 Calkins, ‘Antitrust Conversation’, above n 2. 68 See http://www.ftc.gov/ogc/briefs.shtm (the first four briefs bear my name as General Counsel). 69 See http://www.justice.gov/atr/public/appellate/index.html#page=page-1. 65 66

242 Stephen Calkins When that 2001 article noted some antitrust cases with a substantial number of briefs, it mentioned cases from the 1980s and 1990s with numbers such as 17, 15, 14, 12, 11 and 10.70 The past decade has continued to see competition cases with a substantial number of merits amicus briefs, including: FTC v Actavis, Inc (2013):7127 Verizon Communications Inc v Law Offices of Curtis V Trinko, LLP (2004):7219 Illinois Tool Works Inc v Independent Ink, Inc (2006):7317 F Hoffman La Roche Ltd v Empagran SA (2004):7416 American Needle, Inc v National Football League (2010):7514

3.1 Amici for certiorari What is more striking, however, are the number of amicus briefs—and important amicus briefs—filed in favor of certiorari in cases lost below by the defendants. The Roberts Court is a conservative Court,76 and the most important question for antitrust defendants has been whether they could persuade the Court to hear cases they had lost in the courts of appeal. Perhaps inspired by the scholarship suggesting that amici can make a difference at the certiorari stage, a string of cases over the past decade have featured important amicus participation on behalf of defendants at the certiorari stage: —— Pacific Bell Telephone Co v linkLine Communications, Inc, No 07-512 (2009): four amicus briefs supporting certiorari, including briefs by (i) the Solicitor General for the United States; (ii) Virginia and nine other states; (iii) Verizon Communications Inc and the National Association

70 The number of amicus briefs in Eastman Kodak Co v Image Technical Servs., Inc, 504 US 451 (1992), Texas Indus Inc v Radcliff Materials, Inc, 451 US 176 (1980), Monsanto Co v Spray-Rite Serv Corp, 465 US 752 (1984), Brown v Pro-Football, Inc, 518 US 231 (1996), Hartford Fire Ins Co v California, 509 US 764 (1993) and Texaco Inc v Hasbrouck, 496 US 543 (1990), respectively. 71 570 US 756 (2013). 72 540 US 398 (2004). 73 547 US 28 (2006). 74 542 US 155 (2004). 75 560 US 183 (2010). 76 Lee Epstein, William Landes and Richard Posner, ‘How Business Fares in the Supreme Court’, 97 Minnesota Law Review 1431, 1471 (2013) (‘five of the ten Justices who, over the span of our study (the 1946 through 2011 Terms), have been the most favorable to business are currently serving’).

The Antitrust Conversation (Continued) 243

——

——

——

——

——

of Manufacturers; and (iv) Robert H Bork and J Gregory Sidak for 18 ‘professors and scholars in law and economics’.77 Leegin Creative Leather Products, Inc v PSKS, Inc, No 06-480 (2007): three amicus briefs supporting certiorari, including briefs by (i) the National Association of Manufacturers and (ii) Amici Curiae E conomists—a particularly diverse group of 25 economists, including nine who had served as chief economist at the Antitrust Division or the FTC.78 Credit Suisse Securities (USA) LLC v Billing, No 05-1157 (2007): four amicus briefs supporting certiorari or vacatur, including briefs by (i) the Solicitor General for the US, the SEC and the FTC (supporting vacatur) and (ii) the Chamber of Commerce, the Securities Industry Association and the Bond Market Association. Bell Atlantic Corp v Twombly, No 05-1126 (2007): eight amicus briefs supporting certiorari, including briefs by (i) the Chamber of Commerce, CTIA-the Wireless Association, the Alliance of Automobile Manufacturers, Northwest Airlines, Inc and United Airlines; (ii) EI du Pont de Nemours and Co and the National Association of M anufacturers; (iii) the Washington Legal Foundation; and (iv) a diverse group of 25 economists.79 Weyerhaeuser Co v Ross-Simmons Hardwood Lumber Co, No 05-381 (2007): seven amicus briefs in supporting certiorari, including briefs by (i) the Solicitor General for the US and the FTC; (ii) the Chamber of Commerce and the American Forest and Paper Association; (iii) the Business Roundtable and the National Association of Manufacturers; and (iv) the Washington Legal Foundation. Texaco, Inc v Dagher, No 04-805 (2006): five amicus briefs supporting certiorari, including briefs by (i) the Solicitor General for the US and the FTC; (ii) the Chamber of Commerce and the National Association of Manufacturers; (iii) the Washington Legal Foundation; and (iv) ‘antitrust scholars’—a brief filed by Professor Robert Pitofsky in his capacity

77 William Baumol, Robert Bork, Robert Crandall, George Daly, Harold Demsetz, Jeffrey Eisenach, Kenneth Elzinga, Gerald Faulhaber, Franklin Fisher, Charles Goetz, Robert Hahn, Jerry Hausman, Thomas Jorde, Robert Litan, Paul MacAvoy, J Gregory Sidak, Pablo Spiller and Daniel Spulber. 78 William Baumol, Tomothy Bresnahan, Robert Crandall, David Evans, Franklin Fisher, Luke Froeb, Richard Gilbert, Jerry Hausman, Andrew Joskow, Benjamin Klein, G Franklin Mathewson, Paul Milgrom, Kevin Murphy, Philip Nelson, Janusz Ordover, Thomas Overstreet, Robert Pindyck, David Scheffman, Frederic Scherer, Richard Schmalensee, Carl Shapiro, Bruce Snapp, Pablo Spiller, David Teece and Richard Warren-Boulton. 79 William Baumol, Michael Boskin, Robert Crandall, Kenneth Elzinga, David Evans, Gerald Faulhaber, Franklin Fisher, Luke Froeb, Richard Gilbert, Paul Joskow, Michael Katz, Paul Milgrom, Thomas Moore, Robert Pindyck, Robert Porter, Frederic Scherer, Richard Schmalensee, Marius Schwartz, Vernon Smith, Edward Snyder, Michael Spence, Pablo Spiller, Alan Sykes, David Teece and Michael Whinston.

244 Stephen Calkins as of counsel to Arnold & Porter (the other signatories were University of Virginia economist Kenneth Elzinga and George Mason law professor Ernest Gellhorn). —— Verizon Communications Inc v Law Offices of Curtis V Trinko, LLP, No 02-682 (2004): three briefs supporting certiorari, including briefs by the Solicitor General for the US and the FTC. —— Nynex Corp v Discon, Inc, No 96-1570 (1998): three briefs supporting certiorari, including briefs by (i) the Solicitor General for the US and the FTC and (ii) the Association of the Bar of the City of New York. All of those grants of certiorari resulted in reversal and the issuance of an opinion in favor of the defendant(s). In contrast, the SG declined to support the losing defendant in the controversial bundled discount case, 3M v LePage’s Inc, and the Court let the lower court decision stand.80 (There are numerous examples of the SG, as amicus, successfully opposing petitions for certiorari filed by antitrust plaintiffs.81 Most notably, the SG successfully opposed several plaintiff requests for certiorari in ‘reverse payments’ cases82—once when the plaintiff was the FTC—before (also s uccessfully) supporting certiorari in FTC v Actavis, Inc.)

3.1.1 Making a difference on the merits Although it seems likely that several of those amicus-supported petitions for certiorari would not have been granted had it not been for amicus participation, it is harder to point with confidence to merits decisions where the other side likely would have prevailed but for the work of amici. That said, there were several cases where amicus participation could have made a difference because (i) a repeat player took a position against its narrow interest, (ii) an amicus advanced an analytical construct the Court found appealing, (iii) an amicus supplied special emphasis or (iv) an amicus provided research assistance.83

542 US 943 (2004). See McFarling v Monsanto Co, 552 US 1096 (2008) (with Patent & Trademark Office) (patent tying); Dee-K Enterprises, Inc, v Heveafil SDN BHD, 539 US 969 (2003) (with FTC) (foreign commerce); Statoil ASA v Heeremac VOF, 534 US 1127 (2002) (with FTC) (foreign commerce); CSU, LLC v Xerox Corp, 531 US 1143 (2001) (aftermarket refusal to deal); Armstrong Surgical Center, Inc v Armstrong County Memorial Hosp, 530 US 1261 (2000) (with FTC) (boycott). 82 Joblove v Barr Laboratories, Inc, 551 US 1144 (2007); FTC v Schering-Plough, Inc, 548 US 919 (2006); Andrx Pharmaceuticals, Inc v Kroger Co, 543 US 939 (2004) (with FTC). 83 The most important amicus continues to be the Solicitor General. Leah Brannan’s and Douglas Ginsburg’s count shows that the SG’s amicus filing was on the winning side of 84%, 79% and 91% of antitrust cases during the decades starting 1977, 1987 and 1997, respectively (33% during 1967–1976). Leah Brannon and Douglas Ginsburg, ‘Antitrust Decisions of the US Supreme Court, 1967 to 2007’, Competition Policy International (Autumn 2007). 80 81

The Antitrust Conversation (Continued) 245 Positions against interest Until this past term, almost all of the Supreme Court antitrust cases since 2001 fit the same pattern: a defendant lost a case in a court of appeals, persuaded the Court to grant certiorari and then prevailed.84 And in each such case, the Solicitor General filed a brief asking the Court to reverse or vacate the lower court’s decision. It simply has to be helpful to a defendant to have the nation’s chief law enforcer in its corner. The point is perhaps best illustrated by Leegin Creative Leather Products, Inc v PSKS, Inc.85 The majority and the dissent were in agreement that resale price maintenance (RPM) could have either pro-competitive or anticompetitive effects; they differed on whether existing law (which made it per se unlawful) should remain unchanged under the rule of stare decisis. The (5–4) majority chose to reverse, pointing to economics literature and the government amicus: It is also significant that both the Department of Justice and the Federal Trade Commission—the enforcement agencies with the ability to assess the long-term impacts of resale price maintenance—have recommended that this Court replace the per se rule with the traditional rule of reason. In the antitrust context the fact that a decision has been ‘called into serious question’ justifies our reevaluation of it.86

The other case in which a government amicus—state governments—played a particularly noteworthy role was the past term’s FTC v Phoebe Putney Health System, Inc.87 The lower court had held that a hospital authority’s acquisition was immune from an FTC challenge because the acquisition was pursuant to a state policy to displace competition, a conclusion that the authority said could be drawn from the broad powers the state had given it. The crucial amicus brief was filed by 20 states, asking the Court not to draw any such inference.88 Justice Kagan specifically challenged the authority’s lawyer on that very point during oral argument.89 When someone is purporting to 84 American Needle, Inc v National Football League, 560 US 183 (2010), is an oddity: the defendant NFL prevailed below but then supported certiorari, only to lose on the merits. The SG (with the FTC) first opposed certiorari and then supported the plaintiff–petitioner American Needle, although with an analysis different from the one adopted by the Court. 85 551 US 877 (2007). 86 Leegin, 900 (citations omitted). 87 568 US ___ (2013). 88 Brief of Amici Curiae States of Illinois, Arizona, California, Colorado, Connecticut, Delaware, Hawaii, Idaho, Maryland, Michigan, Minnesota, Nevada, New Hampshire, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Tennessee and West Virginia in Support of Petitioner. The hospital authority’s state (Georgia) participated in the case with the FTC at trial, but then withdrew. 89 Transcript, 26–27: ‘JUSTICE KAGAN: Mr Waxman, we do have a brief from quite a number of states, and the brief basically says: We do this all the time; we set up these local authorities, and then we give them powers because they have to act in the world. We give them normal powers, like the ability to make contracts and the ability to buy property.’

246 Stephen Calkins defend state sovereignty, it is awkward to be opposed by the only states to be heard. Supplying an analytical construct The single example of an amicus supplying an analytical construct is Pacific Bell Telephone Co v linkLine Communications, Inc.90 In this price squeeze case, the key to the Court’s analysis was a two-step approach: first, ask whether the wholesale price is too high (and answer that there is no cause of action unless there is an underlying duty to deal); second, ask whether ‘the defendant’s retail prices are “too low”’91 (and answer using predatory pricing law). This approach is uncannily similar to that recommended by the Solicitor General.92 Emphasis In American Needle, Inc v National Football League,93 the Court addressed whether a joint venture that marketed NFL logos for sportswear was a single entity, and held that it was not. Here, the Court declined to follow the SG’s analytical construct, but its opinion also failed to track closely petitioner’s reasoning. Instead, the Court reverted to a test enunciated in its Copperweld opinion:94 ‘The question is whether the agreement joins together “independent centers of decisionmaking”’.95 Ironically, this distinction was most emphasized by an amicus supporting the (losing) defendant NFL.96

‘And when we do that, we don’t mean that they can do anything they want notwithstanding the antitrust laws. And to construe these very normal powers that we would give to a state entity in order to allow it to operate as a permission to violate the antitrust laws is not at all consistent with our own intentions.’ 555 US 438 (2009). Ibid, 451 (emphasis in original). 92 Compare SG Brief with Petitioners Brief. Rebecca Haw makes the same point. Rebecca Haw, ‘Amicus Briefs and the Sherman Act: Why Antitrust Needs a New Deal’, 89 Texas Law Review 1247, 1276 (2011) (criticizing the Court’s decision). 93 560 US 183 (2010). The NFL was represented by Covington & Burling, for whom I served of counsel at the time (but for whom I am not speaking). 94 Copperweld Corp v Independence Tube Corp, 467 US 752, 769 (1984). 95 130 S Ct. at 2212 (quoting Copperweld Corp v Independence Tube Corp, 467 US 752, 769 (1984)). 96 Brief for ATP Tour, Inc, WTA Tour, Inc, Major League Soccer, LLC and National Association for Stock Car Auto Pacing, Inc as Amici Curiae in Support of Respondents, 13 (‘they are single entities because they are single, economic producers in the marketplace by virtue of the nature of a league/circuit product. There is no need to test for § 1 concerted action using state law based structures (such as the requirements of a ‘joint venture’ or ‘effective merger’) when the market-based analysis taught by Copperweld and Dagher most directly—and accurately—distinguishes ‘concerted’ and ‘unilateral’ activity by asking whether the collective decision of ‘separate entities’ actually raises relevant ‘ antitrust dangers’ by depriving the market of otherwise competitive decisionmakers’). 90 91

The Antitrust Conversation (Continued) 247 Research assistance One of the more pronounced trends in recent cases has been the use of amici to provide research assistance. The most striking example was provided by the Ninth Circuit Court of appeals, which publicly invited amicus briefs addressing the proper treatment of bundled discounts.97 At the Supreme Court level, three cases stand out: F Hoffman-La Roche Ltd v Empagran SA,98 FTC v Actavis, Inc99 and Leegin. The cases serve both to illustrate the importance of amici and to raise questions about whether there can be excessive reliance on them. Hoffman-La Roche addressed the extent to which the Sherman Act should be applied to acts outside the United States. When Stephen Shapiro, counsel for the defendants-petitioners, was arguing that the Court could choose a statutory interpretation that avoids ‘antagonizing our allies’, a Justice asked, ‘How do we know what’s consistent with not antagonizing our allies?’100 Mr Shapiro’s answer: ‘Well, on the latter, we have amicus briefs from seven of our … most significant trading partners’.101 And, indeed, he was supported by amicus briefs from (i) Canada, (ii) Germany and Belgium, (iii) Japan and (iv) the United Kingdom, Ireland and the Netherlands. Illustrating the challenge of fact-finding by reliance on amici, a Justice rejoined, ‘But surely … there are other partners who have not been heard from’.102 Mr Shapiro responded by observing that no foreign government amicus brief took the other position.103 The Court must have been persuaded, because in its Opinion it noted that ‘several foreign nations have filed briefs here arguing that to apply our remedies would unjustifiably permit their citizens to bypass their own less generous

97 Cascade Health Solutions v Peacehealth, 479 F3d 726, 726 (2007) (‘The court invites supplemental briefs by any amicus curiae addressing the following issue raised in this appeal: whether a plaintiff who seeks to establish the predatory or anticompetitive conduct element … by showing that the defendant offered bundled discounts … must prove that the defendant’s prices were below an appropriate measure of the defendant’s costs. If so, what is the appropriate measure of costs and how should the trial court instruct the jury on the matter of costs? If not, what standard should the trial court instruct the jury to use …?’). The court received nine amicus briefs. 502 F3d 895 (2007). 98 542 US 155 (2004). 99 570 US 756 (2013). 100 Transcript, Hoffman-La Roche, 13. 101 Ibid, 13–14. 102 Ibid, 14. 103 Ibid (‘That’s true, but all of the foreign nations that have spoken up here agree with the United States that this is contrary to their ability to regulate commerce in their own nations’).

248 Stephen Calkins remedial schemes’ and that this ‘would undermine foreign nations’ own antitrust enforcement policies’.104 FTC v Actavis is an example of amicus briefs providing information that the Justices find useful. This was the pay-for-delay case, in which the majority ruled that agreements in which incumbents allegedly paid to keep out generic pharmaceuticals were subject to antitrust review even if the arrangement stayed within the ‘scope of the patent’. Justice Breyer for the Court wrote that these payments may yield the generic manufacturer even more profit than had it entered—citing a law review article and an amicus brief filed by 118 professors, with the Court adding that the professors’ brief estimated that this was true of the payment at issue.105 Chief Justice Roberts, writing for the three-Justice dissent (Justice Alito was out), relied on amici for information to a greater extent than the majority. He explained that there are multiple ‘first applicants’, as they are called, which was an important factual point for which Chief Justice Roberts cited the Generic Pharmaceutical Association amicus brief.106 He wrote that it is very risky for generics to take on branded firms, and they do so only after carefully weighing the risks and benefits—points for which he cited the same brief. The Court’s decision will lessen the chances of settlement and thus decrease the likelihood of entry by generic firms, he said—citing another amicus brief as authority.107 Leegin is the best example of the Court relying on amici for information. Each of the majority and the dissent cited amicus briefs 10 times. At issue was whether to maintain the per se prohibition of minimum resale price maintenance. The 5–4 majority opinion led with the declaration that ‘economics literature is replete with procompetitive justifications for a manufacturer’s use of resale price maintenance’—with the first citations for the proposition

104 542 US at 168. Further using amici for research, the Court reported that the Solicitor General and Petitioners had not found a case ‘in which any court applied the Sherman Act to redress foreign injury in such circumstances’, 542 US at 169. It also pointed to dueling amicus briefs on the consequences of a decision for deterrence of global cartels to show that it would be hard for lower courts to resolve such questions on a case-by-case basis. Ibid, 169 (‘Even in this relatively simple price-fixing case, for example, competing briefs tell us (1) that potential treble-damages liability would help enforce widespread anti-pricefixing norms (through added deterrence) and (2) the opposite, namely, that such liability would hinder antitrust enforcement (by reducing incentives to enter amnesty programs). Compare, eg Brief for Certain Professors of Economics as Amici Curiae 2–4 with Brief for United States as Amicus Curiae 19–21’). 105 133 S Ct at 2235 (citing Brief Amici Curiae of 118 Law, Economics, and Business Professors and the American Antitrust Institute in Support of Petitioners, 25). 106 Brief for the Generic Pharmaceutical Association as Amicus Curiae Supporting Respondents, 23–24 (citing FTC data). 107 Brief of Medication and Negotiation Professionals as Amici Curiae in Support of Respondents.

The Antitrust Conversation (Continued) 249 being amicus briefs.108 Even ‘those more skeptical of resale price maintenance acknowledge it can have procompetitive effects’—again, with the first citation to an amicus brief.109 And, as previously noted, on the question of stare decisis, the Court pointed to the views of the SG; it also wrote that ‘there is now widespread agreement that resale price maintenance can have procompetitive effects’—citing the economists’ amicus brief in support of petitioner.110 In response to the suggestion that the strictures of the RPM per se rule can be avoided by what are known as Colgate policies (taking advantage of broad rights to choose customers and refuse to deal with discounters), the Court wrote that the threat of antitrust liability ‘can lead, and has led, rational manufacturers to take wasteful measures’.111 Its only authority for this factual assertion was a claim in the amicus brief of a maker of high-end golf products.

3.1.2 Additional observations Three other developments since 2001 stand out: (i) scholars’ amicus briefs have proliferated, with the scholars sometimes becoming a focal point; (ii) amici have played notably active roles; and (iii) there is a new source of amicus offerings: the American Antitrust Institute. Scholars’ amicus briefs As is true of amicus practice more generally, and as suggested in the discussion above about amici as sources of information, scholars’ amicus briefs have become a regular part of the process. Examples include the following: —— American Express Co v Italian Colors Restaurant (2013):112 (i) Professors of Civil Procedure in Support of Respondents; (ii) Antitrust Scholars in Support of Respondents; and (iii) Distinguished Law Professors in Support of Petitioners. —— FTC v Actavis, Inc (2013):113 (i) Antitrust Economists in Support of Respondents; (ii) Professors David W Opderbeck and Erik Lillquist in Support of Respondents; (iii) Professors Gregory Dolin, Kent Bernard, et al. in Support of Respondents; (iv) Health Economics and Law Professors in Support of Respondents; and (v) 118 Law, Economics, and

108 551 US at 889 (citing Brief of Amici Curiae Economists in Support of Petitioner) (23 economists) and Brief for the United States as Amicus Curiae Supporting Petitioner). 109 Ibid (citing Brief for William Comanor and Frederic Scherer as Amici Curiae Supporting Neither Party, 3). 110 Ibid, 900 (citing Brief of Amici Curiae Economists in Support of Petitioner, 16). 111 Ibid, 903 (citing Brief of PING, Inc as Amicus Curiae in Support of Petitioner). 112 570 US __ (2013). 113 570 US 756 (2013).

250 Stephen Calkins

—— —— —— —— —— —— —— —— ——

Business Professors and the American Antitrust Institute in Support of Petitioners. FTC v Phoebe Putney Health System, Inc (2013):114 Economics Professors in Support of Petitioner. American Needle, Inc v NFL (2010):115 (i) Economists in Support of Respondents and (ii) Economists in Support of Petitioner. Pacific Bell Telephone Co v linkLine Communications, Inc (2009):116 Professors and Scholars in Law and Economics in Support of Petitioners. Leegin Creative Leather Products, Inc v PSKS, Inc (2007):117 (i) Professors William Comanor and Frederic Scherer Supporting Neither Party and (ii) Economists in Support of Petitioner. Bell Atlantic Corp v Twombly (2007):118 (i) Legal Scholars in Support of Respondent; (ii) Legal Scholars in Support of Petitioners; and (iii) Economists in Support of Petitioners. Weyerhaeuser Co v Ross-Simmons Hardwood Lumber Co (2007):119 (i) Law Professors in Support of Petitioner and (ii) Economists in Support of Petitioner. Illinois Tool Works, Inc v Independent Ink, Inc (2006):120 (i) Professor FM Scherer in Support of Respondent and (ii) Professors Barry Nalebuff, Ian Ayres, and Lawrence Sullivan in Support of Respondent. Verizon Communications Inc v Law Offices of Curtis V Trinko, LLP (2004):121 (i) Economics Professors in Support of Respondent and (ii) Law Professors Supporting Respondent. Nynex Corp v Discon, Inc (1998):122 Law Professors in Support of Respondent.

There is every reason to believe that the Court considers this information. Examples include those discussed above, and more. During oral argument in Illinois Tool Works, for instance, Justice O’Connor raised the following point with the representative of the SG: Mr Hungar, one of the amicus briefs for the respondent was submitted by a professor … named Barry Nalebuff … which took the view that the Court should, in any

568 US ___ (2013). 560 US 183 (2010). 555 US 438 (2009). 117 551 US 877 (2007). 118 550 US 544 (2007). 119 549 US 312 (2007). 120 547 US 28 (2006). 121 540 US 398 (2004). 122 525 US 128 (1998). 114 115 116

The Antitrust Conversation (Continued) 251 event, retain the presumption [of market power] where a patent is being used to impose a variable or a requirements tie. Do you have any comment on that view?123

In the end, the Court discussed the Nalebuff brief’s point only to disagree,124 but it certainly took note of it. In American Express Co v Italian Colors Restaurant,125 a case about arbitration of antitrust claims, Respondents’ lawyer Paul D Clement was arguing that the inevitably high litigation costs required class treatment: ‘if you look at the Hovenkamp amicus brief, it makes clear that you can’t bring this type of claim’, with Justice Breyer interjecting, ‘Well, that sounds expert to me. Now, Hovenkamp would be the person I would hire as the arbitrator.’126 When Justice Breyer referred again to the late Philip Areeda, Clement responded: ‘Justice Breyer, none of us can know for sure what Professor [Areeda] would say. But we know what [his co-author] Professor Hovenkamp says, and he says to bring these claims you need an expert.’127 The most striking example, however, is Leegin, where, as noted above, both sides relied on amici to argue economics. The unusually diverse group of economists listed on an amicus brief supporting certiorari included FM Scherer, a distinguished economist known to support energetic competition enforcement. Petitioners highlighted this: ‘It is also significant to note that Professor Scherer is one of the economists who submitted a brief as amici curiae urging the court to grant Leegin’s petition and overturn the per se rule against resale prices maintenance’.128 This prompted Professor Scherer to file a separate merits brief ‘in part to set the record straight on Scherer’s views’.129 Then, during oral argument, when Theodore Olson, for the petitioner, argued that economists supported his client’s position, Justice Breyer challenged him with respect to Scherer. Olson responded by referring to ‘the vast majority of the economist[s]’, prompting Justice Breyer to ask, ‘We’re supposed to count economists? … Is that how we decide it?’130

123 Transcript, 24 (referring to Brief of Professors Barry Nalebuff, Ian Ayres, and awrence Sullivan as Amici Curiae in Support of Respondent). During argument, L Respondents’ lawyer also invoked amici professors: ‘Can metering be procompetitive? … The briefs of Professors Nalebuff and Professor Scherer, the only economist briefs submitted in the case, show how metering is not necessarily efficient’. Transcript, 39. 124 547 US at 44. 125 570 US __ (2013). 126 Transcript, 27–28 (referring to Brief Amici Curiae of Antitrust Scholars in Support of Respondents). 127 Transcript, 29. 128 Reply Brief, 6. 129 Brief for William Comanor and Frederic Scherer as Amici Curiae Supporting Neither Party, 1. 130 Transcript, 7–8 (‘Which economists? … Professor Scherer is an economist, isn’t he? Worked at the FTC for a long time. A good expert in the field … What that sounds like is that if at least he, who is an economist, thinks if you get rid of Dr Miles, every American will pay far more for the goods that they buy at retail. Now that’s one economist, of course. There are others who think differently. So how should we decide this?’).

252 Stephen Calkins Amici playing active roles Although it is routine that the SG is allowed to participate in Supreme Court oral arguments, dividing time with counsel for the supported side, other amici are almost never heard. It is quite remarkable, therefore, that three times in the past 16 years the Court has allowed other amici to argue antitrust cases. Two of the cases involved resale price maintenance.131 It was almost as though the Court reasoned that, with the SG taking the side of the defendants, it was appropriate to allow another amicus—each time the State of New York—to speak up for the plaintiff. The third case was even more unusual. In Pacific Bell Telephone Co v linkLine, the plaintiffs (who had won below) unsuccessfully resisted certiorari, abandoned their position and decided not to defend the decision below (preferring that its complaint be dismissed with leave to amend).132 Justice Breyer, with Justices Stevens, Souter and Ginsburg, thought that that should end the matter: ‘I would accept respondents’ concession that the Ninth C ircuit majority’s “price squeeze” holding is wrong, I would vacate the Circuit’s decision, and I would remand the case’.133 The majority disagreed. It justified continuing because ‘[t]wo amici have submitted briefs defending the Court of Appeals’ decision on the merits, and we granted the motion of one of those amici to participate in oral argument’.134 (In truth, issues relating to the case’s merits were poorly joined at argument, since far too much time was spent on procedural confusion.) The American Antitrust Institute The amicus that quite remarkably argued linkLine was the American Antitrust Institute (AAI). The AAI is ‘an independent non-profit organization based in Washington D.C. with a mission to increase the role of competition, assure that competition works in the interests of consumers, and challenge abuses of concentrated economic power in the American and world economy’.135 The AAI was founded in 1998, and claims that until then ‘there was no public interest organization principally dedicated to supporting a more aggressive antitrust agenda’.136 The AAI has filed more than 60 amicus briefs since 2001 and can point to a series of cases, especially in the courts of appeal, where

131 Leegin (26 March 2007) (Barbara Underwood for New York); State Oil Co v Khan, No 96-871 (7 October 1997) (Pamela Harbour for state amici curiae). 132 Brief for Respondents, linkLine. 133 555 US at 457 (Breyer, J, concurring in the judgment). 134 555 US at 447. 135 See http://www.antitrustinstitute.org/. I am a member of the AAI Advisory Board and a former Senior Fellow, but I am not speaking on its behalf. 136 See http://www.antitrustinstitute.org/content/about-us.

The Antitrust Conversation (Continued) 253 its participation has made a difference.137 No other country has this kind of organization with its consistent voice for energetic competition enforcement.

4. Outside the US Nowhere in the world do amici play the same prominent role that they play in the United States. There are amici in countless jurisdictions, of course, but not on a scale comparable to the US either in general or in competition cases. There are many reasons for this: history and tradition explain much; the association with common law jurisdictions explains part; and public attitudes toward courts explains part. America lacks an Advocate General, so the Supreme Court can hear from the closest substitute (the solicitor general) only through an amicus appearance. With respect to competition law, much is explained by the fact that in the US competition law overwhelmingly consists of court decisions resolving private disputes, which means that government enforcers can shape the law only through amicus activity and other guidance. One important point is the distinction between an amicus and an intervener. In the US, a party with an interest in litigation is likely to participate as an amicus, which means that its role is limited to filing a brief and, very rarely, being granted leave to participate in argument. It has no other rights— in particular, no special rights to be copied on pleadings and no rights of appeal. In contrast, when non-party Member States wish to be heard by the European Court of Justice, they will typically intervene, meaning that they join the litigation, receiving documents and participating in the hearing. (Intervening Member States and institutions of the European Union before the General Court may also bring appeals.)138 On both sides of the Atlantic the objective is the same—to be heard by a court deciding a case of importance to a government—but the title and associated rights are different. In the UK, too, much of what would involve amicus participation in the US involves attempts to intervene.139 A consequence of addressing third party concerns by allowing intervention is that the judicial system simply must limit them, since it is not practical to allow scores of parties to participate in hearings. Another consequence is that

See http://www.antitrustinstitute.org/content/activities-amicus-program. Protocol (No 3) on the Statute of the Court of Justice of the European Union Article 56. 139 ‘To Assist the Court: Third Party Interventions in the UK, a Justice Report’ (26 October 2009), http://www.justice.org.uk/resources.php/32/to-assist-the-court. 137 138

254 Stephen Calkins third parties may seek to intervene as much to gain access to documents as to be heard, which is further reason to limit the numbers that can participate.140 But intervention, including as an amicus, is on the rise, even if not close to the US level.

4.1 International bodies Amicus participation in international bodies has become commonplace.141 NGOs actively participate in international litigation.142 This can also be seen in international arbitration,143 and at the WTO, NAFTA and ICSID.144 Indeed, NGOs have been instrumental in encouraging international bodies to accept amicus briefs.145

4.2 European Court of Justice The European Court of Justice’s 2012 annual report lists seven competition cases, excluding state aid cases.146 Two have participation by Member States, but only one by a non-party private entity—a trade association that had been allowed to intervene at the Court of First Instance. This lack of participati